SRT Marine Systems (LON: SRT) has signed a $180m (£145m) contract to supply a maritime surveillance and intelligence system to a national coastguard. This deal was initially announced in March. The initial project will take two years and generate £123m. finnCap forecasts a 2023-24 pre-tax profit of £7.3m, increasing to £11.8m the following year. The share price jumped 18.5% to 54.5p.
MyHealthChecked (LON: MHC) is launching an extended range of self-testing products in Boots. Fourteen different test panels will launch this month with a further six to come. They cover areas such as food intolerance and thyroid function. The initial launch will be online, but they will also be sold in 120 stores. The six later tests will be sold in 800 stores. The initial agreement lasts until 17 May 2024. The share price rose 13.6% to 25p.
Kibo Energy (LON: KIBO) says that its listed subsidiary Mast Energy Developments (LON: MAST) has secured a new institutional investor for a joint venture to develop flexible power projects. The Mast Energy Developments share price is 65.7% higher at 1.45p. This helped the Kibo Mining share price improve 7.69% to 0.07p. Progress is also being made by Kibo Mining on the development of the Mbeya power project.
The Purplebricks (LON: PURP) share price has recovered 8.78% to 0.805p. following news that it is selling its business for £1 and assets to Strike Ltd and cancelling its AIM quotation. That leaves £5.5m in cash, but costs will reduce that to around £2m, which is slightly below the market capitalisation.
Mirada (LON: MIRA) has set out plans to cancel its AIM quotations. The IPTV technology provider has been quoted for more than two decades, but a large shareholder with 87.2% has limited liquidity and investor interest. The main lender to Mirada is also related to the main shareholder. This means that the cancellation will happen, and the shares will then be traded by JP Jenkins. That should save costs of $470,000/year. The share price dived 31.6% to 13p.
Shares in IQE (LON: IQE) fell 14.3% to 20.125p after it raised £30m at 20p a share. The semiconductor wafers manufacturer is also trying to raise up to £3m more from a REX retail offer that closes at 5pm today. In 2022, group revenues grew by 9% to £167.5m, while the loss jumped from £22.2m to £75.4m. That includes £68.5m of impairment charges, up from £7.4m the previous year. Costs are being reduced and the cash will provide working capital and fund development spending on newer markets, such as power electronics and MicroLED display.
Mark Thompson has stepped down as executive vice chairman of Tungsten West (LON: TUN) now that the financing has been completed. The share price declined 11.8% to 3.75p.
Professional services provider Christie Group (LON: CTG) shares fell 8.33% to 137.5p after it warned that there would be a heavy second half bias to figures. Transactions are taking longer to complete and will not happen in the first half. These include sales of dental, pharmacy and care home assets. Management believes that it can still achieve a full year pre-tax profit of £4.8m, up from £4.4m, which puts the shares on ten times prospective earnings.
Ex-dividends
Advanced Medical Solutions (LON: AMS) is paying a final dividend of 1.51p a share and the share price fell 3.25p to 249.75p.
Churchill China (LON: CHH) is paying a final dividend of 21p a share and the share price is 10p lower at 1360p.
Eleco (LON: ELCO) is paying a final dividend of 0.5p a share and the share price is unchanged at 82p.
Fintel (LON: FNTL) is paying a final dividend of 2.25p a share and the share price is 1.25p higher at 198.25p.
FRP Advisory (LON: FRP) is paying a dividend of 0.85p a share and the share price is unchanged at 112p.
H&T Group (LON: HAT) is paying a final dividend of 10p a share and the share price is down 3p to 431p.
Holders Technology (LON: HDT) is paying a final dividend of 0.5p a share and the share price is unchanged at 76p.
Jarvis Investment Management (LON: JIM) is paying a dividend of 3.5p a share and the share price is 2.5p lower at 157.5p.
Numis Corporation (LON: NUM) is paying an interim dividend of 6p a share and the share price declined by 5.25p to 334.25p.
Science Group (LON: SAG) is paying a final dividend of 5p a share and the share price fell 9p to 395p.
Vector Capital (LON: VCAP) is paying a final dividend of 1.53p a share and the share price slipped 0.5p to 39p.
