Member Info for Monty9

Tichtich and Star Bright, your recent dialogue is amongst the most helpful and enlightening I have read on a bullitin board. Thank you!

I think the weakness is simply that the share is very illiquid and a 10,000 sell can knock 10% of the quote, or a buy add 10% to it. I was fortunate to buy at 170 (because the whole market cap was in cash at that point). But the point of the investment has to be fairly long term:

1) does the new business model make sense? I think yes, margins and ROC should be way better than those of a green power generator (and probably less regulated), one of the key reasons the company has given for the change.

2) can they compete successfully against the big operators? At the moment I think they have a lead in the service offered. Later they may struggle, but at that point there is a good chance of being bid for.

3) can they optimise their strategy. Yes! Unlike most early stage AIM companies they have plenty of capital to take advantage of opportunities as they arise and as the business develops.

Personally I am sitting tight. I would have another look at their progress and possibly buy more if the price returned to my 170p entry level.

Maybe some but I expect not most. They will have seen a big profit and banked some of it even knowing they are pushing the price down. More encouraging is the resilience - someone is very keen to buy stock - possibly more than one person/entity, which is why they can't wait for the price to settle for too long. That smells like a bid coming although I don't see much movement in the top shareholdings recently. Perhaps a bit of retail interest in a very illiquid stock and equally illiquid market - working holders' way for once!!

I hold. I note Small Company Share Watch have recommended taking part profits in Good Energy after a 138% gain since their feature on the company two months earlier. That is probably the reason for the 12% retrace this morning.

For traders that seems a sensible course of action but I will continue to hold a full unit - the medium term opportunity looks superb and the company has more than enough cash to fully exploit it.

A positive indicator in the trading update is in pages 29 and 30 of the corporate presentation, were I note that Licence and Non Repeating Engineering bookings are described as essentially USA EMEA and APAC and Royalties and Silicon 75% China 25% USA. Even without adding back the $20M deferred orders this implies the China business at about 31% and reducing. Assuming the rapid increase in USA business continues the earlier heavy reliance on China will soon be history.

(I hold) A possible explanation of the rapid price increase from SCSW, outlining the Investec forecasts for GOOD:

"...Investec forecasts pretax profit to virtually double every year from £2.3m this year to £4.2m, £7.4m and £15.2m in the following three..." It advises this corresponds to eps of 9.5p 18.3p 33.2p and 69.2p.

I haven't read the Investec research but assuming its forecasts are reasonable this has multi-bagger potential from a position entirely supported by cash!!

(I hold) It is a company with a long term successful record and decent growth that always looks expensive (a bit less so now). This makes it a little volatile; for e.g. should it have a PE or 20 or h25? probably somewhere around there but that is a 20% price drop from top to bottom. The huge return on capital, steady growth and c. 2X div cover will keep it on an upward trajectory imo, but not in a straight line. The current lack of liquidity in the market exaggerates the volatility. I am happy to hold for more, gradual, gains.

Also happy to be baffled LWHL. There doesn't seem to be any material institutional activity. I have never before seen a profitable, dividend paying, company that held its entire market cap in cash. And seems to have a good future (takeover permitting).

It was also mentioned positively in the current issue of Small Company Share Watch, which has an extraordinarily good record with small cap companies - I think some of there subscribers are quite wealthy so they may have been buying. It is where I picked up the situation.

I have just bought a position for the first time. I therefore agree the share is undervalued, so what were the factors I considered before taking the plunge?

Bear

1) The main one is the volatility of trading , although the first half was a bumper result the second half will show a loss! The markets should be calmer now but that is a scary swing.

2) The supply business, which is over-regulated, capital intensive and low margin is to be taken over with supply services, which is a much more interesting market. At the moment however the latter is only a small part of the total.

I suspect the market will warm quickly to success in growing this aspect of the business but we probably have to wait until this time next year to really get a view on that.

3) The universal determination by companies to show top ESG credentials may be fading. However much of the GOOD business appears to be retail - the pro green consumers remain very pro green.

Bull

1) Huge cash pile to fund the planned expansion into services. This is exactly the sort of firepower that inhibits many otherwise good AIM companies from achieving decent growth. In the short term it should also produce a decent interest income.

2) I watched various presentations and you tube sessions and management impressed me as knowing their space well. I also appreciated their up front management of expectations and willingness to sacrifice speed of growth for quality. I guess in the short term they can afford to let the results do the talking.

3) Zap Map might be a goldmine - unless Google add the function to their Maps app.... :-(

4) Possible renewed takeover activity.

VV

Semafone is the previous name of Sycurio - it is the same comany.

The price has risen about 50% in the last 3 weeks in a difficult small cap market. Has anyone seen a note or heard a rumour?

Extremely full response from AWE, encouraging!

Hi BlueRaphus,

No reply yet but that may be because I addressed the IR@ address. I will re-route to Jose's email directly and see if that helps.

The opportunity certainly looks enticing. There is, of course, many a slip between cup and lip but it is also all too easy to underestimate the potential of tech stocks, simply because the upside is outside of our experience. In 2004 I was immensely impressed by the Google search engine but did not buy any stock because I felt IPOs of 'trendy' operations were always at least fully priced. Big mistake, the price at the time was about $2.70 against $133 now. The trick was, I believe, a combination of intellectual depth and confidence to be leaders in the new technologies of the time.

While I struggle to fully understand the subtleties of this technology wave I can see the immense demand for big data will drive the demand for technology to support it. As far as I can see AWE have a real shot at the big time and the early post IPO issues will turn out to be an opportunity for investors to get in at a reasonable price. Looks like Mr Sutardja has done this in a serious way.

