Blencowe Resources: Aspiring to become one of the largest graphite producers in the world. Watch the video here.
They are now saying you breakeven at 100mln revenue and can start generating shareholder value at 200mln. This is a moving of the goalposts (though probably realistic). We were meant to be breakeven end of last year.
The average profit margin of an established medium sized shipbuilder is 2%-4%, so this would equate to £4-8mln of profit maybe in 2024 if no mess ups. And that’s their most optimistic dream. No mention of the caverns, their greatest asset. It’s all starting to feel like the caverns will just be a funding source for the black hole of the shipyards (and executives).
This company has made me too cynical. If I could delete original post I would.
Thanks, if not buried in the revenue line too then fair enough yes.
Page 78 of the accounts, shows a jump in company receivables from £17mln to £45mln. This suggests to me that they have probably booked the revenue from Saipem. This would mean that the £25mln loss is not about a timing mismatch as some have suggested. In fact it could be an understatement if the costs are not fully amortised and recognised to the same extent. If true, this would be an aggressive approach to accounting, and maybe therein lies some explanation behind the delay in releasing them.
So much for ‘cash breakeven on an ongoing basis’!!
JW : “whilst the economics of the [gas storage] project remain encouraging, we are equally ENTHUSED BY THE LEVEL OF INTEREST WE HAVE RECEIVED IN RELATION TO AN OUTRIGHT SALE OF THE PROJECT”
This is categorically why we have the new NED. This is the moment of truth, it can either be done in a shareholder friendly way (100%+ upside) or all recycled into loss-making businesses and executive pay (equity worthless). Make you views known.
The most interesting part in that article I thought was this paragraph as the end…
“earlier this year, Whitehall officials quietly approached George Grant, at Stag Energy, about Gateway again to discuss whether it could be of use in the current crisis. They were told it was too late – and that backers and developers had moved on”
I wonder who else they might have approached?
Hi - with all due respect there is no windfarm infrastructure business to sell. There are some shipyards, some recently hired workers mostly not specialising in wind. One undelivered contract and no more. What would they actually sell? The promise of building something one day? The value is nil. It’s not even clear that having a shipyard instead of a big shed is a competitive advantage.
7 weeks to go to produce some signed off accounts. God help us all if there’s any nonsense.
Stokey - maybe you’re right, but it will require a huge amount of capital and with that a huge amount of interest, the cost of running the site (including of course executive compensation), the risk of bad execution by an inexperienced firm, and then there’s all the uncertainty about the price of gas and future needs for storage. Discount these uncertain remaining free cash flows at an appropriate high discount rate over 40 years and you will get a valuation for the asset. If they can get that same valuation today then it could very much be in the interest of shareholders to recoup some losses and de-risk today. I suspect a bigger energy firm would deliver the project more effectively anyway. Would YOU hire John Wood to do the job?!
There’s the other element that there is absolutely no synergy between shipbuilding and gas storage and the whole company structure is questionable.
Keep them together and you risk ending up with gas storage incomes subsidising at best very low margin and probably negative margin shipyards until the pot runs dry again. Nice for jobs and management and the economy I agree, but not sadly for shareholders.
Hi Christdrg - my personal opinion, which I know is not the consensus here, is that it’s a binary outlook now. Shipbuilding is a wonderful and worthy activity that benefits everyone except shareholders. If HARL is to be a shipbuilder, then the slow or not-so-slow annihilation of the current equity is inevitable (regardless of overhand sellers) even if contracts are won and the company survives on subsidies of various types. On the other hand, they own a potentially very valuable asset, and if they take the right shareholder friendly approach to it (big if), then there is a windfall ahead that is a multiple of the current market capitalisation. (Imagine waking up to RNS news of a special dividend of 30p). The new NED appointment is almost certainly related to optimising this gas storage asset. In that sense, the overall odds of owning HARL have tilted to the positive. But the clock is ticking and the management have shown little alignment with shareholders so far (that John Wood owns a stake in HARL worth £75k is laughable). If there were a way to oust JW or force him to a shareholder focused approach then this would be an absolute banker.