The Indian economy has been in the limelight as one of the few bright spots in an uncertain world. Some are even calling it ‘India’s decade’. Reforms, digitalisation, improving infrastructure and the government’s Make-in-India initiatives are some reasons backing the above. The strength of the India story has been underpinned by a few structural trends:
healthy growth in government tax collections
a revival of private sector capex cycle and the real estate sector
long-term consumption trends remain intact despite some short-term weakness
stable currency buoyed by foreign currency reserves of US$ 560bn+ and rising inward remittances
exports of IT services surpassing the oil import bill taking the pressure off the current account deficit
domestic institutional investor (DII) emerging as a strong and steady buyer offsetting volatile foreign institutional investor (FII) flows
well capitalised banks, with no stress in the banking system
With India’s population exceeding China’s and being significantly younger, reinforces this positive commentary. Most overseas visitors who visit India are overwhelmed with the activity and positivity seen in the economy.
We too are strong believers of the above. While much has been written about what is happening in India at a macro level, in this note we highlight some trends, initiatives and developments, which do not get mentioned in the mainstream media but are amongst those that contribute significantly to the positivity we see around us.
The rise of domestic air travellers
April’23 saw the highest ever domestic passenger air traffic in India. The story behind this rising trend goes back to the year 2016 when the Government of India launched a scheme called ‘Ude Desh ka Aam Naagrik’ (UDAN) which means ‘Let the common citizens of the country fly’. The view was that for more broad-based and sustained economic development, it was essential to improve India’s regional connectivity by connecting small cities with large cities by air. Since this initiative, over 74 new airports have been operationalised taking the total to 140+ operating airports in India, and over ~470+ new air traffic routes have been opened (1500+ air traffic routes in India).
The more intriguing part was the implementation of this scheme by the government. New routes were made cost effective for airlines by lower taxes on fuel, reduction in charges and taxes at these regional airports, and also a cap on fares for a percentage of seats to make it more affordable for the common man to fly. More importantly, the Airlines themselves were asked to recommend the routes and airports that should be operationalised given their deep insights about the traffic movements. This was perhaps one of the main reasons for the success of the scheme.
The impact of this scheme is visible even in our daily lives. For a long weekend from a coastal city like Mumbai, even the Himalayas have now become a practical destination with direct connectivity to several cities on the foothills. Similarly, travel times for inter-state and rural-to-urban migrants is cut down by many days without the need to use multiple modes of transportation. Among the new airports, the highest traffic of over 600,000 passengers in a year was from a city called Darbhanga. A Google search shows that it is the 5th largest city in the state of Bihar. Clearly, India is changing.
The highest exposure of India Capital Growth Fund (ICGF) is in companies benefitting from the consumption theme. Within this, a recent entrant in the fund is VIP Industries, India’s largest luggage manufacturer and a direct beneficiary of the boom in domestic tourism.
Rethinking India’s defence policy
When it comes to tourism, one of the relatively unexplored parts of India has been the Himalayas. The entire mountain range borders with Pakistan and China. However, previously, government policies prevented tourists from visiting border areas and the infrastructure was also relatively poor. The reasoning behind this was to limit inroads by the enemy. This policy has now been reversed.
The new thinking is to develop villages in border areas as tourist destinations. This should provide employment and development, and also protect the borders. Consequently, this has resulted in a big build out of infrastructure (roads, bridges, communication) with both Kashmir and Arunachal Pradesh, two of the key states in the border areas being positioned as big tourism destinations. This shift in thinking is across the defence sector with multiple areas of strategic reforms. One of these, which has a large ramification on the economy is the attempt at reducing India’s reliance on defence equipment imports (India is the world’s largest arms and weapons system importer accounting for 11% of global imports). Attempts have been made in the past to reduce the reliance on imports but with limited success because of conflicting interests. However, in the new policy implemented since 2020, the Government, to show its seriousness, has created a list of products and platforms which would be banned from imports over a defined time-period. Till now, four lists comprising 411 products have been banned.
This has created a huge market opportunity in India with the private sector now willing to invest resources in developing these products and consequently, global players also looking to develop partnerships in India.
