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Because if (big if!) SOA agreed, that means a line is put under past issues and the FCA accepts the new lending practices are responsible. Looking forward, the business becomes attractive to lenders and investors again.
Not sure that means anything though, assuming funds aren’t ring fenced… fundraising cash comes in and settles liabilities of the business and/or is used to lend. All part of the same pot.
Re the payout percentage - I think that based on the current loan book and the fact that a rights issue might be required that getting to £100m equity feels about right.
That would mean total payout of (say) £200m, which compares favourably to the pre-problems market cap of >£1bn. I get that the business will be less profitable going forward after it’s wings are clipped, but 50% payout ratio just doesn’t seem that harmful as long as the business can start lending and producing some pretty fat margins going forward
Thanks Hereshopin. I think the institutional placing was the bit I missed. Can they do that at a discount to share price without offering to existing investors first? ie wouldn’t the institutions just be underwriting the risk that the entire rights issue isn’t taken up by private investors?
Investor6:
Price only rises if the agreed compensation leads to positive equity in the business. Most recent balance sheet shows negative £117m of equity, so (broadly) the same amount of compensation claims need to be written off to get to £nil equity value. Agreed no RI until there’s certainty both on SOA2 and ability to lend going forward. But we have no ability to forecast what the SOA agreement will look like, so there’s no way of predicting what happens to share price other than hope value.
I was surprised that share price did what it did following the RNS. Yes, there’s a whole load of risk here, but isn’t the real point that the board are talking about a rights issue which means they have a degree of confidence that an agreement will be found that leaves the business solvent?
If compensation pays our 50p in the pound, that leaves us with around £50m of equity. If there’s half as much lending when the agreement is reached than before the issue started (at which point there was around £200m of equity in the business) then that would mean a capital raise of £50m required to get to a corresponding amount of equity to loan book as before.
To me, this seems like a reasonable outcome for all concerned.
You don’t need the cash. You can just sell your rights if you don’t have it. Your stake in the business will be lower but you’ll get the same cash for your rights as the discount. So all is well (assuming all the rights are taken up…)
Not sure what’s changed - surely we are the same now as before. If equity is negative due to compensation payouts then the business goes bust as nobody would subscribe for rights. If equity positive then any rights issue proceeds go to funding new lending. What difference does the share price at the point of rights issue make? Issue needs to be at discount to market price - fine - and the price set/number of new shares just determines how incentivised existing shareholders are to take up their rights.
What am I missing? We are the same as before the RNS, albeit now knowing we may be 4 months from resolution if all this
Am I right in thinking that if we have rights under a RI, we can sell them (assuming someone wants to buy them) if we aren’t looking to invest further whilst holding on to our existing shares? ie we can remain invested and potentially cash out without diluting our total position (cash + shares)?
I’m sure there’s something to read into the RNS, I’m just not entirely sure what that is. The lenders’ required reporting dates should have been very well known, so I can’t imagine bringing the day forward would be due to an earlier mistake. At the same time, what difference does one day actually make (particularly for the lenders who have more security than us shareholders). I wonder if the loan notes included a clause requiring some of the FCA/SOA issues to have been settled by end of November to avoid an event of default, and bringing reporting forward for a day gives them some extra time to reach agreement with them?
Not sure. Hopefully it’s good news anyway. Exciting!
Government prints land all the time… they just call it planning permission
Any idea what the timeframe between initial submission and rejection was last time around?
The only way there would be a rights issue is if there’s a good outcome to the SOA and the company wants to raise funds to ramp up its lending.
For now, the board runs the company for the benefit of the shareholders, it just has to satisfy its legal obligations (including paying creditors) in achieving that goal. It’s only if an insolvency process begins that the company is run for the benefit of creditors. As far as I understand it this hasn’t happened.
I’m interested by the talk of dilution. How would this work? Surely the ‘dilution’ is simply that there’s a compensation liability on the balance sheet based on whatever formula is agreed and that liability inherently reduces the value of the shares. If the agreed creditor leads to net liabilities on the balance sheet, the shareholder value has been destroyed and there’s no point in putting extra cash in - for a while, every £ you put in just goes to bringing you back to net nil. Might as well start from scratch with a new company in that case.
A good article on how deals are structured, milestones, etc… for anyone that’s coming at this from new:
https://www.nature.com/articles/d43747-020-00675-3
People are allowed to change their mind about a share. Porky did a great job in bringing attention to VAL but it wasn’t quite the deal he was after, so he pulled back and largely moved on. I would do the same if my view changed, as should each of you… no need for all these personal attacks, he had the same information as everyone else.
It’s like getting an Xbox for Christmas rather than a PlayStation. For some they will be disappointed because they didn’t get quite what they wanted. Others (like me and many of you) still see the benefit. Let’s try and stay positive on here people and don’t turn it into a forum for trash talking. I still have great faith in the management team who have shown themselves to be honest throughout this… looking forward to the Xbox in the coming weeks/months.
The reported results will be based on probable outcomes which, if there’s no SOA agreed, are likely to be on the same basis as before. Whilst I can see that the BoD will be keen to have something positive to announce before then, there’s no strict requirement for this to be the case… and the FCA will no doubt move at their own pace. I’m keen for good news when it comes (and sooner rather than later), but all these predictions on timing are pretty much baseless.
The market didn't know what deal was coming, and what with all the ramping, expectations got ahead of what was deliverable in the first RNS and as a result of various factors, the share price fell. That doesn't make it a bad deal... it just means that in the context of a heavily ramped up share price (at 3x what I invested at a few months back), the announcement didn't quite get investors comfortable that the risk-reward profile justified the previous pricing.
There is obviously still a lot of risk in this stock - as you note, the deal may not go ahead, and even if it does, there are questions over TRx and what level of income VAL201 could generate. That is why the market is still discounting the value of the business heavily compared to expected minimum levels of income if/when the deal comes to fruition. That doesn't make it a bad deal at all... and obviously if/when the deal is executed, TRx evidences its funds and ability to monetise this, etc etc, the share price will normalise at a much higher level.
It's the risk that makes it all so exciting (and so open to making significant gains/losses) - if you want low risk, go invest in a balanced fund! In my humble opinion, the market's view on risk appears to be overstated, and I have faith in the CEO that she will deliver the agreed deal in the very near future.
Thanks - yes it does make sense, cheers!
Hi Adam
I'm not sure what you mean by the following comment:
"The more I think about it, the more I think they should have placed a self-imposed cap on themselves, to drive it home for those of the more hard of hearing disposition:
"Milestones and royalties will be capped at a maximum of 4 indications".
It really is a low-bar swing."
... are you saying that VAL doesn't get paid any extra if there are more than 4 indications?
Also, to be clear, for the first indication, is $61m the absolute maximum that VAL can earn on VAL201 (other than e.g. on its service offering)? - i.e. do we have a maximum amount we can make at $61m + (3 x $32m)?
Sorry if this is all obvious
If that was his CV in 1999, just think what it must be like now in 2021!