Densitron Tech. Share Discussion Threads

[valhamos] 01/3/2012 13:39

pentangle

Thanks for your comments and explanation of rectification. I think it is almost inconceivable that DSN would have sold Ferrograph with DSN still acting as a guarantor for the lessee, knowing that Trueform were likely to move the company elsewhere to save costs. What you say makes sense.

[pentangle] 01/3/2012 12:53

I took advantage of a buying price of 8.68.

callumross - they are doing what is sensible by helping the landlord relet as no litigation is 100% certain as to the outcome ie they are mitigating any possible loss. Did you read the preceding posts when you talk about wiping out future profits? In an absolute worst case and highly unlikely scenario. ie the landlord 100% wins his case and the building is unlet until 2023, it would still only account for 12.5% per annum of the forecast profit, based on 2012 forecasts. Chances are the outcome will be in the 0 - 5% range.

[callumross] 01/3/2012 12:45

Wouldn't touch this with a bargepole to be honest. it is not just the £370k . It is an ongoing commitment that will wipe out (or at least provisions will have to be made) from profits for the foreseeable future until or if it is settled in the company's favour. The fact that they are asking the landlord to relet the property suggests that they know that they have an ongoing liability!

[stegrego] 01/3/2012 12:40

What is rectification?

It is an equitable remedy by which the Court can correct an error of expression in a written document that does not match the intention of the parties to that document. It follows that it is a remedy that is available only in relation to written contracts and other documents. You cannot seek to rectify an oral agreement.

----------------------------------------------------

The above reads to me like its the landlord clutching at straws. If they were written directly into the lease then the claim would have been made 2 years ago.

Ive bought a small amount this morning.

[lcd interest] 01/3/2012 12:21

unpaid back rent - what period from to??

the share price is tumbling

[cupra kid] 01/3/2012 11:57

Sharecast:

Densitron, an information display systems manufacturer, has announced that the landlord of premises previously occupied by the firm's form subsidiary, Densitron Ferrograph, located near Newcastle, has instigated legal proceedings against the company. The landlord is seeking to make Densitron Technologies the tenant under the lease and involves a claim of around £300,000 in unpaid back rent. If the action were to succeed there would also be a liability for unpaid past business rates of approximately £70,000. Densitron intends to "defend the claim vigorously" but at this time the outcome cannot be forecast with any level of certainty. Shares lost 20.45% to 8.75p.

[investopia] 01/3/2012 11:50

Of course we don't know, but it looks like the 'desperate' landlord is chancing his arm, here.

He may well wish that the original contract was worded differently, hence his stab at getting it retrospectively changed through the process of rectification, but Densitron are probably happy with the original wording, which they'll probably argue was written as intended.

Reading a bit of Pentangle's link, it seems that rectification only works if both parties agree that there intentions have been misrepresented in a contract's wording. In this case, we very clearly have one party that doesn't hold that view, so it seems unlikely to succeed on the basis of rectification.

What do you legal types out there think?

[owenski] 01/3/2012 11:03

This stinks.

I had a small amount in here pending its results. The ongoing business may indeed be sound, but this 'oversight' has a taint of incompetence about it and the scale of the liability relative to its m,cap and recent profit is egregious.

I sold first thing for a loss, I'm not pleased but thats part of the deal when one 'invests'.

I dont like news of this sort and it is potentially a value destroyer. If this was a midcap, then whilst not good news, the situation is small beer, that is not the case here. I expect the share price to decline further, either way I'm out.

Commiserations to all of us.

[woodcot] 01/3/2012 11:03

2 very interesting posts/comments Pentangle.

[pentangle] 01/3/2012 10:52

Having looked at this, I think this is an overreaction and a buying op. I do not normally average down, but am tempted here.

Lets say the landlord is 100% in the right - an extremely unlikely scenario and much more likely that he has no case. But anyway, a hit of 400k as an extraordinary item is not much of a hit as they have cash in the bank - over £2m at the interim stage. Maybe worth 0.5p off the share price (400k/7610k mkt cap x 11p).

Ongoing it would be extremely unlikely that the building cannot be let at a low rent so I think a cost of 80k a year, which I mentioned in my previous post, ongoing is realistically the maximum exposure. Now this is a company which looks like it made c£1.3m profit before tax in 2011 and the house broker has penciled in £1.8m for 2012. So maybe worth another 0.5p off the share price (80k/1800k x11p).

Therefore on a worst case and unlikely scenario this has reduced the value of DSN by 1p per share. However, we are all in this company because we thought they were grossly undervalued are we not?

As a final point this is not a skeleton which I think the current management could reasonably have been aware of. It looks to me that the landlord is somewhat desperate, and has come up with rather random claim - which is not to say it has no substance whatsoever. Its regrettable, but I do not think it should affect our confidence in the present management.