Mainstreaming of North-East India
There are 8 states in the North-East of the country, which for most of the 75 years since India gained independence viewed themselves as not being a part of India. These regions were cut off from the rest of India through a small corridor (named as chicken neck) with a narrow width of only 23km, with Bangladesh and Nepal on either side. 99% of their borders are international boundaries. Being landlocked with a hilly terrain, less densely populated, culturally different with a large Christian population, the mainstream political system largely ignored this part of the country. Consequently, there was very little infrastructure and economic development, and law and order was a serious issue.
Four of these states had state elections in February this year, and it was the Bharatiya Janata Party (BJP), the current party in the central government along with its regional allies which won all the states. What was surprising was that until the 2014 state elections, the BJP had no presence in these states. They had never even contested an election! So, what changed? The one consistent factor in our opinion is development.
Since the BJP came to power at the centre, an ‘Act East’ policy was formulated with the aim of mainstreaming these states with the rest of the country. The Prime Minister himself visited the North Eastern states on over 50 occasions since 2017, with Union Ministers (part of the senior decision making body of the Government of India) visiting these states frequently. The result is evident.
Roads: over US$ 50bn invested, 4000km+ roads built, doubling the network
Railways: 20 projects being implemented, all state capitals being connected
Airports: 7 new airports built, total operational airports at 17, further 8 in the pipeline
Number of flights: has increased from ~900 per week to ~1900 per week
It is also no surprise that this region is the fastest growing market for cement companies (India Capital Growth Fund has 6.6% of the portfolio in cement companies). The key takeaway for us is that the BJP victory demonstrates that people are rewarding political parties which are able to deliver on economic development.
Vande Bharat Trains
There is a fair bit of nostalgia when one thinks about the Indian Railways. However, even today, the picture remains much the same, red coaches pulled by locomotives, noisy, rickety loos, etc. The only change has been more choice of air-conditioned trains, and diesel and electric locomotives instead of steam ones. Compared with Europe, the Indian Railways seemed to be stuck in a different era.
When the government decided it was time to change, a team was sent to Europe to study the systems and shortlist partners to import their trains to India. The story goes, that the Prime Minister questioned why these could not be made in India through in-house technology. In the end, the erstwhile Head of Rail Coach manufacturing unit, who had 18 months left to retire took it upon himself to build it out. The project was named ‘Train 18’ and within 18 months, India had the first two prototypes of the train ready for trial runs. The first train was launched between Delhi and Varanasi on 15th February 2019, just 18 months from the start of the project. As we write, there are already 15 trains in service, and orders for another 200 have been placed (each train costing US$15m) with the goal of having 400 trains in service in the next 5 years.
According to ICF (Integral Coach Factory), the manufacturing cost of ‘Train 18’ is approximately half the cost of a similar imported train set and is made under the ‘Make in India’ initiative.
This is expected to transform the Indian Railways. What is even more transformational is that the policy makers are thinking of scale and not focusing on short-term annual orders. With this long-term vision, companies are willing to invest and build capacities e.g. Alstom and Siemens have both set up locomotive plants in India as each of them received orders for 800 / 1200 high powered locomotives over 11 years to haul the e-wagons for the Dedicated Freight Corridor being commissioned. Similarly, Indian railways who used to order 20-35000 wagons per year are now placing orders in excess of 84000 wagons in one go.
This has resulted in all the suppliers running at full capacity for the next 3 years with further visibility to expand capacities. Railways, has thus become one of the key capex driven business stories playing out in India.
One of ICGF’s largest holdings is Ramkrishna Forgings, a big beneficiary of the capex spend in railways. They have seen rising order wins and are also setting up a greenfield plant to manufacture wheels specifically for the Indian Railways.
While there are a lot of counter arguments on some of the above, with people claiming it is more a marketing exercise by the current party in power, and in reality a number of the new airports and routes are actually unviable. Likewise, trains like Vande Bharat are just 10-15% faster than the existing ones. The fact does, however, remain that as we delve deeper into the fine prints, we see a common thread:
There has been out of the box thinking by the current government.
