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Large Caps Live Monday 26th April
In this week’s LCL, Wayne looked at Tate & Lyle, the renaming of Standard Life, and a bit of macro, before getting into detail on Barclays Bank:
1. Exposure: This bank is exposed to the UK and the US (it does have other exposures) but I like that it is highly exposed to two economies most likely to get out of covid early (amongst big western economies)
2. Self-help: Though there has been enormous noise from Sherbourne I think there is a lot of self-help going on ie internal restructuring b. There is also the advantage of time – PPI is coming to an end / the SFO investigations and Amanda Staveley stuff is nearer the end than the beginning
3. Dividends and buybacks: The bank paid a dividend but is also engaged in a sharebuyback
4. RoTE: The bank has given RoTE targets of >10% over time – in 2020 it achieved 3.2% (2.7% in 2019). However, this is interesting as bits of the Barclays business already have meaningful returns:
You can see that the UK business before litigation and conduct charges has been having decent returns before Covid. And at the group level we have:
The CCP business is consumer cards and payments (mainly US I believe). That business has been a much higher return business (RoAATE of 31.4% in 2016, 16.7% in 2017 and 16.5% in 2018). Sherbourne have been pushing to get rid of the CIB (commercial and investment banking) business but you can see how the RoAATE has been improving and reached 9.5% in 2020 – and arguably has been countercyclical to the retail facing businesses.
The head office line contains various junk and discontinued businesses or businesses for sale and will gradually I suspect unwind but will always be a bit of a drag.
The bottom line is that I think Barclays could reach high single-digit ROTE in 2 or so years and then people will believe the 10% target.
Small Caps Live Wednesday 28th April
Pennant (PEN.L) - Final Results
Mark started by taking a look at this supplier of military training aids:
As expected, this is a poor year:
“- Group revenues of £15.1 million (2019: £20.4 million);
- Gross profit margin of 29% (2019: 36%)
- Loss before tax of £3.1 million (2019: loss before tax of £1.6 million);”
The only bright spot was a reduction in net debt:
“Net debt at year-end of £1.4 million (2019: net debt of £2.2 million);”
This was because they generated £3.1m of cashflow from operations. This is another company where the full information isn’t in the RNS and we have to turn to the Annual Report to get the full cashflow statement:
We can see that this was mainly due to a reduction in receivables. At least customers are paying. However, the balance sheet looks pretty weak here. With net current assets barely positive.
Downing used to have a reasonable holding, and they seem to love liquidity-challenged companies. But apparently, this was too much even for them and looks like they sold entirely in November. In August they said:
“We have reduced our position in Pennant post period end, although we think the company has great prospects, the lumpiness of contracts combined with COVID impact made us nervous with regard to balance sheet risk.”
The results outlook is positive:
“With our contracted three-year order book, valued at more than £31million coupled with our active pipeline of opportunities, the Board is confident that the Group's underlying strengths - our long-term customer relationships with governments and major OEMs, our specialist services and our quality-assured reputation - will continue to provide a solid foundation for the Group's continuing recovery and long-term success.”
But £14m order book for 2021 means that they are reliant on winning and delivering further business this year or 2021 will be worse then 2020. When the uptick eventually does come this may put extra stress on the balance sheet due to working capital flows. Between a rock and a hard place there I think.
This has always been a lumpy business and the trick is to buy when it appears to be in the doldrums and sell when it is firing on all cylinders. However, the deterioration of the balance sheet in recent years means that this is a game I am no longer willing to play.
Simigon (SIM.L) - Final Results
Mark noted that, strangely, not one but two providers of military aircraft training aids reported their results today, as Israeli/US-based Simigon also reported final results:
Like Pennant, Simigon is also a microcap but with a £3m market cap instead of a £15m! We wouldn’t normally report on something this small but it has appeared on my net net screens in the past so remains on my watch list.
Although this has a much stronger balance sheet than Pennant, with a current ratio above 4, this has proved to be somewhat of a value trap and now trades at 1.09xTBV and 2xNet Net.
These results make it clear why:
“- Operating loss of $2.13 million (2019: $1.45 million) mitigated by reducing operating expenses by 13% to $3.95 million (2019: $4.53 million)
- Net loss of $2.18 million (2019: $1.45 million)”
These rates of losses burn through assets quite quickly!
