Pure Gold Mining Share Discussion Threads

[paleje] 11/3/2014 07:24

In January's Trading Update we were told this as regards revenue:-

"Whilst the Board remains confident of meeting market profitability expectations for the full year, revenue is likely to be slightly below expectation due to greater pricing pressure in the global wafer reclaim market. Specifically, our competitors based in Japan are benefitting from changes in the USD/YEN exchange rate, giving them a competitive advantage relative to their home based costs."

Today we're told this (different story):-

"Whilst group revenue is marginally lower than for the comparative period, this follows a further planned reduction in the Group's solar division activities, reflecting reduced demand for domestic solar systems largely due to a change in UK government policy to reduce feed-in-tariffs."

That doesn't make sense.

[stockonomist] 21/2/2014 01:12

Silicon reclaim wafer market increases 14% in 2013, says SEMI
Press release; Jessie Shen, DIGITIMES [Wednesday 19 February 2014]
The worldwide reclaim wafer market is estimated at US$460 million in 2013 and is forecast to reach US$493 million by 2015, according to SEMI. Both revenues and number of wafers reclaimed grew 14% in 2013, with 300mm wafers accounting for 72% of the market by revenue and representing 48% of actual wafers reclaimed in 2013.

In spite of the strong unit growth last year, reclaim suppliers face a number of issues including: maintaining the current balance between supply and demand, availability of prime test wafers, and funding advanced reclamation capacity, including 450mm capability in the face of a depressed pricing environment.

Looking specifically at volume growth, for the past six years, wafer volumes in terms of million square inches (MSI) shipped trended in a similar manner to semiconductor unit shipments, with reclaim wafer volumes mirroring both. However, 2013 represented a divergence; semiconductor shipments increased 5% and virgin silicon shipments grew less than 1%, while reclaim volume shipments climbed 20%, SEMI observed.

Device shrinks and tighter inventory control partially explain the divergence but several reclaim suppliers noted that many of their customers found ways to reduce the number of virgin test wafers, either by increasing the amount of test wafers they reclaimed and/or starting fewer lines. Growth of reclaimed wafers in 2013 is considered an anomaly; annual growth rates for reclaim wafer volumes are expected to return to growth levels comparable with virgin silicon.

Japan remains the largest reclaim market in terms of numbers of wafers because of the installed fab base and prominent position of reclaim companies. However, Taiwan, driven by its foundries and dominance in 300mm processing, surpassed Japan in terms of revenues in 2013, SEMI noted.

Japan-based suppliers continue to dominate the market accounting for over 50% of the market's revenues. Globally, 62% of the worldwide market is served by domestic suppliers. This is a decrease from 2012, where almost 70% of the market was serviced by domestic suppliers; Japan-based suppliers, benefiting from a weaker Yen in 2013, expanded their international sales. With regard to capacity, Japan suppliers account for 43% of large diameter (200mm and 300mm) capacity in 2013, while companies in Asia Pacific represent 26%. The remainder of large diameter capacity is provided by companies based in Europe and North America. Year-over-year 200mm capacity increased 17% relative to 2012, while 300mm capacity increased 22% during the same period.

Growth of the silicon reclaim wafer market is closely tied to wafer starts and foundry utilization, SEMI indicated. Given positive growth expectations for this year and the next for semiconductors, it is expected that the silicon reclaim market will enjoy similar growth as well, especially if reclaim supply remains in balance with demand.

hxxp://www.digitimes.com/news/a20140219PR202.html

[jarbie] 11/2/2014 21:41

alan - a very useful and balanced review of the business

[alan@bj] 11/2/2014 21:22

I thought you might fly off the handle if you didn't get it, Broomsticks.

[broomsticks] 11/2/2014 20:03

Thank you for the full article alan@bj.

[alan@bj] 11/2/2014 15:09

Simon Thompson's tip in full:-

I have revisiting the investment case of a small-cap provider of wafer reclaim services on my watchlist, Pure Wafer (PUR: 82p). It's fair to say that the share price of this Aim-traded company is very volatile, having rallied 40 per cent from my advised buy-in price of 72.5p when I initiated coverage in the autumn ('Time to chip in', 10 Oct 2013), to a high of 101.5p on 21 January this year. That was within a whisker of my fair value target price of 105p. I have adjusted these prices for a 10-for-one share consolidation post my original article.

Subsequently, the price dropped by a third in a matter of weeks following a pre-close trading update at the end of January. It's one that I believe investors have misunderstood and certainly have overreacted too, making this a good time to buy ahead of half-year results that are due to be released during the week commencing 10 March.

