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I guess is they’ve probably now burned through £1.5-3mln of the cash they raised in November. They need one of these vaunted contract tenders to land quick, and it needs to be a ready-to-go, high value, high margin contract not requiring upfront investment. Otherwise, in another 3-6 months time, a horrifically dilutive financial event of shape or another is inevitable, and the historical connections to the Titanic will be all to relevant.

I have this vision of JW at his desk, the morning after winning the naval contract, Googling ‘How do you build a patrol boat’

Lottie - I think the problem is one that has been alluded to by JW in the video: large ongoing capital requirements. Even if you are one of those who see a profitable future (which in shipbuilding not many do), this business is going to require a lot more high yield debt, new equity, and/or investment partners. The current equity therefore has a highly precarious claim on any potential future success, and the current board has demonstrated time and again that they will trash the old equity to bring in the new. IMO the shareholder value maximising strategy is unfortunately one that doesn’t work for the management: Give away the yards for what you can, put in a small amount of ongoing investment in the ML, sell it to a major, return cash to shareholders. That might produce a SP gain of 100%. Which I sadly I don’t think we’re going to see on the current trajectory.

I have been a holder, and who knows I may be again one day if they restructure. Anyone who doesn’t like my views is free to block me.

Listening to the video, which wasn’t awful overall, but there were a couple of important clarifications about the cash breakeven target that I hadn’t heard before. Previously the phrase used more than once was cash breakeven ‘on an ongoing basis’. But now the target seems to be essentially to achieve a breakeven for the single month of December. (Embarrassingly to be qualified as ‘annualised basis’) November, by the way, was cash negative. Anyone who runs a business knows you can be cash breakeven for a single month without much difficulty by timing costs and billing. It doesn’t mean much. There is no ability now to say that this could be ongoing through 2022 as they haven’t landed any more contracts yet. The other statement that worried me was when he said he wanted to only do ship projects ‘with a high engineering content that can’t be done elsewhere’. A noble objective but I wonder if there’s a bit of delusion about how unique and state-of-art his engineering capabilities are. On the positive side: recognition of shareholder pain, bonus controversy, a clearer statement of strategy and funding intentions. Upgrading the stock to SELL from STRONG SELL. :-)

Haven’t watched it yet but the reported ‘no bonuses’ explicit statement is a relief.

Stokey - you are a true believer. I admire it. In my opinion, you don’t raise £8mln and murder your share price on the eve of breakeven. Apart from that, experience suggests that whatever these contracts are generating won’t make much of a dent in the massive fixed and variable overheads they must now be carrying. They’re going to need a whale of a big margin contract and soon. It’s pretty easy to move cashflow timings around and show you were cash positive over any given short period, but that seems very unlikely to be on-going bar some miracle news.

Going to take some very creative accounting

Good idea Razor, you should filter anyone who disagrees with your contrarian view and call them morons. Reality is uncomfortable sometimes. Bye!

Razor - commiserations if you are a long term holder, you must have lost a fortune. I admire your trust in the managements promise of imminent cash breakeven. Let’s all hope it’s the first promise they are able to keep. Personally I wonder why a company on the cusp of cash breakeven launches an absolutely desperate, heavily dilutive, take-all-you-can end of year cash raise. Will HARL be cash breakeven for 2022 as a whole? Not a snowflakes chance in hell.

It’s worth reminding ourselves that the day before the new issue, the market value of the company was £35mln, and that now, despite injecting £8mln of new cash, the market value of the company is only £24mln. This is all you need to know about how all the new ‘institutional’ investors view the capital raise: not as an exciting new investment opportunity but as a license to keep burning cash. It’s just a lottery ticket on some miraculous turnaround now.

Thanks Stokey, the deep water terminal sounds like an interesting long-term development project for sure. But I somehow doubt that current shareholders will ever benefit from a project like that. The amount of new capital required would dwarf anything currently in place. We’d be starting from scratch all over again, probably with new capital, new shareholders, and maybe new management and another new name! What little equity current shareholder have a claim on is almost sure to end up plugging the massive holes in cash requirement for their near-term misadventures. I won’t faint with surprise if they take a couple of million for themselves too.

We = myself and one of the few other personal investors I regularly interact with and share ideas and work with. I’m a chartered financial analyst with a postgrad degree in finance and over 2 decades of professional investing experience. But valuation is essentially a subjective art and I don’t say my view is right and your’s wrong, it’s just an opinion. I find it hilarious how some people are trying to rubbish those who have been bearish as doom-mongers . Perhaps have some humility that they’ve been proven largely correct and could have saved the Polyannas a lot of money if taken seriously. It’s the bulls who surely have red faces and need to reflect on their biases. Anyway, Book Value is not a very helpful metric imo, as it merely reflects what they have paid for various businesses and assets, which are currently more liabilities and cash drains than actual assets, the ML excepted. It is extremely hard to paint any scenario in which the shipbuilding business actually makes a long-term profit, the negative value therefore reflects this. Luckily as equity holders, you can’t lose more than you put in, so there is always a little value in the share. If they dissolved the shipbuilding “assets” it might cost them about £10-15mln , then they might get the £25mln for the ML if they were lucky. That would leave something not far off the £12mln you mention, but that would mean the share price halves. That’s the best case scenario probably - a breakup and dissolution of the business somehow. More likely they’ll try to keep the show on the road and it will continue its historic trajectory (-99% and counting) towards some extremely small value after dilutions.

Thanks for this post. It’s an important point and not one well understood by those that understandably think revenues imply profits. HARL ain’t ever ever going to make a profit from building ships. Very few do, the mismanaged shadow of a company that is HARL has less chance of turning a profit on commercial shipbuilding than I do of winning the Tour de France. They could only generate some revenue and plug the cost gap by raising more equity. This is a the worst slow motion financial car crash I have ever witnessed.

We spent some time valuing the equity of HARL. The difficult variable is the value of the ML, which we have calculated to have a probability weighted value of £25mln, but feel free to plug your own value. Using this number the equity value of the whole business we see as having a negative value of -£46.5 MLN, a lot higher than I originally expected but obviously still less than zero.

*more force the more shareholders co-signed

This RNLI incident is clearly a matter for the FCA and LSE to investigate. I’ll leave it to these bodies to decide as to whether the SFO should be involved. Deliberate management misinformation ahead of capital raising (or anytime) qualifies imo as market abuse and also a as a failure to protect market participants. I will be writing to FCA and LSE next week. This would have more force the shareholders co-signed. If you are interested in co-signing an agreed text for this purpose, let me know and I will connect with you outside the chatboard.

The RNLI has issued a statement which at best implies that the 8th November RNS was a wild exaggeration, at worst that it was an outright lie. Ahead of a rights issue, this smells very fishy. I wonder if a class action lawsuit might be justified

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Almost any other company would simply be going into administration in this situation. Somehow, incredibly, there are judged to still be enough people prepared to throw another £5mln on this bonfire, so the management shamelessly and immorally keeping milking it, largely for their own benefit. Many of the investors are ship enthusiast and perhaps not traditional finance savvy types, this is being exploited. I implore anyone thinking of taking up the offer to think again unless it’s for charitable reasons. This is just a black hole.

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