Sorbic Share Discussion Threads

[the count of monte_cristo] 27/3/2012 10:41

...dont like yesterdays RNS

[azalea] 14/3/2012 10:18

Looks like the MM are keen to mark up the share price despite very modest volume as the prospects of an Aprilstart up of the potassium sorbate production line draws near, followed by the sorbic acid line, 3 months later.

[azalea] 01/3/2012 16:01

With the share price trawling close to the bottom of its three year 10/45p range,I have decided to take a small punt of 20k @ 11.50p. If the Spring and Summer start ups are achieved, there could be some notable upward movement. However, 2013 should be a cracking year. I note the chairman bought 136.5k in the 11p placing.

[azalea] 01/3/2012 12:03

I am watching. However,according to Morningstar, it appears that the only director with a holding is the chairman. None are held by the CEO and CFO. does anyone know different?

[the count of monte_cristo] 01/3/2012 08:46

Buy price is 11.4p (:

[aaainvestment] 28/2/2012 12:17

I've only taken a small position is this so far £2k but will consider increasing based on events and increasing knowledgeof the company, would have waited a little longer to get in had the factory not been so close to production. Not worth worrying about the slight fluctuations in SP; Moathunter, IMO your buy in price will be surpassed easily if they make a go of the new factory, patience is required or as you say it's possible to become the driver for the share price

Personally I would take previous performance with a pinch of salt, I believe a strong turnaround is possible for the reasons outlined in my previous post.

I also read that the main alternative preservatives may have various madical complications, if that issue were to ignite then the entire dynamic of the sorbates supply chain could be turned on its head - I'm reconciled to sit on my investment for a few years if necessary.

I took a look at the images of the new factory and it certainly looks like they got their moneys worth. - cionstruction must be cheap in Mongolia.

[moathunter] 28/2/2012 10:42

AAAinvestment- here's a couple of *possible* disconfirming points to your thoughts above:
"the previous owner got the benefit of an increased shareholding through meeting profit targets - not hard to guess whats happened."
Referring to Ray Ang Wee Boon, he still owns 55% of SORB and built up the original company over 7 yrs. Both points suggest a majority shareholder who takes a long-term view and unlikely to frontload, do aggressive accounting and defer Capex.

I think more likely the then LVST could afford to cherry-pick the most profitable contracts during 2005-8's assumed supply-demand imbalance (high demand, constrained supply since it takes time and risk to build new output).


