Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Pretty noisy on here today and an incredible number of unfamiliar names.
Quite a few posts referencing the current market cap as equivalent to the value being placed on SXX by the market, which is theoretically right but that doesn’t really work in the current situation as there are so many distortions. The sp only actually reflects the price of the shares being traded, not those that aren’t, so it makes no sense to use the current sp to value the whole business. It would be like saying that you could buy the whole housing stock of the UK based on the price of the cheapest houses on the market at the lowest point of a recession. Theoretically true, but in practice, if you tried to do it, the price of the stock that wasn’t on the market would progressively rise as demand would outstrip the supply that was available.
The same is true of SXX - it’s value depends on two things - the underlying asset on the one hand and the company’s ability to exploit it on the other. We have a problem with the latter at the moment, so the former is being discounted to nothing, but find the right key and it all gets unlocked again.
I wondered that too Underlay and concluded that it might simply be to remind PIs how much he personally has riding on this - his shareholding is now very prominently displayed at the top of the list of director buys, so his personal stake is now front and centre of this BB.
So, what CF seems to be alluding to in the webcast is that they look to explore ways of isolating the risk associated with the financing of the main shaft from everything else, so that the funding for the rest of the project can then be assessed separately (on more favourable terms, without being weighed down by the risk attached to the financing of the main shaft). The most obvious way to achieve that is to re-sequence the plan to get the main shaft substantially sorted before any material spend continues on the other aspects of the project. By limiting the funds at risk during the next (highest risk) phase of the project to those needed for the main shaft, the critical path risks are front-loaded and total funds at risk are reduced materially, which should in turn open up a broader range of financing options for subsequent phases (at lower cost). CF also mentioned that the stage 2 financing deal is based on a project plan that’s effectively 12 months old, so it makes no allowance for the construction progress and de-risking that has happened over the last year.
My guess, therefore, is that the BOD will seek to get specialist finance or a strategic partner to fund or share the risk of sinking the main shaft (for a premium return, or equity), which would then allow the rest of the financing to be agreed on terms aligned with the residual (lower) risk that will remain once the main shaft is completed. This would not only allow the company to approach a broader range of issuers for the residual funding, but also improve the terms for that part of the financing, as it will be much lower risk at that point. In an ideal world, this would all be agreed as a single package, with issuance / drawdown linked main shaft completion, to avoid the need to keep going back to the (unpredictable) bond markets every six months.
The obvious downside to this is that re-sequencing the construction of the MTS and everything else to after the main shaft has been built instead of in parallel means that it will take longer to get to first production. However, progress with the MTS has been materially faster than plan and because of this, it may be possible to still hit a similar timeframe to that in the current plan. They are also looking at alternative ways of ramping up to full production and reducing the number of TBMs needed for the MTS, which could materially reduce the overall project costs.
So, while this remains a hugely risky investment, with manifest risks to the downside, if the company do manage to pull something off as CF hopes, it’s by no means right to say that shareholders will automatically lose out.
For anyone who remains invested here, if you have not done so already, then I would urge you to spend the half hour that you might otherwise spend reading messages on here listening to yesterday’s webcast from the Company:
https://siriusminerals.com/latest-news/news-stories/sirius-financing-development-update-webcast-september-2019/
The webcast sets out the company’s position very clearly and explains the reasons for the action that the BOD has now taken. As unpalatable as yesterday’s news was, and regardless of what you think of the nature of the stage 2 financing arrangements, it is clearly the only sensible thing that the company could have done in the current market conditions to give themselves some breathing space to evaluate and pursue alternative financing options. The alternative was to simply keeping on going and cross their fingers that the bond markets might open up again, but they could only do that for a month or so before running out of money, which would have been suicide given the current political and economic context, so they’ve opted for the safest option in the circumstances.
While it’s true that the change in approach may still not sort the problem, or may lead to further dilution or a much worse deal for shareholders than what was previously on the table, that is by no means certain. Quite the opposite in fact - the intent/expectation of the BOD is that the re-profiling of the project plans to reflect the progress made to date and look at ways of addressing the key risk that the bond issuers ultimately baulked at (the risk associated with sinking the main shaft) will open up new and different ways of financing the project that could ultimately benefit shareholders.
I know that feels like a very big ask, given where we are, but the problem with the financing isn’t that the money isn’t available, it’s about the degree of risk that the lenders are prepared to take for the return that they get (or even their absolute risk appetite, regardless of the return). The design of the project and Stage 2 package simply doesn’t reconcile that at the moment, but that’s because all of the construction risks are bundled up together, because everything is being run in parallel. So, the money needed for the MTS, surface facilities and port infrastructure etc. is currently carrying the same risk premium as the money for the main shaft (because it carries the same risk of loss for as long as the main shaft remains under construction).
Once the main shaft is completed, the risk profile of all the remaining spend will drop dramatically, but the current construction sequencing doesn’t allow the company to take advantage of this, because of the plans having everything running in parallel. The trade-off is obviously that the parallel build activity gets the project to production quicker, but significantly raises the financing risk (and associated costs).