Plans are now on a bigger scale and more long term with ambitious targets, some even for the year 2047, when India celebrates 100 years of independence.
The pace of execution has seen a steep jump providing confidence to the private sector on the future, which further assists in making decisions and in their risk-taking ability.
The changes highlighted above are just the tip of the iceberg. There are several other initiatives that have been attempted, a lot of which are still work in progress, including: 100 smart cities, river Ganges clean up mission, reviving the waterway transport system, affordable housing, clean India mission, to name a few.
The capex story is already yielding results in the economy, particularly in the investments made in the road and railway industry. We believe the momentum remains strong and is expected to continue accelerating. We are now beginning to see the secondary impact of this in rising order books and capex plans of the private sector as well. This is the driving force behind the confidence in the economy. The best we believe is yet to come.
India Capital Growth Fund (ICGF)*, the LSE listed Investment Trust focused on mid and small cap Indian Equities, managed by Ocean Dial Asset Management has delivered a 128% increase in net asset value (NAV) over the last 3 years, ahead of the benchmark which has returned 115.1% in GBP terms. However, its shares have rallied to deliver 223.8% to shareholders, significantly ahead of its benchmark (115.1%) and its peers (average return 74.6%). Data as at 10th May 2023.
To learn more about why we are so excited about the Indian economy and the mid-small cap space, please click here or to subscribe to our monthly newsletter, please click here.
REGULATORYINFORMATION
This document and any related documentation provided herewith (this “Document”) is given on a confidential basis for informational purposes only and does not constitute the provision of investment advice. In any case, this note does not constitute “marketing” in the UK pursuant to the Alternative Investment Fund Managers Regulation 2013. Nothing herein shall imply that information contained herein is correct as of any time subsequent to the date of this Document. The information in this Document does not constitute or contain an offer or invitation for the sale or purchase of any shares in any Fund in any jurisdiction, is not intended to form the basis of any investment decision, does not constitute any recommendation by any Fund, its directors, agents or advisers, is unaudited and provided for information purposes only and may include information from third party sources which has not been independently verified. This Document is not intended for public use or distribution. It is the responsibility of every person reading this Document to satisfy themselves as to the full observance of any laws of any relevant jurisdiction applicable to such person, including obtaining any governmental or other consent which may be required or observing any other formality which needs to be observed in such jurisdiction. While all reasonable care has been taken in the preparation of this Document and all the information prepared in this Document is believed to be accurate, no warranty is given on the accuracy of the information contained herein, nor is any responsibility or liability accepted for any errors of fact or any opinions expressed herein.
This Document is issued by Ocean Dial Asset Management Limited and views expressed in this document reflect the views of Ocean Dial Asset Management Limited and its Mumbai based affiliated company and adviser, Ocean Dial Asset Management India Private Limited as at the date of publication. Comments on individual sectors and companies also reflect those views as at that date. Subsequent events may cause such views to change. It may contain forward-looking statements, which can be identified by words like “anticipate,” “intend,” “believe,” “plan,” “hope,” “goal,” “initiative,” “expect,” “future,” “intend,” “will,” “could” and “should” and by similar expressions, in reliance upon certain “safe harbour” provisions of applicable securities laws. Other information herein, including any estimated, targeted or assumed information, may also be deemed to be, or to contain, forward-looking statements. Prospective investors should not place undue reliance on forward-looking statements as this information is subject to various risks and uncertainties. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying any forward-looking statements will not materialize or will vary significantly from actual results for many reasons. Variations of assumptions and results may be material. This information is for the use of recipients only and may not be reproduced, redistributed or copied in whole or in part without the express consent of Ocean Dial Asset Management Limited. Ocean Dial Asset Management Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered office 13/14 Buckingham Street, London WC2N 6DF. The Fund is not a non-mainstream pooled investment pursuant to the rules of the Financial Conduct Authority.
Trident Royalties has released an update on the Thacker Pass lithium project located in Nevada. Trident holds a gross revenue royalty over Thacker Pass.
Thacker Pass is the largest know deposit of lithium in the United States and construction is well underway with the expectation production commences in 2026.
