Member Info for Monkshood

The cost of the director wage reductions is a potential further future 25% dilution with their share option if they hit their targets.

What is not clear is the situation in the event of a takeover where these options would vest - does the take over price have to be at the vesting prices or any price ? The rns is not clear on this point and it is not an unrealistic scenario-

('All in the money share options would vest in the event that the Company is acquired').

Because the number of extra shares being issued exceeds that allowed without share holder approval.

It does seem f a bit like that. We have had three el Nina years so lets see what happens in a el Niño one.

For a definitive reference point -

Energy Trends: UK weather - GOV.UK (www.gov.uk)

Why Bips?

I purchased most in the dip last summer/Autumn using funds from selling out of NCYF, so for me I did capture some of the discount to nav at the time. The rational was it is more diversified both in holdings and countries, I felt NCYF was a bit higher risk going into a potential recession especially with some of their property company exposure, it also was trading on quite a high premium when I sold.

The divi is currently around 7% , they had enough cover to also put money into the shareholder reserves in the last financial year. MtM is around 9% without gearing.

The divi from Bips combined with 9%+ from TFIF gives a 8% return on this part of my portfolio which I am happy enough with. I rebalance between them as and when the situation demands/opportunity arises.

A very bullish stance by the managers in the conference call. As usual they provided a good explanation to the details of the business.

They clearly feel that the inflation/discount rate/interest rate has been misunderstood in relation to their business model.

They wanted to get across that they are looking to total forward returns of 10%, around 5% on the divi and the other half from an increase in nav - funded from the £200m income in excess of the divi.

A few points -

The divi cover last half would have been 3x (rather than 2x) if there had been 'normal wind'.

The forward price curve now (£78mwh this year) means the energy windfall tax will now cost £50m over 2 years rather than £200m over three.

The rcf is currently zero but will be drawn down to fund the investment in the London Array (completion is after H1). Their discount rate is already ahead of their peers who they believe will need to increase theirs. Interest rates- even if all floating (which they are not) it would cost £20m per 1% increase in rate, this is equivalent to only 0.1% of divi cover .

Longer term they are looking to around 35% gearing with an all in cost of debt of 5%.

Even with a 18% reduction in output they still managed 2.1 x Divi cover.

What is interesting, and reassuring, is the table with hypothetical divi cover under different energy pricing looking forward over the next 5 years.

'The fixed revenue base means that dividend cover is robust in the face of extreme downside power price sensitivities. A dividend that continues to increase with RPI is covered down to £10/MWh over the next 5 years.'

Perhaps Avacta should buy them out? It would remove a competitor for those applications where the technologies are comparable but broaden the offering where Aptamers can provide the better solution.

As of 30th April they had £1.2M cash, GKN are also supportive as noted in the Half Year results-

' working capital will be supported by supply chain finance lines provided by GKN, helping to provide a self-funding mechanism until the profit from the contract can then fund the work under the contract in the long-term'.

Moving in the right direction but with the typical teething issues seen in these company expansions.

One very positive statement which highlights why this company offers lots of potential-

'The Board is pleased to announce that it is in advanced discussions with a large, global Tier 1 composites manufacturer with multiple sites in the US on another agreement. Further announcements will be made, as appropriate.'

Delays with approvals will have an impact on short term revenues although ultimately this years income will now be in excess of the original contract from GKN which will still deliver $100M, but starting from next year.

Cenkos-

'Our forecasts: We are lowering our FY23E revenue forecast from £20.1m to £16.2m based on the revised schedule for GKN, and we reduce our FY23E adjusted EBITDA forecast from £0.1m to £(1.5m). We maintain our FY24E forecast at £33.4m, which includes a less favourable $/£ exchange rate and a reduced Q1 contribution from the GKN programme, offset by an assumed £3m incremental contribution from an additional customer in the USA. We are reducing our FY24E adjusted EBITDA forecast from £3.5m to £2.1m, reflecting the additional investment costs as well as a gross margin assumption reduced from 25% to 23.5%, which is driven by a higher proportion of revenue coming from ramp-up stage activity.

Conclusion: We believe that Velocity has a strong medium-term revenue trajectory, driven by the civil aerospace demand environment and by expansion of the customer base. The announced slower ramp-up schedule leads to a reduction in our near-term forecasts. We believe the company has an increased level of visibility now that the first work packages for GKN are in production and maintain a BUY recommendation. '

Seeing Machines at the start of multi-year potential, believes Berenberg

Artificial intelligence (AI) technology group Seeing Machines (SEE) is a multi-year revenue growth story, according to Berenberg.

Analyst Robert Chantry retained his ‘buy’ recommendation and target price of 10p on the Citywire Elite Companies plus-rated stock, which fell 3.2%, or 0.2p, to 5.2p on Monday.

