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Another out of hours article from Simon Thompson of Investors Chronicle on 26/4/21.

In short, he's raised his target price 10p to 175p.

He points out that the payment for Quickline and the performance related payment are a mixture of cash and Convertible Loan Notes.

He reiterates the prospects for the remaining divisions in Australia and Scandanavia as outlined in the RNS announcing the Quickline sale.

Hopefully the article will have a positive impact on the share price .

Currently Checkit are quoted on a spread of 56-61.

I had a look at doing a sale of 5000 and was offered 59.5

I then looked at a purchase of 5000 and a purchase of 1000. I was unable to get an automatic quote for either and had to send my order to the broker. I declined but set a limit order much closer to Edison's valuation. Who knows, I might get lucky!

The high sale price and absence of quotes to buy indicate to me that brokers perhaps don't have enough stock to meet current demand. If this situation persists I think it's likely we'll see share price appreciation between now and the results.

It is now looking likely that when BMV buys Southern Gold's share of the South Korean joint venture that payment will be made with a mixture of cash and newly issued shares.

Such a purchase will leave Southern Gold as a shareholder of BMV.

It seems inevitable that new shares will be issued, however, it may not be necessary to have Southern Gold as a shareholder.

A relatively simple mechanism would be to issue new shares via Primary Bid then use the money raised to pay Southern Gold. The benefits of this path would be a relatively low cost and allowing private investors to participate.

A second route might be a rights issue. This mechanism is out of favour, however, it could work well.

BMV currently has 373 million shares in issue.

BMV needs to pay Southern Gold £10 million for the Korean joint venture.

If BMV were to have a rights issue, say 2 new shares for every 3 currently held, an issue at 4p would raise £9.9 million.

The process could be sweetened with the inclusion of 1 warrant included with every new share issued. Give the warrants an exercise price of 6p and BMV raises a further £14.9 million if things work out and the share price gets over 6p.

In the event that shareholders didn't take up their full entitlement, any remaining shares could then be given to Southern Gold, at 4p, as part of the payment.

Having been negotiating since the New Year, speed doesn't appear to be a particular concern with the current negotiations. There would be time to allow current shareholders to participate.

I've received and read the March factsheet for an open ended fund, Amati Strategic Metals. There appears to be some interesting read through for GPM.

First off, the Amati fund is new and small at £8m.

The "Strategic" part of the fund name relates to the fact that they can invest, strategically, in any metals that take their fancy. At the moment they think copper is overpriced so they have none. They also think that gold and silver producers are the place to be at this time.

The fund has 15% cash, 52% gold, 12% silver.

The second point of interest is a chart that plots columns to show the premium/discount of a number of gold producers to the implied spot price of gold. The average shows that the price of producers has ranged between a 22% discount and a 12% premium. The average is currently at a 20% discount. Current valuations of the producers would be in balance with gold valued at $1360.

The chart lacks detail regarding the time period, however, it is clear that gold producers are currently at a discount to the price of gold; removing this discount would require a 20% increase in the price of the producers.

If the Amati team's analysis is correct, it is, in my view, very positive for GPM.

Once again I find myself holding shares in a company that wants to treat me like dirt. Another fundraising at a discount from which, despite being a long term shareholder, I'm excluded from.

The chosen few in this occasion are "existing sophisticated shareholders and clients of Novum Securities"

I'm neither of these.

The chosen few get to buy new shares around 20% cheaper than is available to me; they get to dilute my shareholding by 15% and; they get free warrants to buy more if the share price reaches 0.425p by 30th June 2022.

If the warrants get exercised, the new holders will already be up about 100% whereas the undermenschen, will be up around 50% from todays price.

I'm scratching around looking for positives here but I do accept that getting the funding in place to buy out GSPC is a step in the right direction.

Surely though there are other ways to raise money that aren't so detrimental to current shareholders?

If it's worth giving the new holders 0.425p warrants, why not give the rest of us the same?

The company released an unscheduled trading update RNS on 20/4/21.

The update points out some delay regarding HS2 but I've got to say that it strikes me as being extremely positive.