"that directors and/or major shareholders may have a vested interest in keeping the share price down"
Certainly. Yet perhaps in this circumstance, esp. raising capital via share placing to fund the expansion's working capital (and therefore critically hasten the realisation of future cash flows released by the new factory), a down-trodden share price is strongly to their disadvantage.
~~~~~~~~~~~~~~~~~~~~~~~~~~~

One bullish point: the recent profit fall could be considered a natural part of a cycle for such industries: long-term bulk pre-priced customer contracts, allied to fluctuating raw material and energy prices = volatile profits over a decade period. So the financial results need normalising.
I.e. a high probability that profits will revert upwards to a long-term average.

Second bullish point: look at market share distribution- one massive market leader in Wanglong Group, top 10 sorbate producers owning say 90% of the market and many tens of preservatives producers serving the remaining small market share for customers wanting tiny batch runs of sorbates+other food additives combined.
That market share distribution is power law distributed or "80/20", strongly suggesting that the leaders including SORB having a source of competitive advantage- likely major economies of scale (and other sources such as customer switching cost/ order fulfilment capability).

Such competitive advantage, coupled with expected market growth and low threat of substitution away from sorbates... ... well let's see what happens over the next 3 yrs.
(I stupidly 'chased' the share price to 22p recently (but it's very thinly traded), so you know where I stand).

Anyway, I really dislike talking positively about current holdings. It screws your judgement, so no more from me on this.
I'd be delighted to oblige any holders feeling nervous and wishing to sell :)

[aaainvestment] 27/2/2012 14:09

Yes, profit fell off a cliff, and if I recall that was after the previous owner got the benefit of an increased shareholding through meeting profit targets - not hard to guess whats happened.

I considered that before buying and assumed the possibility of some degree of manipuilation/creativity which would impact on subsequent years i.e front loaded deals that didn't adequately cover materials price escalation and deferring expenditure into subsequent years!

Clearly they would never disclose this even if it were true, but there are hints in latest RNSs - including getting out of previous contracts and not entering new ones without proper safegaurds. I bought in on the basis that margins will improve at the existing site and be world-class at the new one.

One other thing I always bear in mind with companies like this is that directors and/or major shareholders may have a vested interest in keeping the share price down, or at least have to interest in trying to support it, especially when they are beneficiaries of placing. That all changes when the development is complete.

All IMO of course

[serratia] 27/2/2012 13:36

AAA,

The potential here is what keeps me watching.The market is growing and is not likely to be substitued.I doubt if they'll drop big volumes into the market place at first as that would affect prices.I assume they'll transfer volume from the old to new sites first.
The ecomomics of the new site are in their favour so costs should fall and margins improve.What still bothers me is that they don't appear to have control of their raw material prices.Gross profit is very poor.
If I find time I'll try to see if I can find any G.P's for their competition.

[aaainvestment] 27/2/2012 12:44

serratia - thanks for the links, Idid a bit of checking at the weekend.

Very interesting about the European cartel and subsequent fine - it must be very lucrative and difficult for new entrants to gain market share in order to operate that system!

A couple of things spring to mind, first "old habits die hard" and there are likely to be simmilar "anti competitive" arrangements in other parts of the world and competitor companies that will defend market share even if it means nobbling (or buying out) the opposition. Sorbic's new production facility has huge expansion potential from the same site and I assume their production costs will be a match for anyone in the world, and beat most, so I suspect competitors will have a close eye on Sorbic and their contracts. Particularly No1 and No2 in China, as they risk losing the most I suppose.

The second link suggests that the Wanglong Group is the world biggest producer (actually says "facility" not production) "35000 MT Sorbic Acid and 25000 MT Potassium Sorbate".

Interestingly when Sorbic's Mongolian site is fully operational with 2 lines it will have a combined capacity for 15000MT Sorbic Acid and Potassium Sorbate - seems to me that they they will become a major player and the increased supply capacity and reliability should mean they a get better contractual terms as a supplier of choice.

If they fully expandeed in Mongolia they will have production facilities for approx 37500 tonnes/annum according to my maths and presumably be a real thorn in oneones side

This has the makings of a very attractive growth company IMO, just need to get the factory open and release of a few shares by the main shareholders would help.

[serratia] 24/2/2012 17:28

AAA,

Here are some of the large ones.



The biggest with capacities.

[aaainvestment] 24/2/2012 16:47

I quite like the look of this, just bought £2k at 13p - just had a placing announced, price only slightly above placing and new factory about to come on stream - no more shocks hopefully.

It's hard to see the positive when you've been in a long time and lost money, so some readers may well regard my comments with scepticism - but thats the way it looks to me today.

Negatives are obviously, liquidity, fear of being stitched up be majority shareholders and loans by management or insiders(I hate them because it allows them to legally steal the company from shareholders if the company hits a finmancing snag).

Anyway all in all looks a good punt, and the business proposition is very appealing in a massive growth sector. Good luck to all.

As third largest supplier are they a potential takeover target??, Does anyone know the identity of the main competitors - hope its not Unilever and Kraft. lol

[serratia] 22/2/2012 12:46

Fund raising.

[azalea] 18/1/2012 09:33

morgann(your 95 0f 97}
Whatever the theory, in reality you cannot have a holding in a company that is greater than 100% of the shares in issue.

[serratia] 14/12/2011 14:18

Results out,volume increased but gross margin fell again to 9.8% in the second half resulting in a small loss H2.

It looks as though they're unable to increase prices but take on increased raw material costs.
They need the new plant which has a long delay from original estimates.

[jonny flame] 02/12/2011 19:47

OK good point morgannn

[morgannn] 30/11/2011 15:49

Johnny,the shareholdings are not quite as they seem.
John McCleans holding is within Albany BUT FOR REGULATORY PURPOSES HAS TO BE DECLARED.
For this reason its quite possible to to have a total holding figure in a company over 100%.
Also I believe Prime Megas holding is now nearer 50% so it looks like there is at least 20% in free float.

[moathunter] 23/11/2011 11:36

I think SORB is half priced at £11m / 22p (based on 52m shares fully diluted- see my post 61 above) and estimate its true value is around £25m / 48p.

In essence, SORB manufactures a food preservative which is very safe and has been in existence since the 1960s.
Commodity-like prices? Check out its high historical margins. This is believed due to economies of scale (high fixed cost of production and distribution) and scope (solely focussing on sorbate preservatives and nothing else whatsoever, so they know the least energy and raw materials needed to yield the most preservatives etc.).
However, these high profits were likely due to temporary high demand, constrained supply imbalance, so it needs adjusting downwards for conservative projecting forwards.

The company has built a new factory to increase production capacity by 100% in the next couple of years, with such an expansion being very low risk and simple for them- they've increased by 50% a few years ago. So it's a high probability that they'll double revenue without a hiccup with this oncoming expansion.

More importantly, their new factory is in Inner Mongolia, with cheaper land, cheaper energy and tax benefits than China. This is the equivalent to UK manufacturers in the past moving their production eastwards- first to Eastern Europe and then to Far East. As a 3rd largest sorbates manufacturer in the world, it would appear they are ahead of their rivals' cost curve and so should maintain their position and subsequent above normal profitability for a decade or more.

Also there's the back drop of secular long-term demand for sorbates as a few billion Chinese and Indians become more urbanised and hence need more preserved shelf food over "eat on day it was picked" food.

Directors own over 80% of the shares. Net asset Value at present is £15m with no intangibles on the balance sheet and some of that £15m is a nearly complete new factory currently standing idle (and therefore worth more when it's an operating asset). SORB should realise £26m revenues in the next few years and £2m+ annual free cash flow to be worth around £25m.

[jonny flame] 17/11/2011 13:34

morgannn -

Very tightly held!

[morgannn] 16/11/2011 19:21

Re tightly held.
Does anyone know the % of shares in freefloat.Last time I had a look it appeared that over 90 % were held by about 5 investors?

[jonny flame] 15/11/2011 18:28

I am liking this rerating up almost 100% from its recent lows.

[jonny flame] 12/11/2011 16:13

Nice to see this keep rising.

The stock is very tightly held so even small buying (and conversely selling) moves this stock. I see it as an excellent long term hold, IMHO.

[azalea] 07/11/2011 09:48

A nice tick up this morning on a mere 5000 buy @ 15p. free float very tight. We should get good news before year end(see update).

[azalea] 28/10/2011 08:04

With 7Bn people to feed, food preservatives will become increasingly important and in greater demand.

[jonny flame] 27/10/2011 18:04

Yeah, I think this is a pretty good long term hold. SORB & CFC are my Chinese direct exposure shares, also give me exposure to food and increasing consumption.