Growing industry demand for semi-conductors/silicon chips

To recap, global market demand for semi-conductors/silicon chips continues to rise strongly which has been driving demand for 'test wafers' silicon chips. These test wafers are needed for testing, maintenance and calibration of semi-conductor manufacturing equipment. As a result, wafer reclaim is now an essential and highly specialised industrial process enabling the multiple re-use of silicon test wafers. And this is where Pure Wafer comes into its own as the company is one of the world's leading providers of wafer reclaim services which enable semi-conductor manufacturers to gain further efficiencies through greater re-use of silicon test wafers.

In order to meet growing industry demand, primarily from Asia and the US, Pure Wafer has been adding capacity to its production facilities in Swansea, south Wales, and Prescott, Arizona. As the leading European and US provider of 300mm wafer reclaim services, the company boasts a 'blue-chip' customer base including most of the world's largest semi-conductor manufacturers and independent foundries. Intel, Samsung, IBM, Texas Instruments and HD MicroSystems are all clients and the company works closely with them to design and develop a service that delivers reclaimed wafers to their exact specification. It's an important source of income as revenues from 300mm wafer reclaim services account for about 70 per cent of Pure Wafer's total business.

The planned 40 per cent ramp up in capacity of 300mm wafer reclaim services is clearly going to plan with all equipment required for the increased output in Swansea now installed and ready for manufacturing production. The installation of the additional manufacturing equipment for Prescott, US, will start shortly and is set to become fully operational during the first half of this year. This is good news for profits, which had already shown a sharp recovery in the last financial year when Pure Wafer reported pre-tax profits of $3m (£1.8m) on revenues of $37m in the 12 months to June 2013.

In fact, latest guidance is that profits are bang on target to hit the estimates of house broker WH Ireland. Analyst Eric Burns expects cash profits to rise from $6.3m to $6.6m in the 12 months to June 2014. But with the benefit of cost savings, a lower depreciation charge and the operational gearing of the business, this is expected to feed through to a 30 per cent hike in pre-tax profits to $3.9m. On that basis, WH Ireland is forecasting EPS of 14.7¢, or around 9p. So, with the shares priced at 82p, the prospective PE ratio is only nine.

Pricing pressure by Japanese rivals

That modest rating is partly explained by news in last month's pre-close trading update that the company is facing pricing pressures due to the weakness of the Japanese yen versus the US dollar. This has enabled Japanese rivals, who are already facing a declining domestic market, to more aggressively price their business to a global customer base. That said, Pure Wafer has been able to absorb the decline through cost control to date, so although WH Ireland reined back current year revenue estimates from $39.5m to $38m, up from $37m in 2013, there is no impact expected on profits. Eqaully important is how this situation is likely to pan out in the future.

In Mr Burns' view, there are three possible scenarios: either the pricing pressure will be alleviated by a strengthening of the yen/dollar cross rate; or faced with a declining domestic market some of the Japanese players will abandon the market altogether to reduce supply; or alternatively a growing global semiconductor market will put a floor on reclaim pricing. My take is that it will be market growth that will protect earnings of Pure Wafer especially as the factors driving industry demand are pretty strong.

Primarily these are the increasing requirement of memory, or DRAM, and technological change. For example, wireless chips have been growing at a compound annual growth rate of more than 20 per cent for the past decade, while demand for units of integrated chips are anticipated to drive demand for silicon and therefore wafer reclaim. Analysts predict demand from this segment will grow by about 8 per cent a year over the next couple of years. The foundry market is very important, too; industry experts predict growth of 14 per cent in 2014, which in turn should be good news for wafer reclaim.

So, although I am far from complacent, I can see ample drivers to support demand and boost volumes for the company's wafer reclaim services even in a more competitive pricing environment.

Strong balance sheet and cash generation underpin valuation

Investors also seem to be ignoring the fact that Pure Wafer has a very strong balance sheet and benefits from robust cash generation. Indeed, with the business generating $5.9m of annual cash flow from operating activities last financial year, and with the benefit of a share placing that raised £4.5m, the company's net debt has been slashed to only $1.6m, or 5 per cent of shareholders' funds of $33m, down from $12.5m a year earlier. WH Ireland expects the company to have net cash of $0.6m by the end of June after factoring the capital expenditure in ramping up capacity.

This bumper cash generation not only greatly improves the risk profile, but means that Pure Wafer has been able to fund its capital spend programme entirely from cash flow. And having refinanced credit lines with HSBC a year ago, the company has the flexibility of being able to tap credit facilities if it needs to. These are a £3.5m term loan over four years and a £1m revolving facility, both of which are attractively priced on interest rates of 3 per cent over Libor.