Operator Lithium Americas have started early works at Thacker Pass including water pipelines, construction ponds, site fencing and access roads. Major earthworks are expected to commence later this year.
In addition, the United States Department of the Interior has recently announced analysis on the Thacker Pass project consistent with previous solicitor’s opinion which increases the certainty over the future of the project.
Trident holds a 60% royalty over the entire Thacker Pass project. There is the option for Lithium Americas to exercise a partial buyback of the royalty which will result in a $13.2 million consideration attributable to Trident Royalties. Trident would retain a 1.05% gross revenue royalty over the project.
“It is encouraging to see tangible progress being made by the US Government to provide permitting clarity for mine developers, and the references to Thacker Pass reinforce its strategic importance to the United States,” said Adam Davidson, Chief Executive Officer of Trident.
“The BLM record update, which the US DOI confirms is consistent with the new Opinion, is a key deliverable following the February 2023 ruling and provides even further clarity on Thacker Pass’ pathway to production, for which LAC is targeting H2 2026.”
Trident Royalties shares jumped over 4% on the news on Thursday.
Semiconductor wafers manufacturer IQE (LON: IQE) is raising £30m at 20p a share and could generate up to £3m more from a REX retail offer. The $35m bank facility has been extended until May 2026, so IQE is in a good position to weather the tough trading and benefit from the upturn.
Net debt was £15.2m at the end of 2022, rising to £24m at the end of March 2023. The fundraising was announced at the end of the trading day. The share price dipped 0.25p to 23.5p, but there could be a further reaction tomorrow morning.
The REX retail offer closes at 5pm on 18 May. The intermediaries involved are interactive investor, AJ Bell and Hargreaves Lansdown, although there could be additional brokers applying to become involved.
Once an application has been made and accepted it cannot be withdrawn. The minimum subscription is £50.
Cash
The semiconductor sector has been hit by a downturn due to destocking. Orders have been lower than anticipated and AIM-quoted IQE requires the cash to shore up its balance sheet.
IQE is a specialist in the niche market for epitaxial compound semiconductor wafers, which are used in smartphones, lasers and infrared devices. The wafers can incorporate special materials. Because of the initial investment made in production capacity fixed costs are high.
This is also a highly cyclical business. Wireless revenues fell last year and for the first time revenues from photonics were larger.
In 2022, group revenues grew by 9% to £167.5m, while the loss jumped from £22.2m to £75.4m. That includes £68.5m of impairment charges, up from £7.4m the previous year.
New capital spending in existing markets will be below depreciation. Labour costs are being reduced by 10% and other overheads should fall by 7% this year.
IQE is focusing its development spending on newer markets, such as power electronics and MicroLED display. There will be four new Gallium Nitride reactors installed between 2023 and 2025. He deployments will be based on customer-funded product development. This year’s investment will be £8.3m.
First half revenues are expected to be between £50m and £56m. Second half revenues are expected to grow.
IQE should be coming to the bottom of its cycle. It is getting to the point where the shares are an attractive recovery buy if investors take a two or three year view.
AIM-quoted advanced surface coatings provider Hardide (LON: HDD) is growing its revenues and efficiency improvements mean that breakeven level has been reduced. There is plenty of spare capacity available as demand from existing and new product areas increases.
Oil and gas remains an important sector for Hardide and that is where the growth come from in the first half. It offset delays in turbine blade coating work and reduced income from industrials.
Aerospace will be increasingly important for Hardide as it gains approvals to supply more coated parts to more of Airbus’ aeroplanes. There are other new markets, such as electric vehicle battery and solar components.
In the six months to March 2023, revenues were 9% higher at £2.9m. There was a £100,000 property gain, which helped the pre-tax loss fall from £800,000 to £600,000. Net debt was £300,000 at the end of March 2023.
There will be £500,000 of cost savings and efficiency improvements achieved by the end of the financial year. That means that breakeven revenues should be between £7.5m and £8m.
Capacity utilisation is at around 60%. A full year loss of £1.3m, down from z£3.2m, is expected with a further decline to £500,000 next year. Winning business in new sectors could speed up the journey to profitability.