"Trading at HMRS and DK exceeding expectations"
Contribution from DK "materially greater than current market expectations"
"Year end cash balances substantially higher than market expectations"

I note that N+1 Singer have updated their forecasts, however, I'm unable to access their report other than the introductory sentences. What a teaser these are! EPS are upgraded 45% from previous expectations which I think were 18.6p. A 45% increase here would give EPS of 27p for the year ending in May 2021.

It is my view that such substantial an upgrade this close to year end is extremely positive and likely to lead to further upgrades and accelerated dividend increases.

Simon Thompson of Investors Chronicle has published a short update on Parkmead.

He's relied heavily on figures produced by Finncap.

Cash 22p per share
Pitreadie farm 5.7p per share
Netherlands gas 14.3p per share.

He points out that the values above equate to the current share price this giving a free carry on the North Sea interests.

FinnCap have a NPV for the Greater Perth Area of 103p and a total rushed NPV for Parkmead of 161p.

He reiterates his buy recommendation and points out catalysts for treating likely to come from progress in GPA.

Simon Thompson of Investors Chronicle has published a short update regarding SigmaRoc.

The gist of this is an increased target price of 100p up from 85p based on a 2022 PE ratio of 15.

He points out 4 earnings upgrades since September, earnings enhancing acquisitions and increased orders as drivers for growth although he makes no reference to Greenrock.

All in all, another positive update.

The fate of ThinkSmart is tied to the performance of Afterpay.

Afterpay owns the majority of Buy now pay later company Clearpay. The remainder of Clearpay is owned by ThinkSmart.

Afterpay and ThinkSmart have an agreement whereby Afterpay will buy the remaining share of Clearpay. The cost of this purchase is to be based on two things: the market capitalisation of Afterpay and; the proportion of Afterpay that is attributable to Clearpay.

This link between the two companies should mean that the share price of ThinkSmart reflects the value of Afterpay.

I note that the historic tracking appears to have broken down somewhat. On 1/3/21, Afterpay had fallen to slightly more than A$100 and on the same day ThinkSmart was trading around 72/73.

Six weeks on and Afterpay is now A$128 whilst ThinkSmart trades at 75. A full 28% increase from the beginning of March would have ThinkSmart around 90p.

It is possible that Clearpay is now a smaller part of Afterpay, however, I doubt that the previous growth of Clearpay has stalled and reversed.

I think that a discount has developed in the ThinkSmart share price.

I also think that the current discount may be sufficiently large for Afterpay to find attractive and seek to capitalise on by buying the Clearpay stake early.

Who would turn down 100p next week?

Simon Thompson of Investors Chronicle has produced another out of hours article updating three of his recommendations, including MPAC.

The article gives broker targets from Equity Development and Panmure Gordon of 600 and 650 respectively (although the ED target is a typo).

ST raises his target to 600 from 550. The primary basis for this appears to be a narrowing of the PE discount compared to the engineering sector.

He quotes a forward PE of 14 for MPAC and an engineering sector PE of 20. His 600 target is based on a 20% discount to the sector.

Panmure have EPS of 36.1p.

Personally I think that the target given is a little weak and unambitious. Why would a company growing at the rate of MPAC have a discount to the engineering sector? Surely a premium is more appropriate? I suppose that the target that has been set reflects the current deep discount and some narrowing of this whilst also giving room for upgrades.

Using Panmure's EPS and a sector average PE would provide a target of 720p and that's before any cash adjustment!

Simon Thompson has done a further write up of Avingtrans on 29/3/21.

The article highlights the sale of Peter Brotherhood as being 4x the purchase price.

He also highlights getting the majority stake in Magnetically and merging this with SciMag and Tecmag as being potentially transformational making a global leader in MRI systems.

The article concludes:

I see further upside to my upgraded sum-of-the-parts valuation of 400p a share, the equivalent of a 2021-22 cash-adjusted price/earnings (PE) ratio of 15. Buy.

So that's upgrades from 335 to 375 on 21/2/21 and upgrade from 375 to 400 on 29/3/21.