Those were the days GK - good to see some of the old guard still keeping the faith. Even better to see the mine being built, albeit somewhat later than envisaged back then.
TruroTrader - the shares have never been anywhere near £1.50 - the IPO and conversion price from VIY to NIPT at the point that the reverse takeover took effect was 11p . The shares did well leading up to the launch of the IONA test and peaked at about 32p on the morning that Illumina slapped us with the litigation, after which the shares tumbled and we've struggled ever since.
I'm pretty sure that there was talk on here that a member of the BOD had suggested that £1.50 would be a reasonable takeover price and that we might get that within 18 months (of the launch of IONA) - that comment being made around the margins of a discussion one of TWs' Investor Conferences, so nothing official. We've probably got three times as many shares in issue now, so that would be the equivalent of 50p today (and interestingly an sp of 11.65 today in the equivalent of about 35p back then for the same reason).
For whatever reason, the market seems to be pricing in very little now for future growth - it's looking forward no more than the next 12 months in terms of the numbers, so until those numbers start to exceed expectations (which I think they will) and we get some sensible forward looking numbers that align with the ambition that Lynn talks about , it seems that we're just left waiting for the six monthly business updates. I agree with others on here that this is the most disappointing thing and I can't see any reason why they couldn't issue a monthly or quarterly update on commercial progress. To only hear about the numbers every six months is what you expect for a stable, long established, FTSE 100 company, not a company that claims to be driving its growth forward with the ambition that we're told (and I believe) Yourgene has.
They, quite literally, couldn't tell us any less about commercial progress than they are (which I think is the statutory minimum). From what people on here have been told by the company, that is clearly a deliberate strategy, so we're left wondering why that might be the case.
Don’t disagree on the lack of visibility around commercial progress, but it’s far better to know when the results are being announced than not and it aligns with what TW said last week. We also know they’re keen to attract more institutional investors (open market, not placing) and IIs would expect them to do this, so I don’t think it’s for our benefit.
Nice to see some steady growth in the sp over the past few days. I wonder if it’s the existing institutional investors getting the extra shares they want before the results and the next round of roadshows? Would be nice to see this continue up to July and then some new insti’s showing interest after the roadshows 😀
I agree and like you (i think) I've been in from the Vialogy days, so the lack of any significant sp movement is more than frustrating. I find it hard to reconcile the kind of risk people were buying into at 32p per share (albeit with far fewer shares in issue) versus being able to pick these up at 11p today (the same as the IPO price) with everything that's now been achieved. If you'd said back then that they would have been established in 57 countries by now, people wouldn't have believed it, even at the top of end of the 'land-grab' hype.
Twix,
I think it's simply adjusting the previous target for the increase in the number of shares in issue through the last placing. The problem with doing that is obviously that it's a one-sided adjustment, as it makes no allowance for the increased value following the acquisition i.e. it just changes the denominator and not the numerator. To be fair TW has no new numbers to work from, so I would expect the target to be updated once we get the new broker note, which will give us a new 'numerator' to work from.
Twix,
I was pondering the same thing earlier in the year and concluded that is was likely down to the natural mathematics of the rapidly increasing scale of the business making material contract wins (material relative to the increased scale of the business) less and less likely. A £50k or £100k contract two years ago was very material, but it's not today.
I agree however, that some form of summary would be helpful - bundling them all up into a nice quarterly update would do a lot for confidence and the SP.
I remain convinced that we are overdue a very material re-rate, but the market needs to see the numbers to drive that, which is why I'm hopeful that the next broker note starts to paint that picture in a way that FinCap never did. I also think that the size of the latest placing must point to Lyn wanting to have a war chest for further acquisitions as they didn't need to raise that amount.
It’s 30 days on Friday since the placing and appointment of the new broker. From what I can find, there isn’t a regulatory blackout on research notes following a placing / acquisition / broker appointment, but it seems to be common practice (and a new broker needs time to pull their research together). Maybe we’ll get the first of the new broker research notes next week? Would be a good time for the directors to buy, as the note is not news, just opinion, so presumably not a closed period?
It's both Truro, but my understanding is that only a subset of the tests are sent to Manchester - many of the labs we sell to have all the facilities to process the samples themselves, so they don't need the clinical facilities in Manchester. Happy to be corrected, but that's my understanding.
............and Yourgene was already charging a fraction of those costs mishmos before Sage32 was launched.
You just need to do the maths from the same half year results statement that includes the 45% growth number............
Revenues increased by 45% to £3.9m (H1 2017-18: £2.7m)
Test volumes increased by 73% to 38,000 (H1 2017-18: 22,000)
£3.9m / 38000 = £102.63p average cost for each test
Important to recognise that the extremely encouraging market growth projections I’ve posted links to are based on a hugely conservative take-up rate reaching only 5% of births in ten years’ time, so while all of those observations about the populations in Asia etc. may be true at the moment, it’s already accounted for and Sage 32 etc. will make testing much more accessible than it is today for the remaining 95% of the market.
