Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
A group of investment banks fully supported the capital increase. The capital raise was announced in a rights issue at 9.5 Pence before the reverse split of 20 old for one new share took place. 9.5 Pence multiplied by 20 equals 190 Pence. The new shares placed were a massive dilution (276 million £) and represented the entire existing market cap. The rights which shareholders did not take up ended with the underwriters of the deal. Therefore, by approaching the 190 Pence threshold, a wave of forced liquidation took place. The underwriters did not want to lose money on the deal.
The current market cap is 255 million £, a whole turn of the former market cap evaporated. I think the company was forced to raise the capital after getting the new 480 million $ revolving credit line extension in March 2023. Management bought shares in June 2023, Michael Willome 55'500 at 72 Pence = to 1440 pence today and was probably sure to be on the right track. With the lagging turnaround, the banks pulled the trigger. I would say that management had no choice to save the company.
The 3.875% Eurobonds maturing in July 2025 recovered back to par from the low 80s in October 2022. There is more confidence from bondholders than from shareholders. In one way, it is understandable when you lose more than 90% of your investment.
But looking ahead, if they can continue to divest non-core business units and cut further costs, which they have done nicely so far, the stock has the potential to recover.
The Malaysian rubber manufacturers were facing huge headwinds after a golden cycle during the pandemic. After tripling sales and more than ten times profits the cold shower came in 2022 and 2023. Revenues cratered by 80% at Top Glove and losses were piling up.
Kuala Lumpur Kepong is the largest single shareholder in Synthomer and is one of the largest plantation companies in Malaysia. Their business is growing steadily over years, but not an industry which is very welcome by UK or European investors. The market cap is 4 billion £, about the same as the annual revenues.
Results will be weak as all major global chemical companies (Dow, DuPont, BASF) reported weak results. The expansion of China's chemical capacities is flooding the world market with cheap chemicals. They don't care if they are profitable; the Chinese must keep the plants running.
The largest risk I see is with weak results; they have to write off more goodwill & intangible assets - £1 billion at the end of 2022.
The disposition of non-core assets has stalled, and the entire M&A market for chemicals is dead.
It's really not an easy job for the new management who took over the mess of the previous acquisition-ridden managers.
Worst case, another capital raise this year - the last one was done under the pressure of banks to keep and extend credit lines.
I'm lucky to have sold at 50 before the reverse split took place that hurt - today, we are equivalent at 6.5 - ouch!
GLA
I found nothing in the documentation allowing the current shareholders to sell their rights.
It looks more like you participate or leave it (and you are fully diluted).
If you own 1,000 shares worth £430, you have to pay up another £591, and then you own 350 shares of the new Synthomer or average cost £2.9171 or £0.145857 pre-reverse split.
The low share price for the new shares was set, as the brokers fully guarantee the new share placement.
If the take-up is only the major shareholder, the brokers will sit on the shares, and the shares will trade at or below the issue price.
If you carry one billion £ in Goodwill and acquired intangible assets in the balance sheet and are not performing (profitability), you get an accounting issue.
No one is talking about the remaining non-core asset on disposal. I assume the M&A market for such assets is dead now, and if not oil-related, the Emirates or Saudis are not buying.
The news today looks to me as if investment bankers did a clear review of the value of the asset base and the potential cash flow of Synthomer and, on the other side, the debt. The potential profitability is there when the economic environment works for you. But you can have a solid business; if end markets are weak, you lose money.
Now, no business unit could show at least stable results. My concern is the revenue breakdown in the presentation: 22% Construction and 33% Architectural coatings. Two economic areas are currently facing heavy headwinds.
The Future Synthomer looks good in the presentation, but it will be tough when world economics is not with you.
They raise the cash to be on the safe side to weather the storm and if a recession shows up (or is already here).
To put it straight forward, you have to invest the same amount of capital as the value of your shares as of yesterday's close. I doubt that many shareholders are willing to pile up more capital for a story which will blossom in the next economic upturn.
For me, the investment bankers pressured the capital raise; prolonging the credit lines beyond the 2025 maturity of the Eurobond was a surprise and not usual. Therefore, getting an extension of the credit lines till 2027 forced them to raise fresh capital.