With the shares now marginally above 300, there's a reasonable prospect of 33% gain.

Simon Thompson of Investors Chronicle has done another write up of LIT on the evening of Friday 26th March.

The Chronicle now seems to be publishing Simon's tips out of market hours or over the weekend.

The gist of the article relates to direct funded cases maturing in the next 12/18 months; progress on the third party fund and targets set by Investec (EPS 5.2p this year, 11.8p next).

He rates the shares (77p) as a buy.

...thus paying a lower price and capturing more growth for themselves.

Afterpay have published a very informative presentation relating to their H1 2021 results. Helpfully, the presentation provides details of regions, customer spending and customer numbers.

Here's a plot spoiler:

The Afterpay group has grown considerably.

The Clearpay part of Afterpay has grown astronomically.

Clearpay is now a much bigger portion of the group than it was 12 months ago. The ThinkSmart stake in Clearpay has increased substantially in value.

Having spoilt the plot, here's a few of the figures to give some detail to the assertions above.

Afterpay sales have increased by 106% to A$9.8bn from A$4.7bn.
Clearpay sales have increased by 288% to A$785m from A$202m.

As a proportion of group sales, Clearpay has increased to 8% from 4%.

In regards to active customers:

Afterpay customers have increased by 80% to 13.1m from 7.3m

Clearpay customers have increased by 812% to 1.6m from 400k

Helpfully, the presentation gives some details as to how the spending patterns of customers develop over time. In the first year, a new customer will make 4 transactions; second year 11, third 16 and fourth 21. It seems customers become more confident with BNPL and more confident with their ability to manage their money.

On top of the increasing transactions, the presentation also shows that the value per transaction also increases over time.

Simple calculations with the customer and spending figures show group spend per customer of A$749 in H1 2021.

Clearpay is A$490 in the same period. If this represents 4 transactions, then each is valued at A$122.

If we assume that all of the current Clearpay customers have started during the last 12 months, they will have made 4 transactions each. Next year they will make 11. In the absence of any customer growth then the collective spend will be 1.6 million x 122 x 11 = A$2,147m

Rather than static customer numbers we can, perhaps, try to account for some growth here too. A Google search gives population figures for Australia and New Zealand as 25.8m and 4.9m respectively. A combined population of 30.7m. With ANZ having 3.4m active customers that's around 10% of the population. Applying that metric to the UK population would give around 6m customers.

If we guesstimate an increase of 1m UK customers in the next twelve months, this new cohort will spend 1m x 122 x 4 = A$488m.

Combining the two spending figures gives a total UK spend of A$2,635m.

I doubt if any of the figures I've used will be the outcomes that occur. I do, however, think that as an illustration of a possible future that the direction of travel is clear: Clearpay is becoming a bigger part of Afterpay; Clearpay is becoming more valuable.

My view is that the growth outlined above poses a dilemma for Afterpay. Do they hang on until the call option in August 2023 and pay a higher price for the part of Clearpay they don't currently own or do they seek to buy the remainder of Clearpay early thus

Have I read this correctly?

Afterpay has released their half year results. They have reported an increased loss which they primarily attribute to the increased value of ThinkSmart's put option for the remaining Clearpay stake.

It looks as though Afterpay have increased their valuation of the stake by $64.8 million.

Some figures relating to UK (Clearpay) performance:

Underlying sales of $0.8 billion, up 288%

Total number of active merchants up 190% since June 2020

Active customers increased by 161%

Number of orders up 234%

All in all, I think this is very positive for ThinkSmart.

Simon Thompson of Investors Chronicle has done another write up of Avingtrans on 19/2/21.

He's raised his target price to 375p from 335p on the basis of Sum of the Parts for the various divisions although doesn't provide detail of these values.

He generally gets these things right more often than not and, in my view, is a major reason to subscribe to IC.

Below is an extract from Edison Group. It's free to access if you sign up.