Interesting article cottoner and aligns with the report and thoughts I posted a week or so ago:
https://www.prnewswire.com/news-releases/global-non-invasive-prenatal-testing-nipt-market-to-grow-5-67-billion-by-2028-865511277.html
Expected CAGR of 15% for NIPT over the next ten years which will see the annual market grow to $5.57Bn by 2028. Interestingly, that's about 7.5m tests annually, which is still only about 5% of global births, which sounds quite conservative to me, especially with the lower cost Sage 32 solution coming onstream in the last few months.
The report highights how important North America is to the market (over 50% of the market, which underscores the importance of YGEN's deal with Illumina) and points to Asia Pacific as the fastest growing market (which underscores the importance of the exclusivity agreement with TF). The report summary also mentions the IONA test specifically as a contributor to the growth of the market (the only product mentioned by name).
I posted my thoughts on what I think this means for us previously, but since then I've been trying to find out what firms like YGEN typically trade at in terms of P/E ratios once they become profitable and I found this:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/pedata.html
I don't know how much weight to place on this, but there are a lot of firms included in the analysis (including YGEN) and it says that the Trailing PE ratio for Healthcare Products (within which YGEN sits in the analysis) is 88 versus an average of 35 across all sectors. If that's right, it means that, in simple terms, the sector returns £88m in market cap for every extra £1m in profits. That's huge and translates to about 19p per share for YGEN for every £1m extra profit.
To put the above in context, the Hardman report shows our losses will reduce by about £3m between fiscal 19 and fiscal 20. I think this is actually out of date and the actuals will be better, but for the purpose of this it doesn't matter. What matters is the £3m improvement - in a profitable business that improvement would add 57p to the sp using the above PE ratio as the basis for valuing the improvement.
There will obviously be lots of different factors at play across the sector and no doubt a huge spread of different PE ratios, but you have to say that things must look pretty bright for a fast growing, debt free, minnow that's about to break even with whole market access and an established global distribution network in a market that's about to explode.
Not feeling huge - feeling hugely optimistic!
Found this report on the how the NIPT market is expected to grow and develop over the next ten years. I hadn't seen this before (published Oct 18) but it's pretty bullish about growth. Not downloaded the whole thing, but some interesting numbers in the summary.
https://www.prnewswire.com/news-releases/global-non-invasive-prenatal-testing-nipt-market-to-grow-5-67-billion-by-2028-865511277.html
Expected CAGR of 15% for NIPT over the next ten years which will see the annual market grow to $5.57Bn by 2028. Interestingly, that's about 7.5m tests annually, which is still only about 5% of global births, which sounds quite conservative to me, especially with the lower cost Sage 32 solution coming onstream in the last few months.
The report highights how important North America is to the market (over 50% of the market, which underscores the importance of YGEN's deal with Illumina) and points to Asia Pacific as the fastest growing market (which underscores the importance of the exclusivity agreement with TF). The report summary also mentions the IONA test specifically as a contributor to the growth of the market (the only product mentioned by name).
The article left me feeling hugely optimistic about our next trading update, which we're led to believe will be very good, and about our future in general:
1. The NIPT market is expected to see sustained annual growth of 15%+ over the next ten years (and I reckon there must be considerable upside to that, given the low proportion of tests this represents versus births).
2. We know that we've been growing well ahead of the market for the last two years (approx 35% organic growth).
3. We've just doubled the size of our addressable market through the deal with Illumina, which opens up North America.
4. We've just launched SAGE 32, which will bring unit costs down dramatically (and as far as I'm aware, this is a unique product, so that means we can reach underdeveloped parts of the market i.e. the other 95%, where costs are prohibitive for other players).
5. Drag of litigation and debt removed.
6. Led to believe that we have either already, or are about to, hit break even.
7. Very high Gross Profit margin - Revenue minus COGS (Cost Of Gross Sales) is about 60%, based on Hardman numbers.
7. Huge operational gearing - once our fixed overheads are covered (and we're close to, or already at that point), the gross profit from every sale goes straight to the bottom line. Allowing for a bit of growth in fixed costs and R&D, that means that every extra £1m in revenue probably adds £0.4 / £0.5m in profit. It's important to recognise that this has been hidden in the performance we've seen to date, because it's all been going towards the fixed overheads and R&D, but once we pass break-even, those costs are covered and profits start to rise exponentially with revenue.
8. All of the above relates just to NIPT - we know that other products for oncology etc. are in the pipeline.
Overall, I'm feeling huge
Nothing new from TW - just references the tweet from the trade event and remains bullish
TW tipped as his top tip for Q1 yesterday. Did anyone see / hear the Adam Reynolds interview at UK Investor City Forum last night? Was expected to cover YGEN.