Outlook is vaguely positive but non-committal:
“We are currently encouraged by the changes in the simulation and training environment, where ongoing programs that were delayed due to the pandemic are returning to the fold and programs that have been postponed are back on the agenda. The Company's ongoing R&D efforts in XR, maintenance training and data analytics are creating significant future growth potential together with SimiGon's strategic programs and existing strong long-term relationships, we are confident in the longer-term prospects for the business.”
But at this size of company, it comes down to a) do you fully trust the management and b) is it ridiculously cheap?
For me the answers are a) no and b) not anymore. So I'm afraid that is 0/2 for the listed microcap military training aids industry.
Fintel (FNTL.L) - AGM Statement
Leo thought this statement looked pretty strong:
“The Company is pleased to report robust trading in Q1 FY21. Since our last update in March the business continues to trade strongly, increasing our overall confidence for the full year. Our strong cash conversion in the period has also continued to strengthen our balance sheet with net debt to EBITDA* reducing to 1x at the end of Q1.”
However:
Liberium have EPS of just 13.5p for FY 2022. I've always been concerned about a lack of growth/ambition here, but there's no doubting the earnings are of high quality, thus the buys in 2020. But even the broker only has a target price of 235p. Like all too many of my holdings, the investment thesis has pretty much played out.
Staffline (STAF.L) - Trading Update
Leo analysed the impact of their current trading on their financial position:
Q1 2021 trading ahead of management expectations provides increased confidence in the full year
Underlying operating profit increased 133% in Q1 2021 year-on-year
Clearly, Q1 2020 was mostly unaffected by covid, so this jump is more about getting their house in order after the previous CEO ran amok. But I believe this is fundamentally a really solid and well-positioned (perhaps uniquely so in the UK) business.
Significant restructuring of the Group undertaken in 2020, generating c.£15m in overhead cost savings”
This bodes well for the future as it annualises.
Strong demand in the food distribution, e-commerce and logistics markets in H2 2020 drove robust performance, in spite of Covid-19
Showing defensive properties, although food is lower margin and so they should do better this year.
The Group's gross margin percentage was slightly lower than Q1 2020 due to a temporary change in business mix in favour of higher volume essential food and wholesale distribution customers.
There's lots more detail in there, but the elephant in the room is how they will normalise their finances.
“The Board remains confident in its highly focused strategy, subject to strengthening its financial position…
…As noted in the 1 February 2021 trading update, the Board continues to evaluate its options in relation to the Group's finances.”
So sounds like a fundraising must be still on the cards. So, how much to they need to raise? My initial analysis showed at least £10m, preferably £15m, but they have a nasty in their books. As understand it they have off-balance sheet funding of £25m in the form of non-recourse invoice financing.
Basically, this is where you sell your receivables book at a discount. Receivables reduce and the debt doesn't show as debt. Of course, this is also very expensive. Worse, the uncommitted part of this facility can be removed at any time, and of course, it naturally rolls off. Worse still, some of the other funding is conditional on that £25m remaining in place and seems to be callable should it be removed. So they really need £35m.
Also bad is that their working capital varies enormously through the year. For example, they previously said that as of 30th Dec they had £9m net debt, but the average over the £12m was £38m. And in today's update, they said the average in Q1 was £54.9m (including VAT deferral), only £15m better than a year before. The closing Q1 net debt wasn't given, but at the end of H2 last year it was £90m!
So really they need a little more than that. Liberum note that mid-January is the worst point in their cash cycle and that's when they need to make the final VAT payment. Therefore they need £40m.
That compares with £50m current market cap, so significant dilution.
Hurricane Energy (HUR.L) - Competent Persons Report
We had a write-in request to look at Hurricane Energy in response to the Competent Persons Report released this week. This is the key table:
This effectively says that the most likely NPV of Lancaster is $43.5m but may be worth up to $126.2m if they can keep it producing at economic rates up to March 2024.
The recent ops statement said:
“At 31 March 2021, the Company had net free cash1 of $127 million, compared to $106 million at 31 December 2020.”
So, add these together and you get an upper valuation of $232.3m (the CPR is NPV as of 31 December 2020). The problem is that they have a $250m convertible outstanding making the equity potentially worthless. Indeed, they said as much here:
“The Company continues to engage with an ad hoc group of its convertible noteholders over the Company's forward work programme, strategy, financing and balance sheet recapitalisation. It should be noted that there is a risk of significant dilution to existing shareholders from a possible restructuring and/or partial equitisation of the convertible bonds and of potentially limited or no value being returned to shareholders.”