Personally I would be wary of sinister theories. I have been in the market long and short for over twenty years and I know it is always tempting to blame dark forces when things aren’t going as expected. Manipulation is illegal and jailable. For a micro cap stock, manipulating the price down is extremely difficult, expensive, risky (and illegal). Shorting in a size that would meaningfully move the share price (ie a bigger size than one could do in an unhedged CFD) would ultimately require someone borrowing the stock from a holder, (at exorbitant interest rates usually) and then selling it in the market. I doubt there is any liquidity or indeed any market at all in HARL repo (stock borrowing). Anyway, the shorter still has to buy the stock back when the repo matures and repay the stock loan, so unless there has been some other sell catalyst in the meantime it’s probably not going to work. Plus it would be a reportable transaction. Similarly, selling stock you have already bought is just a two-way wash. I think it’s really just a matter of HARL having sold an awful lot of equity in placements based on business expectations that didn’t pan out. It’s easy for an institution to pick up a few million quids worth of equity in a superficially attractive placement one afternoon but if you decide to just cut your losses or move on (which people with a lot of different bets in their portfolio often do) it can take literally years to sell it sensibly in an illiquid micro cap on the downhill. That’s my guess at least.
Absent some large new buyer or newsflow very soon, a slow sink towards the ATL seems inevitable
Having now been in the market for HARL for a few days it is clear that there is a very big off-loader out there. They are, as they must, taking their time so as not to (further) destroy the SP. Want to buy a million shares around 12p? No problem. 3 million+? Fill your boots.
This is going to be an overhang for a long time.
Thanks ! Yes I had forgotten about that post but that is about the sum of it. The only thing that has changed since then is the UK and global gas security crisis, which makes the caverns more valuable and strategically attractive to infrastructure investors in the long run. As a pure shipbuilder the correct share price for HARL is close to zero imo. But a well priced, shareholder friendly sale of the gas caverns (in full or part), could get us back over the 17p and indeed far far beyond. It now looks like this is the probably outcome which is a positive surprise. The share price is reacting and I would expect some sustained momentum here
Sorry for repeating myself but personally I would see it as a positive not a negative. The idea that Harl can finance gas caverns development via any other route without completely wiping out current shareholders is a fantasy imo. It wouldn’t be hard to get a finance / investment agreement in place contingent on appeal case success. These deals take a long time to negotiate, finalise and implement in any case.
As far as incurring the wrath of shareholders goes, I think we’ve seen that this has never given them a sleepless night. That said, I think a lot of shareholders would be relieved to end the death spiral and see the share price triple or whatever from here. Personally, I take all this as a positive and have bought in as a result, and most likely will add. If they wanted to stick to the letter of the ‘majority of equity’ commitment that is easily achieved by selling 40-49% of the equity and then also adding a high yield debt funding element which amounts to the same thing, as the profits accrue to bond holders. This can be an attractive funding mix for both sides and I would support it as long as the price they pay is right!
It is absolutely clear that the new NED, Ekaterina Nikolaevna Zotova, has been brought in to prepare for a private equity sale of the gas caverns. She is a top Private Equity and M&A executive at Mizuho with specific experience in energy assets (none in shipbuilding). People like her don’t just randomly pop up at sub 20mln mkt cap companies. She became a Director at Vedanta, took them private, and left. She worked as Director at L1 Energy, the Russian private equity and energy group, helped with some deals and left a year later.
The most likely outcome here is that the gas caverns are going to be split out and sold to private equity investors, who could then provide the significant capital and expertise that would be required to develop them.
It has long been clear that this is the only realistic option HARL have, as neither more debt nor equity market placings are going to be viable anymore. This would obviously be very positive near-term for the share price given that the caverns in this scenario would likely be valued much more than all the current equity. What ultimately happens to that capital - distributed or reinvested in the shipyards is a concern for another day.
You can look back and see how negative I have been on this company for a long time. A doubling of the share price would be the very minimum I’d expect now, but possibly much more depending on how they play it
HARL is about to be taken over imo
I seriously doubt that a serious private equity firm is going to pump any money into that black hole. If they do then there definitely won’t be much left for todays shareholders. The new investors will own most of the company.
I have been a banker for 30 years and I can tell you that the only reason a serving Managing Director at the Private Equity arm of a major investment bank becomes a NED of a micro cap is in advance of a deal of some sort to take care of their interests. Most likely there is about to be a large injection of private equity. Would bet my bottom dollar on it. And I say this as someone who has been a massive HARL sceptic up to now. Should be positive if they don’t completely leg over shareholders.