Member Info for ShearClass

Little by little the macro sentiment is starting to improve, the closure of the Brexit deal will certainly do no harm to capital flows and the internationalisation efforts of portfolio companies. I'd be surprised if by the end of Q4 GROW hasn't recovered to over £5, but potentially a lot more. The reopening of the IPO market should be the catalyst.

One thing is for sure, there is a stonking overhang of shares that has come from somewhere. It's 57p to buy, NT to sell. 2 fairly large trades from midday went through at 55.5p, I would guess they are fill or kill sells. I'd say this will get walked down to 50-55p between now and results, after results the rebound could be aggressive if my suspicion around the put option is correct. Time will tell as always.

I can't see how this can hold key support at £25.50; organic growth is pretty much flat, they have significant debt of £500m of which £237.2m is exposed to variable interest rates which is likely costing them 6%+ at present, diluted EPS was just 19.86p which means they are on a PE of 65... It's horrendously expensive.

I'm looking at this falling back into the long term rising trend band that it traded in from 2011-2016, which sits at £13-16, that would represent a much more reasonable entry price albeit you'd still be paying >30 PE at the bottom of that range... It's a tempting short but I'll leave that to the hedge funds!

With results to be announced on 3rd April this should be significantly higher in 5 weeks time, there will be a few profit takers from Friday's dip but once they are cleared I can't imagine who would want to sell down here when they were trading at £7 as recently as 6 months ago... It also wouldn't surprise me if we got another acquisition between now and the results as 2022 saw Iolap in March & 2021 retearn.

Fantastic update, 2023 guidance increased vs market expectations and excellent 2022 performance.

Assuming they maintain a 29% EBITDA margin and hit the mid point of current estimates (£86m) they’ll deliver £25m EBITDA for 2023. At 10x EV - EBITDA this would put them on a share price of £6. With mature, slower growing peers like Accenture trading at ~16x EV this would still be cheap…

I'm beginning to wonder if what we are seeing is the hedging of deferred consideration via put option contracts or something of that ilk...

They made multiple 'acquihires' during 2021/22 that had a material portion of deferred consideration payable as TBLD shares;

i.e. Bad Pixel on 15/09/21;

"Deferred payments over the following three calendar years will be settled with newly issued tinyBuild shares up to $10.6 million"

Rawmen - 15/08/21;

"The consideration for the acquihire includes both upfront and deferred payments over the following three calendar years, up to a max of $10.2 million, split approximately 30%-70% between cash and newly issued tinyBuild shares,"

Streets of Rogue 08/06/21;

"The consideration will include both upfront and deferred payments over the following three calendar years, up to $6.5m, split approximately fifty-fifty between cash and newly issued tinyBuild shares, subject to certain operational targets being met"

Versus Evil 23/11/21;

"The initial consideration for acquiring Versus Evil and Red Cerberus will be $12.5 million in cash. Deferred payments over the following three calendar years will be settled with newly issued tinyBuild shares of up to $18.8 million[1], subject to stretching financial targets being met. The total maximum consideration is up to $31.3 million."

Konfa Games 22/08/22;

"The maximum consideration for Konfa Games is up to $5.4m, consisting of upfront and deferred payments over the next three calendar years, split approximately in 40% cash and 60% newly issued tinyBuild shares"

I calculate that the maximum deferred consideration payable in tinyBuild shares for these 5 acquihires is £35.8m

There is a clear motive for the sellers to want a lower share price so that they receive a higher number of shares and a bigger share of the company - i.e. the $18.8m contingent liability owed to Versus Evil would be worth 20% of the company if it converted at 40p, vs 7% if it converted at £1...

If this is the case then it would explain the lack of TR1's & the downward share price movement.

Added at £4.20, a 15% fall on nothing of any substance creates a good top up opportunity IMO. Enterprise value is now ~£170m vs an expected EBITDA of £20m, so 8.5x EV/EBITDA.

Things can always get cheaper in the short term but this is now trading at a lower valuation than the July 2020 IPO so looks interesting. Let's see what happens...

The only impact of the potential consolidation is to reduce the number of shares in issue, it doesn’t change calculations, valuations or ratios…

The 5 for 1 consolidation is irrelevant, the $1.12 that it’s currently trading at becomes $5.6, REDX shareholders would then receive 0.0421 jounce shares, which would still be worth $0.235 / 19.6p.

No denying the cash is the reason for this deal but can REDX command an equity value above cash in the current US market? Jounce couldn’t and early indications aren’t promising.

With Jounce currently trading at $1.15 it is valuing REDX shares at just 24c / 20p. If you think the merger will complete then I've no idea why you would buy REDX at 47p on AIM vs nearly 60% cheaper on NASDAQ.