Small Caps Live Friday 30th April
Hurricane Energy (HUR.L) - Financial Restructuring
Mark started Friday’s scl where he left off on Wednesday:
Today we get the announcement where the stakeholders take control of the company:
“The Company will execute a debt for equity conversion, which entails (amongst other things):
A $50 million release of the principal amount outstanding under the Convertible Bonds in exchange for the issue of ordinary shares in the Company (the "Exchange Shares") comprising 95% of the fully diluted pro forma equity of the Company immediately following the Restructuring.
An amendment to the terms and conditions of the remaining $180 million of Convertible Bonds in accordance with the revised terms detailed below, including the provision of security and subsidiary guarantees.”
The shares are down around 40% today. But let’s do the maths on this. With 2b shares in issue. Looking at the share price as I am preparing this of 1.4p to buy, this represents £28m market cap. But these shares represent just 5% of the new shares, making the pro-forma market cap £560m. This is around $780m.
What is interesting is that this is even a full debt for equity swap. The company still has $180m of debt.
Clearly, the bondholders have them over a barrel here, but I can’t help thinking that the bondholders consider the company with $180m debt to be worth something like $100m max and they were only willing to offer the $50m to give a margin of safety.
And those amended terms on the bonds are:
“The Amended and Restated Convertible Bonds would bear cash interest at a rate of 9.4% per annum, payment-in-kind (PIK) interest at a rate of 5% per annum and mature in December 2024 (3.5 years from the expected closing date of the Restructuring).”
So 14.4% interest rate there. Which reminds me of another company having to pay incredibly high interest rate debt to keep the lights on: Hostelworld.
Hurricane had $127m free cash at 31st March. So the EV is over $800m. Does anyone think these assets are worth that much given the history here? Seems unlikely.
The other company that has egg on their face here is closed-end fund Crystal Amber. They hold 14% of the equity and were buying more earlier this month.
Perhaps they thought they could hold out and get a better deal by threatening to vote it down. However, as others have pointed out, there won’t even be a vote:
“The Company considers that the restrictions on the directors' power to allot shares, which would otherwise require approval of the shareholders, and the shareholders' statutory pre-emption rights in connection with an allotment of shares, will be disapplied in relation to the Exchange Shares by sections 549(3A) and 566A of the Companies Act 2006 upon sanction of the Restructuring Plan by the court. There will therefore be no meeting of shareholders to vote on the proposed issuance of Exchange Shares”
UP Global Sourcing (UPGS.L) - Interim Results
Leo took a detailed look at these results:
Revenue dead on guidance given on 8th February - this suggests contracts are nice and clean in contrast to some companies where revenue can be adjusted months afterwards. Profitability is however slightly ahead of expectations and even further ahead of my projections due to lower admin costs. They comment:
“Despite the increase in revenues, administrative expenses before share-based payment charges and the repayment of furlough monies ('overheads') were £0.2 m lower than last year, a decrease of 2.6 %. This was the net of a number of moving parts including COVID-19 related savings on travel and exhibition costs (£0.7 m) partly offset by an increase in the bonus accrual (£0.5 m). As stated above, there were online marketing costs (£0.2 m) included in overheads last year that were re-classified into cost of sales during H1 FY 21. It is expected that travel and exhibition spend will increase again when the COVID-19 restrictions end but not to their previous levels. New ways of working developed during the pandemic, for example, virtual selling and some remote working, are expected to continue in the long-term.”
Although we knew the total revenue already, the split is new. The company breaks down their revenue in no less than 4 ways, even in the interim reports: By region, category, brand and pillar. In their commentary they first highlight one of the regions:
“International
International revenue was ahead of last year by 0.5 % (£0.1 m) to £23.6 m (H1 FY 20 - £23.5 m), with Germany performing particularly well, up 25.7 % (£1.5 m), albeit offset elsewhere by the effect of non‑essential store closures during COVID‑19 lockdowns. The prospects for our international business, which is mainly focused on Europe, remain very encouraging with Germany representing a particularly exciting opportunity.”
Sitting in the UK it is easy not to appreciate that the EU has yet to get a grip on COVID, with retail still significantly restricted. For example, major discount stockist Action is currently not allowed to open at the weekend in Germany or France. H2 should be up YoY, but is very unlikely to have fully recovered. This of course bodes well for FY 2022 figures.
