Tekmar Share Discussion Threads

[rambutan2] 29/10/2020 20:51

Depends on what size of position they'd like, or what say in the price etc etc etc. Since BGF bought in, as I suggested on this thread at the time, I thought a raise likely. Although I never imagined it would be down here.

[leedslad001] 29/10/2020 20:20

Do you think Schroder would be adding if a raise was imminent

[rambutan2] 29/10/2020 20:01

Thanks dangersimpson for your comments. To my mind it is clear there is some sort of background issue as the share price has been down too long now. And that is despite Schroders adding. An upcoming share raise makes sense. imho

[thomshrike] 29/10/2020 17:38

At their recent participation on a broker conference, new mgmt never indicated the possibility of a capital increase. Instead in fact the company mentioned that it continues to look at bolt-on acquisitions. The WK build-up results primarily from the continuous delay of projects around the world because of the pandemic. But there is also a clear trend of customers - Orsted, etc - to extend payment terms. There is a natural limit to this, as Tekmar's products are critical to projects and represent a small part of the total cost of the each project. But to some extent this may also be a reflection of the company's unwillingness to lower prices. James's departure did not have to do with CF management. He left because he believed the company now needed a CEO that would have the experience and patience to re-organize the company, which is at this moment a clunky sum of 5 or 6 businesses, with plenty of room for margin improvement.

[leedslad001] 29/10/2020 17:19

See you in December then !

[jonwig] 29/10/2020 17:08

danger, #544, #547. Thanks for those!

[dangersimpson2] 29/10/2020 16:59

Why do you think net working capital would be higher in July than in October? NWC seems to be consistently higher at the end of September than the end of March: H1 H2 H1 H2£m Sep-18 Mar-19 Sep-19 Mar-20HY Revenue 7.1 21.0 17.1 23.8Stock 1.7 1.9 2.1 2.5Trade & other receivables 7.0 20.0 20.0 26.8Trade & other payables -2.8 -9.8 -8.4 -16.2Other non-current liab. -1.0 -0.8 -0.7 -1.4NWC 4.9 11.3 13.0 11.7NWC/Revenue 69% 54% 76% 49% Why do you expect July to be the worst month for working capital? (genuine question) I don't think they will need to raise if they pull back on the growth, however that may mean them not bidding for some contracts or losing some market share. None of which would be ideal, and I think that's why the founder CEO has gone. I'd like to be invested here, but for the moment I have scared myself off by looking at the balance sheet. The potential for a market growing at 15% for a decade is an enticing one, but so far I see them too undercapitalised to take advantage. The growth is sucking in capital, which is why the ROCE is so low. I need to get comfortable that this will now reverse and they can actually generate shareholder value by investing capital that will generate a return above their cost of capital. To do this I need to see the latest figures and hear the new CEO's plan to generate growth that enhances shareholder value rather than destroys it. Since they are in a close period this will be December at the earliest, unless, of course, they do a capital raise before then which addresses theses issues.

[1tommyt] 29/10/2020 16:10

Ok I think we have same understanding. But I think it is unfair to take a creditor due in October (the m£1.25) and compare to cash in July when the debtor position is so high and I think safe for all reasons stated. Clearly working capital is a balancing act with such high sales growth up 50%.I highly doubt without more m&a they will need a raise. I really liked the m&a I think they added value that is currently unrealised, but at 75p doubt we will see much more...

[leedslad001] 29/10/2020 16:06

You forgot to mention if your invested here

[dangersimpson2] 29/10/2020 15:41

1tommyt, You have to look in the Annual Report: hTTps://investors.tekmar.co.uk/app/uploads/2020/08/TGP-Annual-Report-FY20.pdf Note 2.(b): The Group held £2.1m of cash at the end of the year and also secured a CBILS loan of £3m in April 2020 (available through to April 2021) to ensure any short-term impact of Covid-19 is manageable. There are no financial covenants that the Group must adhere to. The level of cash at 31 July 2020 was £1.9m. So 31 July 2020 is after they had received the £3m CBILS loan, and after they had paid £1.5m for PipeShield on 9 April 2020 but not the remaining £1.25m on 9 October 2020. Note they say £1.9m cash, not net cash. There is no mention of payments being contingent on the Pipeshield acquisition: hTTps://www.investegate.co.uk/tekmar-group-plc--tgp-/rns/acquisition-of-pipeshield-international-ltd/201910100700043657P/ Equally in the AR, part of the Subsea acquisition was described as contingent in the AR but there is no mention of that for Pipeshield. So, if we assume no working capital movements or overdraft drawdown since 31st July 2020 then we would have £0.65m cash and £2.35m net debt. Working capital flows may, of course, reverse (I guess we will find out in the December results) but they say in the 2019 AR: We closed the year with unusually high levels of accrued income reflecting the significant volume of production activity in the final quarter (£13.5m). The majority of this relates to offshore wind projects previously delayed from the first half of the year. This balance unwinds into trade receivables as the contractual milestones are achieved. However, those levels of accrued income have not, in fact, reversed but remain high. Jonwig, Again, you have to read the AR to understand this fully, and in particular the notes to the accounts, rather than relying on the summary that is RNS'ed. Note 15 has contract assets of £14,969k up from the 'unusually high' £13,515k of the previous year. Note 2.(u) define contract assets as: Contract assets represent the gross unbilled amount for contract work performed to date, calculated by way of units assembled using either the input or output method – refer policy (e). They are presented as part of “trade and other receivables” in the balance sheet. If payments received from customers exceed the income recognised, then the difference is presented as “accruals and contract liabilities” in the balance sheet. So these definitely are unbilled. I am not saying that these are unlikely to be paid, as you say the amount of past-due receivables is low. My point is that banks are unlikely to lend against unbilled receivables which limits their ability to access trade receivables financing to fund growth. Hopefully, they will have completed project milestones, the majority will have been billed to customers and they will have received some payments. I'd like to see this in the accounts though, rather than just assuming it is going to come down. Particularly because revenue recognition has quite a bit of flexibility in it, and it did not come down from 2019 to 2020 as they initially assumed.