I have a decent stake but have not bet the farm - and will now watch with great interest as the story unfolds.

Thanks BlueRaphus,

I am happy to wait for the answer, and do understand the likely reason for the delay. Thanks also for your well articulated views.

I think we can be relaxed on the share based payment issue although a confirmation or indication from the company is always helpful.

The amortisation of acquired intangibles is what it is and I strongly disagree that it is not part of "the underlying operating performance of the business" They are assets that have been paid for and will hopefully give value to the business in future periods; if not they should be immediately written off. At an amortisation rate of £12M p.a. it is not trivial. Having said that it is not a huge issue - I will simply not deduct it from reported costs. I suppose the argument could be that it relates entirely to the newly signed agreements and thus should be deferred but that is unlikely imv - more likely it contains a lot of accumulated asset, not all of it at margins expected by AWE.

Capitalised development costs are a more complex issue, much debated in any software or hi-tech operation. In principle I accept it is right to match costs against income, the problem is that it is so hard to really know when and how much that income will be. If one is building new tech there is always a danger of it not arising as soon, or in the amount, anticipated, when contracts were signed yet capitalised costs are absolute and certain (ofc sales can outperform too). I guess the best we can hope for is an indication from management that margins will be realised as expected and that we are warned in the event such an outcome became less certain. Also ofc we must be confident that the capital investment prior to realisation of revenue is affordable in cash flow terms in a period where capital comes at a realistic cost. If I didn't believe we could trust AWE to do that I wouldn't be invested!

BlueRaphus,

Following your helpful reply I did drop an email to IR@awavesemi.com with two questions to try to understand better the true nature of the adjusted profit adjustments. Disappointingly, a week on, I haven't received a reply from them, even to say, for e.g. my questions were too specific. I am a bit surprised as one of the issues they are grappling with is the public perception of the transparency of management. Other companies have almost always replied within a couple of working days.

In case it is of interest text of the email posing the two questions was as follows:

QUOTE

Dear sirs,

I am a private investor with holdings in Alphawave Semi in my SIPP and ISA accounts.

I enjoyed your interim presentation and was very happy to learn of your continuing strategic development. However, having come through a period of significant merger activity the profit after tax is a more interesting number for me than EBITDA, so I can understand the ongoing costs of the assets acquired, including amortisation. The adjusted profit after tax was an encouraging figure, so its justification of the adjustments made to restate the disappointing statutory profit after tax are of particular interest. To get a feel for the nature of those adjustments I have essentially two questions:

Share based payments and Retention payments.

I understood that these are substantially the result of recent acquisitions and made to encourage staff to remain working for the company following the take-over / merger. Of course it is sometimes the case you will want to award staff with an LTIP in the normal course of business but would it be reasonable to assume no more than 10% of the total cost incurred in 1H 2023 would be incurred in any future 1 year period, except as a result of further M&A activity?

Amortisation of acquired intangibles.

Is this a normal amortisation expense, to be written of over its expected useful life? Alternatively is it a 100% write off of acquired intangibles that you do not see as of value to the business. Essentially I would like to understand whether is will repeat for the next 3 plus years or is a one off in 2023.

Ideally I would like, if appropriate, to share your answers on a public bulletin board, but, if you would prefer I did not do so, I will respect that but please let me know!

I look forward to hearing from you.

UNQUOTE

BlueRaphus, thank you for your notes on the profit after tax adjustments - I will have a proper look at the 2022 accounts and raise specific questions with the board. It is encouraging that (most of ?) these are non recurring in nature. I will post again should anything further of interest result.

I hold.

I am always a little nervous of excessive focus on EBITDA in a highly acquisitive company and even more so on one that capitalises a lot of its payroll costs. I dare say they will reach their EBIT target by year end but have not feel for what the statutory pre-tax profit might be.

On page 20 of the interims is a reconciliation of profit after tax to "adjusted" profit after tax.

1. The adjusted profit adds back £18M of share based payment. Does this mean it will not be repeated (perhaps distribution of LTIP to new staff)?

2. What were £4M of retention payments?

3. Added back the amortisation of acquired intangibles of £6M. Will these not repeat during the following years?

If the adjusted profit really does describe the underlying profit, the after tax profit looks pretty good.

Views?

MMAG It is really a punt on whether the recycling of phones is a viable industry. The results were a little disappointing for me, but it will be interesting to see whether increased volume and improved margins in 2H, together with some cheap rental income from the prior year's sales, makes a significant impact to the bottom line.

My high level view is a that a significant number of high end phone users upgrade as soon as a new model is out, and many younger users would love those almost current high end smartphones but can't pay the £500 to £800 outright. That is the rental / pay later market, which should attract more spend per user.

If the business pulls through it could be a multi-bagger but we will have to wait for the full year results to establish whether that is likely or whether the business will remain stuck in the current rut.

I see the Small Company Share Watch hold, and in July recommend 'keep buying, add'. Their key observation is that the recent focus on rentals yields a much higher margin than sales (albeit at the cost of delayed recognition and additional working capital required). The volume of transactions steadily increases as new channels are added for both purchases and sales.

I think the results on 13th will show an improved but not blinding set of results. However, a bit like Equals at its nadir, it will be possible to see how continuing steady progress will have a dramatic effect at the EPS line in future announcements, starting with the year to Nov 23.

I can also envisage the market for 2nd hand tablets and phones growing hugely.

In that basis I have made an initial purchase in advance of the 13th announcement.

I wonder if the reported wish to dispose of A&K had been misunderstood as the intention to dispose of the whole business.