Next they go through the major “pillars”:
“Supermarkets
Our brands continued to resonate very well with supermarket customers in both the UK and, increasingly, in Europe which led to further robust growth in H1 FY 21 with revenue up 27.6 % (£4.4 m) to £20.4 m (H1 FY 20 - £16.0 m) with the key drivers being the Beldray, Salter and Russell Hobbs brands. The supermarket segment accounted for 27.1 % of revenue in the period (H1 FY 20 - 23.7 %), which is a continuation of the long-term growth in revenue and increased revenue share from this channel. This is being driven by improved consumer awareness and perception of our brands allied with excellent execution and service to the retailer.”I think the point about “continuation of the long-term growth” is important here. Yes, supermarkets have remained open while other stockists have closed, but I don’t expect a reversal in FY 2022, just slightly slower growth. In fact, growth was significantly slower than YoY to H1 2020 when it was +71.4% and I was expecting another 30% this time. They are still in the relatively early stages of relationships with Lidl and Aldi, as well as Kaufland - another major European discount supermarket.
“Online Platforms
Our online business grew substantially, with revenue up 53.6 % (£4.1 m) to £11.8 m (H1 FY 20 - £7.7 m). Online accounted for 15.6 % of overall revenue (H1 FY 20 - 11.3 %) against an existing long-term target of over 20 %. This target has now been reviewed and increased to 30 %, driven by our enhanced operational capabilities, ongoing product development and European expansion plans. COVID‑19 lockdowns are likely to have accelerated the consumer switch to online shopping by several years. We believe that this changed behaviour is here to stay and have seen particularly strong sales in kitchen electrical, cookware, cleaning and laundry products. In only a few years, online has gone from a start-up to a substantial contributor to overall revenue and a key driver of growth.”Note this growth is down from the +72.5% seen in H2. Again, due to the situation in the EU, this channel should remain strong in H2, though personally I expect falls in FY 2022 will leave the 30% target premature at best.
“Discounters
Sales to discounters increased by 0.6 % (£0.2 m) to £28.4 m (H1 FY 20 - £28.2 m). This represented a stabilisation after a decline in FY 20, which was caused by discount retailers being more likely to be closed as non-essential stores when compared to other channels such as supermarkets. When the COVID-19 crisis and associated lockdowns come to an end, we expect to see the discount sector resume its long-term trend of growth and this represents a continued opportunity for Ultimate Products.”As I’ve repeatedly commented, major stockist B&M has been going great guns in the UK, having been allowed to stay open throughout on a technicality. However the same does not apply to many other discount retailers, especially in Europe and this result was better than I expected. This supports their claim of “underlying growth” and a positive outlook for 2022.
A couple of things they didn’t highlight:
“Other brands and own label” category was up 20% - well ahead of overall growth of 11%.
Heating and cooling was weak, perhaps underlining that many purchases are for poor quality office buildings rather than the home.
Largest two customers (likely to be B&M and Action) have grown to 31% of revenues from 26% in FY2020. This is not good news - their 46% share at flotation proved to be the obvious warning sight of the setback suffered soon afterwards.
Dividend 1.69p / share, up from 1.16p last two years. Note final cut slightly for last FY by 0.2p so some catchup.
Talking of profitability, one of my concerns was that increased shipping costs would eventually catch up with them. And so it has in the current period:
As a result, shipping rates spiked leading to substantial additional shipping costs for the Group and indeed all other businesses supplied out of China. Since CNY, shipping rates have begun to moderate and are predicted to largely normalise by Q1 FY 22.”
The additional shipping costs are expected to reduce the gross margin by approximately 1.0 - 1.5 % in H2 FY 21, compared to H1 FY 21, before recovering back to its previous level in H1 FY 22. This reduction in gross margin for H2 FY 21 is reflected in the profit guidance given below. Still, it is great to have this quantified in terms of margin hit and also likely timespan.
Another thing I would like to highlight is that the equity-based payments are actually down, despite the increase in share price. I think a major factor here is that the EBT holds shares well ahead of requirements. They also judiciously added more at under 70p in February 2020.
Here's their outlook:
The Board anticipates that its performance in FY 21 will be ahead of current expectations, with revenues forecast to be in excess of £135 m (FY 20 - £115.7 m). While the Group has seen an increase in shipping rates, as noted above, the Board nevertheless currently expects that underlying EBITDA for FY 21 will be in excess of £13.0 m (FY 20 - £10.4 m) with underlying profit before tax in excess of £10.8 m (FY 20 - £8.2 m).