Moreover, with no financial concerns and a cash-rich balance sheet by mid-year, Pure Wafer's valuation looks even more anomalous on a peer group basis. Based on the business generating cash profits of $6.6m and factoring in a net cash position of $600,000 by June, the company is being valued on a enterprise value (market value less net cash) to cash profits multiple of 5.3 times. That is quite a discount to Pure Wafer's peer group: AXT (NSQ: AXTI) , Entegris (NSQ: ENTG) , Sun Edison and Shin Etsu (TYO: 4063) . These companies are all being attributed valuations between 33 per cent and 50 per cent higher using this metric.

Technical set-up

Following the sharp sell-off, Pure Wafer's shares based out around 65p, which neatly coincided with the 200-day moving average. In bull markets, it pays to buy shares on the dips when they retreat back to their long-term trend line and this looks no different this time. Furthermore, with the 14-day relative strength index reading only 50, down from 80 at the January high, there is ample scope for the recovery in the share price from this month's lows to continue.

Needless to say, I rate Pure Wafer's shares a buy on a bid-offer spread of 77p to 82p and feel that another attempt at hitting my 105p target seems highly likely in the next six weeks given we are guaranteed a bumper set of financial results and the valuation is hardly stretched at this point. If my target is achieved, the shares would still only be trading on less than 11 times EPS estimates of 16¢ for the financial year to June 2015. WH Ireland is maintaining its target price of 115p.

Please note that I have taken into consideration the fact that Pure Wafer is a small-cap company with a market value of £23m, the volatility of the shares and the bid-offer spread when making this buy recommendation. It's worth noting too that most trades can be executed between the spread.

[jarbie] 11/2/2014 14:51

Pardon my ignorance - is this not a one "product" operation ?

[speedsgh] 11/2/2014 12:16

Simon Thompson has updated his PUR tip today on the IC website + reiterated his 105p target.

[jbarcroftr] 10/2/2014 16:52

If you are correct the board should resign .They are over halfway through increasing capacity by 40%

[bookbroker] 10/2/2014 11:06

Not so sure this is a good buy or not, pressure on margins not likely to abate soon, neither competitive or currency pressures as well!

[puffintickler] 10/2/2014 08:19

Just watching the trades this morning, odd coincidence, every deal is a multiple of a number in the range 600-700.

So I think it is not a coincidence. Is this indicative of Bot purchases?

[newdocabat] 07/2/2014 08:38

Nice little write up in moneyweek this week. Too Cheap

[woodcutter] 05/2/2014 18:07

steg

i was referring to he manufacturing costs on the £/yen but i'd previous;y noted the sales cost in $/yen too.

I've held my very small holding and will wait to pick up more when the duty drops on AIM shares in April, unless of course there's a notable TA reversal in the meantime. Looks to have hit support at 64p but it needs to hold there.

I think the drop is based on next years earnings possibly missing, this years will most likely be okay.

What won't be helping is the general drop in consumer tech sales!

But i figure soon will be the time to buy, in anticipation of the next tablet/mobile/whatever tech cycle.

aimho

woody

[puffintickler] 05/2/2014 15:11

Yes, a good entry point for investors now.

[alan@bj] 05/2/2014 12:48

The drop of 25% since the trading update looks overdone. Revenue expected to be down 5% but profitability unchanged. BWTHDIK.

[napoleon 14th] 04/2/2014 12:54

I'm out on a decent (in view of circumstances) +20%

Will look again later, but I don't like PUR much.
After getting in there was that fundraising @ 3.5p (now 35p)
& it's been "dead money" for too long.

Bye bye!

[adamb1978] 04/2/2014 10:36

If this gets to 60p then PE gets to sub 7x! Took half my money off the table when the price got to aroound 9p (in old money terms) and would be buying back in again if its hits 60p

[mudbath] 04/2/2014 09:07

Currency movements were cited as a potential threat to competitiveness and thus profitability.
Does this however flag up that the good times are over for PUR in this notoriously cyclical industry?
Glad I sold as well ItchyCrack,even though the company could well continue to progress in the medium term and is looking cheap at current levels.

[aishah] 04/2/2014 08:40

Techinvest sold 40% of their holding and set a stop-loss of 68p. Has dropped through this now.

[itchycrack] 04/2/2014 08:37

Glad I sold out now, chart looking dire short term, 60p first support area.

[stegrego] 04/2/2014 08:21

Rate has moved 4 percent in PURs favour since the TU. Yet share price continues to fall.

[stegrego] 28/1/2014 13:01

Its the US/YEN rate that matters and that has been dropping for a couple of weeks.

You cant control or guess these things so its something i generally ignore.

[woodcutter] 28/1/2014 12:35

I'm becoming allergic to PUR

If the GBP keeps appreciating in value against the JPY the way it is this is going to be an exceptional buying opportunity and sit and wait for the currency reversal which will come at some stage. Mind you the JPY was even weaker in 2008 before the crash so interesting times ahead.

WC