The share price was unchanged at 13.5p. The operational gearing means that when the business passes breakeven the profit should grow rapidly.
There was a clear divergence between the FTSE 100 and US counterparts on Wednesday as the FTSE 100 was hit by corporate updates, and US equities recovered overnight losses.
After announcing full-year results, British Land and JD Sports were among the top losers. Melrose was the FTSE 100 top riser after the company said strength in their aerospace unit was reason enough to lift full-year guidance.
Melrose closed up 3.8%.
US debt ceiling
Debt ceiling fears gripped markets early Wednesday as the prospect of a US default grew closer. However, these fears subsided as US stocks opened and the S&P 500 rebounded from yesterday’s selloff.
“The first ever default on US debt is unthinkable and the likeliest outcome is an eleventh-hour deal but, as the beginning of June deadline for raising the debt ceiling signalled by US Secretary of the Treasury Janet Yellen draws closer, nervousness is likely to build,” said AJ Bell investment director Russ Mould.
“The extremely partisan nature of US politics is an obstacle to a deal as both parties seek to use the threat of the cliff-edge to secure concessions from the other side.”
US economy
As we reported yesterday, US economic conditions were back at the top of some investors’ concerns following weaker-than-expected data points this week.
The most significant were retail sales figures suggesting the US consumer was feeling the pressure of higher inflation and borrowing costs.
If US consumers hold back on spending materially, fear is it could tip the US into recession. Compounding poor US retail sales, major US DIY stores said they were seeing a slowdown in demand.
“A trio of unwelcome developments helped push down stocks on Wall Street, with April’s US retail sales coming in lower than expected, Home Depot results showed homeowners are putting off projects and Elon Musk saying Tesla would not be immune to the global environment,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
The FTSE 100 closed down yesterday due to soggy US data, and the selling persisted on Wednesday.
Although the FTSE 100 has suffered this week, the defensive nature of the index was demonstrated in the mild nature of selling. Indeed, most of the selling on Wednesday was stock-specific and there were few major movers.
JD Sports
Despite the doom and gloom around consumer spending, FTSE 100 retailer JD Sports is eyeing £1 billion profit for the year for the first time.
Demand for the latest trainers and designer sportswear has proved to be more inelastic than other consumer products and JD Sports expansion in recent years is paying off.
“JD Sports has raced ahead as the demand for the latest shoes and athleisure-wear shows little sign of abating. It’s expecting profit to exceed £1 billion for the first time this year,” said Susannah Streeter.
“Brand power is showing little sign of losing its prowess on the retail track with a pair of the new must-have trainers still proving a huge draw, despite pressures on budgets.
“As JD Sports has hurdled the cost-of-living crisis, pre-tax profit for the year to January came in at £991.4 million, ahead of guidance. It’s now ramping up new store openings, taking advantage of the renewed enthusiasm to browse in bricks and mortar shops once more.”
Despite to positive update, JD Sports shares closed down 3.7%.
British Land followed Land Securities in marking down the value of their portfolio due to economic uncertainty and flexible working trends. Britsh Land’s portfolio value fell 12% in the last year. However, their CEO was optimistic about the outlook for the coming year.
The Isle of Man-based Challenger Energy Group (LON:CEG) has an intensive programme of investor presentations over the next two weeks, which will inevitably generate fresh interest in the group and its various prospects.
Challenger Energy Group engages in the development, production, appraisal, and exploration of oil and gas properties.
It is a Caribbean and Atlantic-margin focused oil and gas company, with a range of oil production, development, appraisal and exploration assets and licences.
The company’s portfolio of opportunities represents a mix ranging from valuable production assets located onshore in Trinidad and Tobago, near-term appraisal and development projects in Trinidad and Tobago and Suriname, and high impact offshore exploration assets located in The Bahamas, Uruguay and Trinidad and Tobago.
The group’s-management team and staff base have a broad range of skills as well as deep technical and industry experience.
Its property portfolio consists of five producing fields and one dormant field in Trinidad and Tobago; a 100% working interest in AREA OFF-1 block in Uruguay; 100% interest in four exploration licenses in the Bahamas; and a 100% interest in Wag naar Zee Project, Suriname.