At all, the quarterly results were not good and show the current problematic economic situation in chemicals. The question is, do we get a recession in the next six months or not? Longer term, Synthomer will be fine but there could be some bumps ahead.
At 43 Pence the market cap is 198.3 million £ and they raise 275 million. For 20 shares you are holding you have to pay 11.82 £ for six new shares after the reverse split. The nominal value of the shares will be reduced from the current 10 to the new shares of 1 pence. The share capital will be reduced from 46.733 million £ to 233'668 £ (467.336 million shares divided by 20 and divided by 10, i.e. new shares are 1 pence value) and then raised by 1.4 million £. - the dilution is 86 per cent as well.
The current value equals to a share price of 8.60 £ (0.43 x 20) and you have to pay 11.82 £ for the new shares.
What past management did is done & new management is fixing it & that takes time.
More interesting is the silence from the company, last RNS 18th July.
Next update: 7th September - interim results (from the company's website), a bit early, as last year they communicated a trading update at the end of September.
We are now two months in the running quarter and so far no warning from the company. How should we circle this situation? If things would fell apart - they would communicate.
Is something brewing behind the scenes?
At a 310 million £ market cap, it is an easy target for anyone.
Just over the last day, the resurfacing news about Abu Dhabi's interest in buying German chemical company Covestro to leverage the value chain as an oil producer. They do not see the value in these old basic chemical businesses in Europe. The sheikhs are willing to pay 11.5 billion Euros for the company, but which management thinks is too low.
Slipping with low trading volume - summer doldrums!
The large shareholder, Kuala Lumpur Kepong Berhad, owns 26.25 % of the share capital and paid much more for the stake. If they would cross the 30 % threshold, they would be forced to make an open offer to all other shareholders.
Restructuring a company takes time, and new management has delivered so far.
The outstanding debt is manageable; bonds maturing 1st July 2025 are close to a 9 % yield, denominated in Euros.
Cash will flow into the coffers when they sell the remaining non-core business, and they could buy back some bonds cheaply.
When a bigger buy order hits the market the stock is back to 90 Pence. Time will tell, holding firm the position. GLA
Dowlais tumbled on Tuesday after Citi initiated coverage of the Melrose spinoff with a ‘sell’ rating and 97p price target, which implies around 20% downside.
The bank noted that consensus expects electrification to be neutral/positive for Dowlais, but said that its deep dive suggests battery electric vehicles (BEVs) could be a risk in the mid-term, with around 45-50% of sales seeing margin pressure.
"In this relatively technical and under-researched space, our due-diligence includes in-depth proprietary work on the EV powertrain sub-sector and feedback from those involved in EV design and/or purchasing at car-makers," it said.
"In a nutshell, many of the components Dowlais competes in are at risk of commoditisation and/or content-loss and/or over-capacity in the BEV world amid current or upcoming tech-disruptions."
Citi also said that relatively high net debt and near zero FY23 free cash flow add to concerns, should the cycle turn.
It pointed out that the shares are trading at a premium of around 20% to peers. The bank said it’s 5% to 10% below consensus 2024/25 and has opened a "negative catalyst watch" on the stock into results.
- The price tracker reveals 5-8% price increases in the UK and selective price increases
in Europe. This follows US price increases in early April.
- At Amazon, the price trend for Dr Martens is also up.
- Price discipline is healthy for margins, lower sales but higher profits, and keeps the brand in demand.
- The AGM is next week; there would be enough time for a profit warning before.
- In 2013 when Permira acquired Dr Martens for £300m., annual revenues were £160.4m. with an operating profit of £22.9m.
- In 2021, at the IPO, revenues were £672m. and net profit £184m.
- In the current business year, analysts expect more than £1b. in revenues and a net profit of £105m.
Where is the issue when you compare these figures with Nike's 50x revenues, but the same ten per cent net profit margin, and valued at 3x revenues, equals £ 3 for Dr Martens stock!
Markets are markets, and in the end, you get the validation of an investment decision when you realize the profit of holding out. It is not so easy to put it in one sentence, there could be economic challenges to a company, and it can go bust. But here we have a well-diversified company which is solid in many ways. It will come good!