The Board also believes that the COVID-19 pandemic will lead to long-term changes in consumer attitudes and behaviour, including more home working, more home cooking, a greater emphasis on hygiene and cleanliness, more online shopping and a more considered approach to spending. As Ultimate Products' brands are largely focused on the home, the Group is well placed to take advantage of these trends. This position is reinforced by our focus on leading retailers and the excellent end‑to‑end service that we provide to them. As a result, we are confident in the future prospects for the business.
Remember this includes very limited catch-up revenue in Europe and a margin hit from shipping expected to quickly unwind. Equity Development has done the maths. Overall, my 2021 EPS forecasts are coming out ahead of ED’s at 11p.
The other thing that Equity Development has consistently done is assume 6% revenue growth for the forward year. I have always said 6% is too low. Looking at the individual revenue streams (mostly identified above), I see more like 15-20% for FY 2022.
So 15p EPS looks quite possible for 2022. That's way above Equity Development's forecast of 11.1p. ED only have a target price of 200p, which doesn't allow for a lot of upside. But of course, if the share price reaches that they'll find a reason to raise it.
Driver Group (DRV.L) - Trading Statement
Mark found this trading statement slightly disappointing this morning:
We knew it would be a challenging year, which they confirm:
“A fast-moving picture in terms of lockdown restrictions in key territories and the loss of senior staff and associated team members to a competitor in the APAC region together combined to present significant challenges.”
We knew the impact of lockdowns but loss of senior staff in APAC is bad news, and one of the risks of a mainly people business. We also know that COVID has caused a big increase in construction disputes. So I really was expecting this to be visible in the outlook:
“The unique challenges presented by COVID-19 have masked the significant strategic progress we have made during the period, at least insofar as measured by financial results. The outlook for the second half year is encouraging with activity levels improved from the low point in January and February at the height of lockdown restrictions in the UK and Europe.”
It seems this year’s lockdowns are still having an effect here. Although a similar outlook in retailers, airlines, recruiters, etc. hasn’t stopped them hitting all-time high enterprise values, whereas Driver remains in the doldrums.
They don’t give revenue guidance but do say:
“Driver Group performed creditably during the period with PBET (before share based payment charges) for the period expected to be only slightly lower than the result for the same period last year, which was largely unaffected by COVID-19.”
2020 EPS was 4.68p so perhaps we can expect 4.5p. This would be around 12 x P/E which seems undemanding given the disruptions in the year. Even more so, when you consider the £7m net cash is around a quarter of the market cap.
Results are due on 8th June, and after they exit the associated close period I’d be disappointed if they don’t use at least some of that cash to buy back shares. And I'm still hoping for the catch up from covid-related construction disputes.
Universe Group (UNG.L) - Final Results
Mark found these results in line with expectation, with revenue recognition on a major project delayed into 2021 a known factor:
“Adjusted EBITDA £1.94 million (2019: £3.89 million)
Loss for the year £0.62 million (2019 restated: loss of £1.03 million)”
Net debt was surprisingly high though:
“Net debt at year end £4.69 million (31 December 2019: net cash £0.37 million) resulting from investment in inventories, £4.82 million at 31 December 2020 (31 December 2019: £1.13 million)”
But explained by the working capital
“due primarily to an increase in year-end inventories of £3.68m to £4.82 million (31 December 2019: £1.13 million) required to service a material contract win, the fulfilment of which has been delayed into 2021.”
I expect this to fully reverse in 2021, but it does highlight that these sort of small cap stocks with a small number of large value contracts can face big working capital swings, and often be riskier than a simple year-end balance sheet analysis would indicate.
Outlook is positive:
“By winning new, multi-year contracts with key payment clients and being awarded a major contract extension for a loyalty customer, it is clear our proposition remains compelling and full of potential…
Through high customer service levels and new multi-year contract wins, current management has successfully navigated a very difficult year and so has laid the foundations for a promising future. We look forward to a fuller update on strategy and outlook, led by our new CEO and CFO, at the forthcoming AGM.”
But with a new CEO & CFO about to get their feet under the table, we will have to wait to get more details.
Base Resources (BSE.L) - Q3 Activities Report
Mark was impressed with these operational results:
Both production and sales are increasing, which is nice to see:
No profit figures are given since it is an operational update, however, these can be estimated since they give both costs per tonne and sales price per tonne:
I make Q3 to be around $17m profit & $32m FCF before central costs of around $2m.
Production guidance has also been increased:
And a Zircon price increase has been agreed for Q4:
“Ilmenite and rutile prices trended upwards in the quarter, with higher zircon prices secured for the June quarter.”