I understand that its interest in Suriname and in the Bahamas are now considered ‘non-core’ and that a disposal programme is well underway, the funds from which will be easily reinvested.
The Namibia connection
The company considers that the conjugate margin super-discoveries in Namibia have also validated its early entry strategy in Uruguay.
Specifically, the company was the first operator to enter Uruguay in 2020, pre-dating the conjugate margin discoveries offshore Namibia.
Until the start of 2022, the Company was the only offshore acreage holder in Uruguay, having bid for the AREA OFF-1 licence on the basis of a modest, low-cost work programme.
However, since the discoveries offshore Namibia, five blocks offshore Uruguay have been awarded, all in 2022, to Shell, APA Corporation (formerly, Apache) and YPF (the Argentinian state-owned oil and gas company), such that now all but one available Uruguay offshore blocks is licenced, and the company is the only junior present.
Those blocks secured by the majors surround the Challenger Energy acreage, with those companies having already committed exploration work programs of over $230m.
The Uruguay asset is core to the business and is both highly marketable and highly prospective.
CEO Eytan Uliel stated that:
“In 2020, when no other parties were ready to commit, Challenger Energy was first-mover into offshore Uruguay, securing the AREA OFF-1 block on an uncontested basis and on highly advantageous work terms.
Since then, margin-opening discoveries offshore Namibia by TotalEnergies and Shell have made it possible to correlate what are now proven, oil producing source rocks directly across into the conjugate margin basins of Uruguay’s waters.
As a result, Uruguay has become a new global exploration hotspot, evidenced by the fact that in the last 12 months all but one of the available offshore blocks have been licenced by oil majors and NOCs, bidding sizeable work programs.
The results from the AREA OFF-1 work program have been extremely promising, in that the company now has a technically supported prospect inventory of between 1-2bn barrels in that globally attractive exploration hotspot.
The group’s next-step objective is to farm-out to an industry partner, so that it can fast-track a 3D seismic acquisition. The high-quality data set now compiled, and the intellectual property created, positions the company well, and it is shortly expected to initiate a formal farm-out process.
Significant Shareholders
The Aim-quoted company some 9,620,199,479 shares in issue.
Larger holders include Hargreaves Lansdown Asset Management (10.22%), Bizzell Capital Partners (Stephen Bizzell NED)(9.51%), Choice Investments (Dubbo)Pty (8.70%), Rookharp Capital Pty (5.49%), Jarvis Investment Management (4.35%), Merseyside Pension Fund (4.34%), GP (Jersey) (4.05%), RAB Capital (London) (3.80%), Interactive Investor (3.59%) and Maybank Kim Eng Securities (3.12%).
Private name holdings include Eytan Uliel (CEO) (5.67%), Baktash Manavi (3.51%) Simon Potter (NED)(0.74%) and MHCNZ Trustee (Mark Carnegie) (5.82%).
Analyst Opinions – looking positive
Brendan Long at WH Ireland, the group’s NOMAD and Joint Broker, has produced a lengthy evaluation of the company and is very expressive and positive about its Uruguay interests, describing the company as a ‘hot property’.
Increased profit contributions from antenna and water distribution businesses helped to offset lower profit from the distribution operations at MTI Wireless Edge (LON: MWE). Demand for antennas in India has been lumpy, but the long-term outlook is positive.
The move from loss to profit in the antennas division was down to increased demand from the defence sector. 5G demand was weaker in the first quarter, mainly due to the lumpiness of demand from India, which is the bid regional growth market. There will be further orders this year and the Indian factory has capacity to cope with the demand.
The Mottech irrigation business is starting to see the benefits of the price rises put in place. Two long-term contracts were won in Israel worth $2.2m.
Distribution profit was much lower in the first quarter, but the outlook is positive. Defence demand remains strong.
In the three months to March 2023, revenues edged up by 1% to $11.3m, while pre-tax profit grew from $974,000 to $1.12m, helped by additional interest on the cash pile. Net cash was $8.5m at the end of March 2023, although the final dividend of $2.5m is paid in the current quarter.