If Jounce / the new REDX remains at $1.15 post merger then the combined entity will be worth ~$165m vs the $425m quoted in today's RNS. Quite some value incineration if so.

Also possible that Jounce shareholders have no interest in owning REDX shares and the price moves up once sellers have been cleared, but it's a curiously high risk deal to reverse into an entity that has been shorted to a third of it's cash value...

It's a complex deal to understand, but REDX will be leaving AIM for a NASDAQ listing. My punt at calculating value is below;

REDX value in combination = $294m

REDX to own 63% of shares, therefore total combination value = $466.6m ($294m / 0.63)

Jounce currently have 51.7m shares in issue, if these are going to be equivalent to 37% of the enlarged group, then total shares have to be 139.7m (51.7m / 0.37)

Therefore, we can work out that REDX shareholders will receive 88m shares in the combined entity, which will have a value of £244m.

£244m / 88m shares = £2.77, multiply that by the 0.2105 jounce shares per current REDX share ratio and you get a value per share of 58.3p.

This is why the market makers opened REDX higher at 55-63 before a handful of PI sellers took profits.

The real value appears to be in Jounce though, which has been trading at a huge discount to cash. The deal values it at $3.34 ($466m total value less $294m for current REDX shares / 51.7m shares), it closed last night on NASDAQ at $0.99 a share! Currently it's bounced to $1.28, but given these are going to convert into REDX shares this seems incredible value.

All calculations above could be wrong so DYOR.

Couldn’t get my head around the details provided, Jounce shares are currently valued at $1, so 0.21 = 21c / 17.5p…

"Still it is quite a lot of 'conviction'. Given his industry background I'm inclined to take notice."

I don't know how many times I've reiterated this point on here, but here goes again.

'Sutardja Family LLC' sold 17,442,100 shares in the IPO at £4.10 for a total of £71,512,610, the ~15m shares bought over the last 12 months are no more that 20% of this windfall and are therefore completely irrelevant in the big picture.

He is now back to holding 93,752,426 shares vs the 96,338,980 held pre IPO

Unsurprisingly, the market takes no interest of this and the shares are at a new all time low this morning. It's still a £619m market cap with net debt and zero transparency into organic growth, plenty further to fall IMO.

"105p offer, are you kidding me? Hyve was 500p prepandemic and as China opens, its worth much more!"

Pre covid they had 74m shares in issue, so £5 = £370m market cap

Today the share count is 292m, so £370m market cap = £1.27

So the £1.05 is around 20% below the pre pandemic level, leaving room for further bid upside but not a lot. I suspect they'll accept 105p.

Yes it certainly starts to answer the question at least... it could well by Disney seeing as they were already a decent sized customer but small vs Netflix. Paramount is another option and they've been scaling their offering of late. I'll wait for a bit of profit taking then may take a position...

Good post pdiddy1 which I agree with on the whole, from the research I've done this looks undervalued down here given they own most of the IP behind their games so have a higher gross margin than peers like TM17.

I think when results land on 29th March & show ~$25m EBITDA vs a market cap of £120m it's going to attract interest. For a gaming company with no debt and a solid pipeline to trade at less than 5x EV/EBITDA doesn't make a lot of sense. In fact I think if it stays this cheap it'll be a matter of time before private equity or a competitor take it out.

On Hogwarts Legacy - revenue since it's 10th Feb release has just hit $200m, making it the best performing Warner Bros game of all time by a huge margin. Nothing to suggest people are holding back on game purchasing, although clearly discretionary spending will benefit from an easing in the energy crisis in Europe.

They certainly do... Oh and FYI it's 59p to buy and sell today so all trades will show as sells. Dummy trades are from HL.

Really poor not to address a single shareholder question directly, almost unheard of for an investor meet company presentation - the whole point it that they interact indirectly with shareholders!

Also quite comical that they are going to time the market with regard to a capital raise - good luck with that.

I think this goes a lot lower now, it's clear they haven't got the capital for a launch and even if they did that it's going to be a slow process. I'd say this is dead money for at least 12 months / until they raise.

This looks cheap now, strip out the £16.7m cash and it's on a FY24 EV/EBITDA of less than 10. For a profitable SAAS business with growing ARR that's very reasonable indeed. I also like the fact they are growing internationally off a solid UK foundation & that the CEO holds 50% of shares and didn't sell anything in the IPO.

£115m enterprise value vs £9m adjusted profit forecast, so it's trading at just under 13x, not cheap in my book for a company that's just lost their CEO.