Overall, then I am estimating net profit of around $15m for the full year and around $70m free cash flow. With net cash of $71.6m despite paying a $26.6m dividend, this compares favourably to a $250m market cap. Life of mine is an issue in Kenya, however, the company is likely to earn that market cap in FCF from Kwale before the current South Dune mining ends.
The Toliara development project in Madagascar remains on hold. However, this is exactly the sort of situation I like – if Toliaria is dead then you get your money back in FCF. If it proceeds you have an asset with a NPV of at least double the current market cap.
FireAngel (FA.L) - Final Results & Placing
Leo has long considered these a complete disaster zone for investors and warned about them on many occasions. It was clear that they wouldn’t get a going concern statement without further funds, which is why today’s placing came as no surprise:
“The net proceeds of the Fundraising will be used as follows:
to fund research and development to accelerate new products and to implement efficiency improvements and cost savings; and
to strengthen the Company's balance sheet, including optimising the Company's working capital, in respect of stock and payables and to fund part of the legacy battery returns issue.”
This battery issue was ongoing last time I research it, with a very high level of negative reviews for recently bought items. We've warned about this time and time again. The comical bit is that this is under "non underlying items". Yet the same things happen each year: more battery claims, more stock impairment.
Mark shared how our primary research helped us out here:
We told them they had a worse battery problem than they thought just from analysing the Amazon reviews but they didn't believe us - or they knew and weren't willing to let on.
We could also cause DOA problems by dropping the fire alarm from waist height which left no visible damage but stopped the alarm from working by rotating the insides so the activation tab missed the terminal.
Sylvania Platinum (SLP.L) - Q3 Results
Finally for this week, Mark looked at today’s Q3 results:
Production was a bit lower than I forecast at 17,420oz due to lower plant feed. This was due to a reduction in fresh arisings from host mines:
“The 13% lower plant feed tons is a function of approximately 30% less RoM material received during Q3. To mitigate the impact and to ensure that the PGM feed tons remained constant and the PGM plants kept running at capacity, the SDO operations substituted the shortfall in RoM with historical dump material.”
This should improve going into Q4:
“The period post the Christmas mining-break is always associated with a slower ramp-up by the host mines, but RoM production at both the Mooinooi and Lannex operations have improved significantly since March.”
Recovery was also lower than I expected:
“The 6% decrease in PGM Recovery efficiencies from the previous quarter was primarily as a result of the lower percentage of fresh RoM and current arisings received during Q3.”
Combined, this means that the 4E revenue was below my expectations. However, byproducts revenue was significantly above my expectations. I’m thinking there may be some lumpiness in sales here since I don’t think pricing doubled Q-on-Q.
The real surprise as the size of the sales adjustments though. which was $15m. I try to predict this with a regression model and this quarter is clearly an outlier. The PGM basket did rise 36% during the quarter, but even so the sales adjustment was outsized compared to historical figures.
The good news is that the cashflow seems to be coming into the bank account rather than simply into working capital & taxes:
“The Group cash balance increased from $67.1 million to $102.1 million during the quarter. Cash generated from operations before working capital movements, was $58.9 million with net changes in working capital amounting to a decrease of $17.1 million, which is mainly due to the increase in trade debtors as a result of the increase in the gross basket price.”
Taxes & dividend are going to make a dent in that figure going forward though:
“Post period end, the Company paid a one-off Windfall Dividend of $14.3 million to shareholders on the register on 4 March 2021. Provisional income tax and minerals royalties tax at a rate of 28% and 7% respectively are also payable in June 2021. The provision of $33.5 million for the income and mineral royalty tax payable in June 2021 is based on the actual metal prices and ounces for Q3, estimated ounce production for Q4 and current average exchange rate.”
Rand metal prices are up another 16% compared to Q3 average so can expect further positive Q4. The big question I have, though, is why they sit on so much cash. Their dividends, even with the supplemental paid, are dwarfed by their FCF. And this makes me wary. Either the management have grand plans they aren't revealing or there are other issues that mean they are being very cautious returning cash here.
On an EBITDA or FCF basis they still look very cheap, however, I think you have to apply a decent discount to the cash flow here. I wish they would just say we think we have great opportunities to invest the cash at high returns on capital, we will let shareholders know if these are likely to come to something. They could probably afford to develop Volspruit themselves for example. But just let shareholders know.
Given the history, I'd be a lot more willing to invest if they got rid of the chairman too.
Right, that was it for this week. No Large Caps Live on Monday due to the UK Bank Holiday. Have a great long weekend all!