Valuation: Sum of parts suggests upside

On an EV/sales multiple of 1.6x for FY21e and 1.4x for FY22e, Checkit trades at a significant discount to the UK software sector (5.7x current year sales). On a sum-of-the-parts basis attributing EV/sales multiples that better reflect the performance and prospects for each division, we estimate the stock is significantly undervalued. For example, using a 4x FY21e multiple for Checkit Connect and 1x for Checkit BEMS would result in a valuation of 72p per share.

I'm not sure why they haven't used the 5.7x valuation metric they quote for the UK software sector, however, the conservative (in my opinion) valuations they're applied still give a valuation 20% north of the current share price.

Hi Dysfunctional,

I think your assessment of the growth of Clearpay may be a little pessimistic.

I tend to think that being a younger, less established business, Clearpay has a greater opportunity for quick growth when compared to the more established geographic areas.

Here's an extract from an RNS issued 9/12/20:

"The Group also notes the trading update issued by Afterpay Ltd on 2 December 2020 where it reported that its UK division, Clearpay, delivered c. $200 million of underlying sales in November 2020, in what was a record month for Afterpay. This represented c10% of Afterpay's global underlying sales for the month, up from 7% in the 3 months to 30 September 2020."

So Clearpay represented 5.4% of sales in the year to June 2020, 7% in the three months to September 2020 and, about 10% in November.

That looks like an expanding bit of cake to me.

Hi Kp123 you've put forward some information that I hadn't been aware of.

I don't agree that the "liquidity discount" is simply an accounting tool. I've seen that Bluebird Merchant Ventures and Southern Gold had a joint venture in South Korea. Part of their agreement was that one could sell to the other, the value of the sold half being calculated by an agreed expert. The calculated value was then discounted by 10% as a liquidity discount.

If Afterpay don't want the rump of Clearpay that they don't already own, who would want it?

I tend to think there'll be some sort of discount applied but I have no idea as to whether it will change from 20%.

Your comment:
"The current sum-of-parts valuation of 128p per share is based on: (Afterpay market capitalisation x Clearpay proportion of Afterpay business x TSL's ownership in Clearpay) x 20% liquidity discount + cash on TSL balance sheet and other liquid assets"

This makes more sense than the relatively simple view I've held that the rump of Clearpay retained by ThinkSmart is worth 10% of Afterpay's market capitalisation.

In effect, the valuation method you put forward introduces an element to reflect the relative performance of Clearpay in the Afterpay group.

The valuation of Clearpay is based on the size of the slice of the Afterpay cake! The cake has increased massively in size, however, the slice has increased by a larger margin. In effect, the value of Clearpay has increased from 10% of a 100 cake to 11% of a 200 cake. (I apologise for the metaphor but it helps me to understand what is going on - and I like cake!).

This valuation method also provides an incentive for Afterpay to acquire the rump of Clearpay so they (Afterpay) get all of the benefit from a more profitable Clearpay.

In September Clearpay was reported as accounting for 5.4% of Afterpay's sales and 10% of its customers. It is likely that both of these figures will have increased as Clearpay becomes more established in the UK, hence, a bigger slice of cake.

Interim results in early March should provide an updated valuation of Clearpay. I expect there'll be a substantial increase.

SaintPeter and Ambitiousbeef have posed a couple of questions regarding the value gap. Here's my view of the subject:

The "value gap" that's discussed here relates to the difference between the current share price (70p at time of writing) and the value of Clearpay when the put/call is exercised by Afterpay Touch.

The most recent calculation of the value of Clearpay is 128p, hence a valuation gap of 58p.

A buyer of ThinkSmart today can reasonably expect to gain 58p, 82% within 2½ years. On a linear basis that works out around 23% this year, 19p.

On that basis, we might expect a return to 89p in twelve months.

There's a couple of points to bear in mind:

The value gap doesn't have to be filled on a linear basis. If Afterpay decide to make an early offer for the bit of Clearpay they don't already own, the value gap will close in minutes.

The second point is that the target price of 128p isn't static. This will ebb and flow as Afterpay's share price changes. My own view is that Afterpay will continue to increase as BNPL becomes more established and increases its share of consumer credit borrowing.

Personally I'm quite happy at the prospect of getting a return of 82% in 2½ years.

I'm even happier at the prospect of a higher return!