With the small cap markets continuing to be dire it is unsurprising that we are seeing an increasing number of take privates at relatively low valuations – the most recent example being Kin & Carta. We are constantly monitoring for such potential transactions and our latest thesis is a new twist – identifying an opportunity through the eyes of private equity. We believe that Brickability Group plc (BRCK) is such an opportunity for a private equity buyer that can look beyond the next 12-18 months. This is not an engagement idea in the traditional sense where change is required– we believe that the company has demonstrably delivered since becoming public and continues to execute in a difficult environment. This is a good company with a strong long-term outlook that presents a potentially good investment opportunity for public investors. We have made our presentation available at Theses – Moulton Harrox Members (mhmembers.com), highlighting how PE might look at the company and why the current valuation makes it attractive (fundamentally and relative to related peers such as SIG, Forterra, Ibstock, Michelmersh, Marshalls and Travis Perkins) with the hope that the market doesn’t allow a low-ball offer to succeed.
We are also now publicly publishing our engagement thesis on Character Group plc (CCT) as the company have so far not responded to any attempt to communicate and engage with them. Our presentation is available at Theses – Moulton Harrox Members (mhmembers.com). To be clear, this is not a short thesis, but our thoughts on a good company where we believe shareholders could greatly benefit from improvements in governance and management remuneration. We are calling on investors in CCT to contact us (https://mhmembers.com/contact-us/) with their views on the company and the potential for engaging proactively.
The Avacta (AVCT) AGM earlier in the year provided clear feedback to the board that shareholders were looking for more communications with clearer signposting on commercial outcomes amongst the phenomenal science. While our questioning at the AGM resulted in the CEO stating his view of the high probability of the company’s lead asset becoming a billion-dollar drug, the market has continued to shrug its shoulders. Since the AGM, we believe the company has followed through on communications through both RNS and social media – at this point it is difficult to see what more they can to do state more simply to the market that their platform works and could well change the oncology landscape globally. Like most other shareholders we feel there isn’t much to do but wait patiently for detailed Phase 1a data on AVA6000 to be released in the coming weeks as the catalyst that makes the company’s undervaluation too obvious to ignore.
Bidstack (BIDS) is currently trading at a level that expects insolvency. While we were successful over the summer in bringing about a reduced board size and improved cost base, a recently announced transaction that would have transferred value to a small number of insiders was another hit to the confidence of shareholders. However, following the action with fellow shareholders earlier in the year, the Bidstack Chairman has been open to dialogue and is seriously listening to the feedback we and others have been providing on what the company can do to improve investor communications and confidence in the company as an investible proposition. While we have been vocal in our view on the historic actions and inactions of the board, our intention and actions have always been constructive, factual and professional. Once funding is finalised, we now have some expectation of shareholder input bearing fruit.
The announcement last week of a funding solution for the company has not restored faith in the company with many pointing straight to the worst-case scenario and considering no others. Our interpretation of events is different. The strategic investor (Irdeto), with its nominated board member, knows exactly the position regarding a potential settlement with Azerion and the revenue potential of upcoming commercial deals that VST (the announced insider transaction structure) was aiming to agree. We hypothesise from the wording of the VST transaction announcement in September that the commercial agreement relates to the NFL, an organisation that knows a thing or two about making money from sponsorship and advertising. We believe, therefore, that Irdeto has stepped up to protect its £5m investment last year to retain all the value in the company with a ‘bridging’ facility to one or both above positive outcomes, and that the CLN they are providing may not get fully drawn or converted. As the well-worn investment saying goes, being early looks very much like being wrong. There is no doubt we were too early on the investment case for BIDS but the next few weeks and months are set to define whether we were wrong and whether the newly re-focused board can take the action needed on management and investor communications to make an investment a success for shareholders.
I am looking forward to attending the Tirupati Graphite (TGR) AGM this week and hearing more on funding options and the board’s plan for restoring confidence to a share that is completely dislocated from the underlying value of the assets and the progress the company has made. The Chairman took the non-traditional step of inviting individual investors to meet with him during his time in London a few weeks ago. I was one of those lucky enough to spend some more time discussing the business with him. His passion for the business and continued tenacity in growing without diluting shareholders is impressive and differentiated. The company continues to adjust its operations to achieve growth within its current means while exploring every available non-dilutive funding option to accelerate plans. There are many boards who would have continued to plough on and take the ‘easy’ option of a dilutive equity raise with no concern for shareholder value. We give the board credit for acting rationally and hope the AGM (and pre AGM presentation) goes some way to further addressing shareholder concerns.
Finally, an honorary mention for ECR Minerals (ECR) where we have no involvement whatsoever. The new team there have simply gone in and set a new standard. For those that haven’t seen in recent weeks the new board has:
- Cancelled all 54m options of board members to limit dilution to shareholders
- Taken optically difficult decisions in the best interests of the company and shareholders
- Significantly increased transparency with a marked uptick in the frequency and clarity of news flow
- Showed a clear focus on per share intrinsic value
We encourage all AIM boards to review what the team there are doing and follow their lead.