[gerd212] 01/3/2012 10:21

Trueform appear to still be trading, depending on the terms of the sale a counter claim against them may be possible?

[seansean369] 01/3/2012 10:08

Liability for the lease will depend upon the terms of the lease, Denistron may have no direct contractual liability under the terms. Also, any claim may have time-barred now in any event. It isn't great news, but it isn't conclusive. I do wish businesses and lawyers would stop using the word "vigorously", it kind of adds nothing to a statement of intent to defend.

[cfro] 01/3/2012 10:04

But we do have very strong mangement here with Jan H and Peter G of whom i have a great deal of faith to sort this mess out.

Like davidosh im not happy about it. For me it seems one thing after another atm but i do think there is a way forward here and Peter G.....as im sure davidosh and others are fully aware of......has an enormous amount of experience in property buying and selling and letting etc. If anyone can sort this out then he can imo.

Above all else we should not let this cloud the overall performance of DSN.

[saucepan] 01/3/2012 10:04

Important point, davydoo. Current management may not be culpable. I was not aware of the extent of boardroom change. Whether the new board members should have known about past skeletons is more difficult to judge.

[davydoo] 01/3/2012 10:00

Im taking a close look this morning. Isn't it different management Saucepan? or are you saying existing management should have known about past skeletons?

[saucepan] 01/3/2012 09:56

I have no wish to talk DSN down: one of my self-imposed investment maxims, which I have found has worked well for me over the years, is never to return to a stock that I felt I did not call correctly first time round with regard to the timing of my investment. I am not looking to buy back into DSN cheaper.

However, for the sake of completeness on my own comments above: one of the other things that nagged at the back of my mind is how this reflects on the competence of management. Arguably, the situation should never have been allowed to rise in the first place.

Strong management is one of the really essential features of ZULU stocks.

[cfro] 01/3/2012 09:03

Some very good posts above guys.

I can tell ya, im holding on tight to my holding and not selling a bean.

My opinion is this: These leasehold gaurantees are often very well tied up and extremly difficult to wiggle out of. FWIW i think DSN will have to pay up. It seems the claim is for £300k plus another £70k in rates, so £370k in total. If they are in the wrong it would be better for them to settle out of court imo.

I have great confidence in our management team consisting of Peter Gyllenhammer and Jan Holstrom. Peter had a great deal of experience in property and letting etc. and will know exactly what to do.

In a worst case situation and we do end paying, it can be easily met by our cash reserves, so no problem. Future profitabillity should not be affected either way.

As Glasshalfull says above, i think we can expect an 'inline' performance for the year that is all we ask. This is a buy for the brave at these depressed levels and i myself may well buy more too.

[lcd interest] 01/3/2012 08:58

It's not the first time Densitron has been in hot water, although back then they had money to waste on the rights issue. Saucepan is right, this will wipe out profits, run for the hills!

[pugugly] 01/3/2012 08:30

harrogate: Very good points - I suspect you are probaly correct -

Saucepan: As the lease runs " until 2023 and contains provisions for rent reviews in 2013 and 2018 and an outstanding rent review in 2008. The annual rent on the premises is currently GBP167,000 and the annual business rates on the premises are currently GBP60,000. The premises are at present unoccupied" this could well (imo) soak up cash for a considerable period of time - If the Coy is also liable for the business rates (unusual) then I suspect the lease must have been guarenteed by the company .

I was thinking of having a punt but in view of the comments above decided against it.

Thanks.

[harrogate] 01/3/2012 08:13

Hi

I had been looking at these since the "company" here is very good. A couple of things to think about here

Given the claim is for £300k but the annual rent is £167k clearly the claim for £300k doesn't cover all the period since 2006. My guess is that the buyer had been paying the rent then stopped a couple of years ago and somehow DSN was left as guarantor on the lease when the company was sold which is common.

What we need to think about is what ongoing liability there is ..It could be that it is £167k + Business rates until a tenant is found in which case that would be an ongoing impact on profits. Finding a tenant in that part of the country for a site of that size is not going to be easy so the impact might be more than you think. Just my thoughts

[saucepan] 01/3/2012 08:13

I can see your points GHF and Woodcot. However, I decided to take the hit on the bell and move on.

£300k is not that far short of half of last year's total profit. If things go against the Company, presumably there will be court costs as well.

These things tend to drag on, and will no doubt be a weight on sentiment for a while.

It may not be the right decision to sell, but I feel happier having made it.

[woodcot] 01/3/2012 08:08

Personally I think it's a storm in a tea cup, either way it is insignificant and great opportunity to top up.

MM's looking for cheap stock and anyone selling at this level is just panicking, playing into the hands of the MM's.

Let's see were the share price by the end of tomorrow.