Excellent move from the CEO to add at these depressed price levels!
I found this news piece from last November via Reuters:
Malaysia's Kuala Lumpur Kepong eyes bigger stake in Britain's Synthomer - sources
By Yantoultra Ngui November 4, 2022
SINGAPORE, Nov 4 (Reuters) - Malaysian plantation giant Kuala Lumpur Kepong Bhd (KLKK.KL) is considering raising its stake in British chemicals company Synthomer Plc (SYNTS.L) as it looks to further expand its specialty chemicals business globally, two sources told Reuters.
Kuala Lumpur Kepong is talking with at least one financial adviser to explore potentially boosting its 26.3% stake in Synthomer, said the sources with knowledge of the matter.
The stake purchase could comprise primary and secondary shares, the sources added, asking not to be identified because the information is private. It is not immediately clear whether it will acquire a controlling stake.
The Malaysian company is the largest shareholder of Synthomer, which has a market capitalization of $604.1 million, according to Refinitiv data. The second biggest shareholder is UBS Asset Management (UK) with a 5.01% stake, followed by M&G Investment Management with 4.99%, the data show.
Kuala Lumpur Kepong and Synthomer declined to comment.
Kuala Lumpur Kepong is one of the largest oil palm and rubber companies in Malaysia with a current market value of $4.78 billion, according to Refinitiv data.
It has about 300,000 hectares of planted area for both oil palm and rubber with the land bank spreading across Malaysia, Indonesia and Liberia, according to its website. It diversified into resource-based manufacturing in the 1990s.
A larger stake could further expand Kuala Lumpur Kepong's specialty chemicals business and raise the earnings contribution from Synthomer, the sources said.
The London-listed company contributed equity profit totaling 260.6 million ringgit ($54.93 million) to Kuala Lumpur Kepong in the fiscal year ended Sept. 30, 2021 , according to the Malaysian firm's latest annual report.
Synthomer has been expanding aggressively with the aim of becoming a leading global supplier and maker of polymers. Last year, it acquired the adhesive resin business of U.S.-based Eastman Chemical Company for $1 billion.
Shares of Synthomer in London rose 4.8% following the Reuters report. The stock has dropped 70.1% year-to-date, Refinitiv data show.
The current CEO took over in November 2021 and, therefore, can't be made responsible for the past acquisitions.
It took not even a year and in October 2022 the new strategic organisation was presented. The first part of non-core activities was sold for a decent price/multiple.
Yesterday with the profit warning of Lanxess, there was suddenly the news ADNOC (Abu Dhabi National Oil Co) approached Covestro (another German chemical company, a spin-out of the polyurethane and polycarbonate business of Bayer Material Sciences in 2015/2018 total exit of Bayer in the share capital) with a potential bid in the mid-50-ies Euro. At a certain price/valuation level, a larger competitor could be taking an eye on Synthomer. The market cap at 337 million £ is nothing, even if they generate only 100 or 150 million £ of EBITDA this year.
Holcim paid close to 2.5 times revenues for a recent US roofing supply (Duro-Last) company.
Synthomer comes still north of 2 billion £ in revenues .
The current valuation looks more like capitulation and if the company would go out of business. The one Eurobond (3.875% till 01.07.2025) is still trading up close to a 12-month high, the complete opposite - not broke like the stock.
It would be nice to see some management transactions supporting the view that the market is wrong here. The next results will be out beginning in August.
If equity markets get wobbled with the sudden insight we are in a recession, the stock could sell off even more. But there are companies out in the Middle East or Asia with a potential interest in throwing out their US-Dollar savings and buying/expanding real business.
Are weighing on Synthomer's share price. Several profit warnings from competitors cause the weakness. Synthomer stock trades now on levels last seen during the global financial crisis.
It is a restructuring play, and management has proven in the past they can perform this work successfully & reach these targets; just be patient.
It hurts to be down here, but generally, investors have to ask if certain sectors fall out of bed that we are probably much more advanced in a recession than anyone wants to believe.
The stock sold off with the RNS of Croda on 9th June. Additionally, the rotation out of highflyers into cyclical came to a halt. Here is more of the story of the ongoing restructuring. Management wants to deliver; I'm 100 per cent sure.