Allenby forecasts 2023 pre-tax profit of $4.79m, up from $4.32m last year. Net cash should improve to $9.4m by the year end. The share price rose 1.5p to 50.5p, which is 17% lower than one year ago. The shares are trading on 15 times prospective earnings, which does not reflect the longer-term potential.
Retailer Frasers Group (LON: FRAS) has taken advantage of the recent slump in the online fashion retailer ASOS (LON: ASC) share price to increase its stake from 5.1% to 7.4%.
Frasers Group has built up stakes in other retailers and it does not mean that it is interested in bidding for ASOS. It may just be seeking a turn on its investment.
On 11 May, T Rowe Price reduced its stake in ASOS from 5.98% to 3.23%. Since the beginning of May, the share price has fallen from 736.8p to 382p at one point. Today, the share price recovered by 7.1% to 427.1p.
On 22 February 2022, ASOS switched from AIM to a premium listing after more than 20 years on the junior market. Prior to leaving AIM, the share price was 1950p.
After a boost from Covid lockdowns, trading has got tougher for ASOS and there have been management changes in recent years. The focus has changed from growth to profitability.
There has been negative broker coverage since the recent results. The interims show a move from an underlying pre-tax profit of £14.8m to a loss of £87.4m on revenues falling from £2bn to £1.84bn.
A major concern is that ASOS may require a cash injection. Net debt increased to £431.7m at the end of February 2023 and cash outflows look set to continue.
Egdon Resources (LON: EDR) is recommending a 4.5p a share cash bid from Petrichor Partners. This values the UK-focused oil and gas company at £26.6m. The share price jumped 89.1% to 4.35p, which is the highest it has been for six months. Petrichor is owned by HEYCO, which provides services and capital to oil and gas projects in the US and Europe.
Chaarat Gold Holdings (LON: CGH) has signed a non-binding letter of intent for a potential equity investment of $250m by Xiwang International Company at 20p a share. That is well above the current share price of 12.5p, up 41.6% on the day. The share price has not been as high as 20p in for one year. This would help to finance existing projects and acquisitions. The final terms are being negotiated.
Xeros Technology Group (LON: XSG) has signed a ten-year technology licence and distribution agreement with KRM Tekstil Boya, which will distribute denim processing equipment. Denim processing uses lots of water and energy and this will be reduced by this equipment. Xeros will receive a royalty on each machine sold and will supply XOrbs for the machine. The launch will be later this year. The share price is 33.9% to 4.15p, which takes it back to around the level it was at the beginning of the year.
Mirriad Advertising (LON: MIRI) has raised £5.75m at 3p a share and a five-for-21 open offer could raise up to £2m more. This has reassured the market that Mirriad Advertising will have the cash to continue trading for a while and the share price rose 18.3% to 3.55p. The cash should last until June 2024, but it will take longer for the business to breakeven.
Purplebricks (LON: PURP) is selling its business for £1 and assets to Strike Ltd and cancelling its AIM quotation. That should leave £5.5m in cash in Purplebricks. The cash remaining after costs, which could be £2m, will be distributed to shareholders, but that won’t happen until early next year. The share price has slumped 42.2% to 0.761p, which values the company at £4m.
Healthcare IT provider EMIS (LON: EMIS) shares have fallen due to the continued uncertainty over the 1925p a share cash bid for the company. The share price declined 12.6% to 1364p. The UK Competitions & Markets Authority is launching a phase 2 investigation into the UnitedHealth Group Inc bid, even though concessions were made by the bidder.
Redx Pharma (LON: REDX) is evaluating its options to extend its cash beyond the first quarter of next year. There was £34.6m in the bank at the end of March 2023. Lead asset RXC007 is progressing well through a phase 2a clinical trial in idiopathic pulmonary fibrosis. There is enough cash to produce the phase 2a data. The share price fell 5.63% to 33.5p.
Pantheon Resources (LON: PANR) has raised $22m at 17p a share. This will fund the flow testing of the Alkaid#2 well in Alaska, a competent person report on the company’s oil discoveries and further development and exploration. The share price is 5.38% lower at 17.22p.