He said that the manufacturer of driver monitoring systems (DMS) has the potential ‘to offer a multi-year revenue growth story, driven by the increased penetration of DMS in various elements of the global transportation network’.

‘We also think higher-margin royalty revenues will become a larger part of the mix, supporting gross margin expansion,’ said Chantry.

He believes it is still ‘relatively early in Seeing Machines’ prospective growth evolution’ and regulatory tailwinds and a ‘largely contracted revenue profile underpin significant parts of the growth story’.

‘For instance, we believe in the coming decade that the proportion of global auto production shipped including some component of DMS will increase from under 10% to north of 70%, creating significant opportunity for a business that has historically had a 30-40% market share in such products,’ he said.

Whilst NI and the North were becalmed earlier in the year there was a fairly strong and constant Eastly blowing across the Southeast, having more assets in this region will help to diversify their geographic spread.

Has anyone crunched the debt/cash flow numbers for an insight into how the first half has been?

Following the performance of a couple of the bonds they hold I was surprised that the nav had not increased more last week. Now I know why. They have (had?) 1.1% over 4 bonds in Altice. - below is an excerpt from an article on Bloomberg.

'Altice makes up such a large part of the European junk bond index that the news police had detained one of the media giant’s co-founders as part of a corruption investigation is proving a major headache for the region’s high yield portfolio managers.

Since July 14, bonds issued by Altice International and Altice France Holding SA have lost €420 million ($467 million) in market value, while the rest of the index increased by €519 million over the same period. Without them, the Bloomberg Euro High-Yield index would have recorded double its gains over the past week'

'Subordinated bonds issued by Altice International due in 2028 dropped to as low as 50.19 cents on the euro following the news, before recovering somewhat to 56.26. Meanwhile, another bond issued by Altice France dipped to lows of around 36% of face value.'

I added about 20% to my holdings in the dip (although not quite at the bottom), I would have done more but I am already very overweight on this, so I don't believe that you are missing anything. I would add a proviso that I have been wrong about other things in the past!

I could sell now at a >3p capital profit and have the 2p divi but I am holding them for now. It is in my 'income pot' so a 5% return alone is almost all I target. I think that the job market is too strong for defaults to get too high at the moment.

Note the 0.2% fx movement in the rns (nav at June 30th) is incorrect and should be 2.0%...

SSE results released for Q1 highlight the issue-

'Onshore wind farm output of 715 gigawatt-hours was 29 per cent below planned levels for the quarter and 37 per cent lower than in the same period of last year as a result of the still weather conditions.

SSE’s offshore wind farms generated 496 gigawatt-hours, 16 per cent below planned level'

We seems to be making up for it now though.... and prices are still elevated.

Results and conference call next Thursday.

Todays portfolio update is worth a read, it reiterates (far more lucidly!) some of the points I was trying to make in my last post.

That is what I believe is the main cause for the fall. It has happened on a low volume though, so probably more a case of few buyers atm rather than lots selling.

There was an interesting article in Bloomberg today looking at mortgage repayments, it highlighted the difference between Spain /Portugal/Italy where most are on variable rates and so have been rushing to pay them off, compared to Germany/France/NL where most are on 10 year + fixed mortgages and have reduced repayments as they can get a better return from savings accounts.

TFIF has around half its assets in the UK, the other half are mixed/NL/other, their focus is very much UK/NL/Germany/France, not Iberia/Italy - half of the assets are RBMS.

Hopefully this means that the defaults should remain lower than may otherwise have been expected. It also begs the question why we don't have 10-30 year (portable) mortgages in the UK?(although we have at least moved to 5 years being more common)

' In the first five months of 2023, mortgage repayments across France, Germany and the Netherlands dropped a combined €59.5 billion compared with the same period a year ago, according to the data. By contrast, they rose by €8.9 billion in Italy, Portugal and Spain.'

End of month factsheet.

https://mb.cision.com/Public/22336/3804790/98bd490add2b2e2a.pdf

Along with the monthly commentary the Twentyfour insight pages are worth checking regularly as well.

https://www.twentyfouram.com/insights

The purchase yield at the end of June has risen to 11.8% with a MtM of over 14%. Defaults are currently low, there is reasonable headroom for these to increase and the divi to be maintained.

Any suggestions why the price has been dropping whilst the nav has been rising?

I did wonder if there was something I missed but the nav increase over the past week continued the previous trend - it is up 1p over two weeks

It's passible that there is just more concern about future defaults but on the flip side higher for longer interest rates will give a higher fund yield.

We are not far off going ex-div so it is an unusual time for a 'random' drop, the traded volume has not changed much either.