[1tommyt] 29/10/2020 15:09

Yes they also claimed to have credit insurance. Most clients are major project developers like the big 5 utilities so think low debtor risk. Main concern would also be building projects get delayed refusing early payments into TGP.

[jonwig] 29/10/2020 14:54

danger - the item in question is probably trade receivables. I brought this up at the 2019 AGM and was told that their debtors were all large, financially sound companies and they had no concerns about the debts being paid. (That's surely correct? Past-due is small.) That some of these are labelled "contract assets" might depend on future fault-finding, they don't explain. I think you've got contract assets wrong: they are conditional not unbilled.

[leedslad001] 29/10/2020 14:39

Do you own shares here?

[1tommyt] 29/10/2020 14:15

Sorry danger I think you are wrong the CBLIS was a post year end cash injection, as per RNS Final Results.The government wasn't handing them out even in March!So cash was m£2.1 + m£3(CBILS) and around £25m should move into debtors. Less the m&a payment that I assume will be subject to performance as is deferred. This was confirmed in a broker note but I can't seem to find it again, showing cash of c m£10 YE. (Less CBILS) I am a big supporter of TGP but only if it keeps it's healthy balance sheet position. I understand the issues of project finance and the lumps and bumps this can cause, and more often spook investors.

[dangersimpson2] 29/10/2020 14:14

A raise would make sense from a long-term perspective, but really if they knew they needed capital to grow this year, the time to raise was January when they probably could have got the raise away at £1.50. Today they'd get it away at 50p where the dilution will be worse. If anything comes of it I expect it to be when the HY results are published in early December. If you were going to put fresh capital in then you'd want to see the latest figures first. Given the weak share price, some kind of receivables financing would probably make more sense; there is over £10m of net working capital on the balance sheet. The problem is that £15m of receivables is contract assets, i.e. work that has been completed on projects but has not yet been billed to customers. Banks are highly unlikely to lend against unbilled receivables only on work that has been invoiced.

[simon gordon] 29/10/2020 13:28

danger, Good post! Maybe a placing for c.£5m to boost the balance sheet to deal with Covid and future growth?

[leedslad001] 29/10/2020 12:21

Nice take over target for someone

[dangersimpson2] 29/10/2020 12:08

I wonder if the market is a little concerned with the balance sheet here. In the Annual Report they say: The level of cash at 31 July 2020 was £1.9m. But this is after taking out a £3m CBILS loan and since then they have had to pay the final instalment for Pipesheild: The Consideration will be satisfied via £3.0m in cash and £0.75m through the issue of 573,833 new ordinary shares in Tekmar (the "Consideration Shares") to the Seller on completion; plus deferred cash payments of £1.5m on 9 April 2020 and £1.25m on 9 October 2020. So that would leave them with just £0.65m cash and at least £3m debt. They have a £1.5m overdraft facility and we don't know how much of that was drawn down on 31st July. The borrowings in the AR are all lease liabilities so it is possible that they still have the full facility available. They probably wouldn't have got a going concern statement without the CBILS loan though. This year is going to be H2 weighted, FY20 was a roughly 40-60 split, which potentially means no FCF in H1 unless they can unwind some of the working capital. The challenge then being funding the working capital if they grow revenue strongly in H2. I wonder if insufficient focus on cash flow was one of the reasons the more entrepreneurial founder CEO has given way to more experienced management. Long term this should be good for the company and the growth potential of the markets creates significant opportunity, I just think there is quite a high risk that the near-term results will not be pretty and the company will be short-term capital-constrained unless it can access fresh funding.

[1tommyt] 29/10/2020 11:46

Even still jonwig at c6.2% EPS yield, debt free with healthy balance sheet in growing market space is VERY undervalued... thoughts?

[jonwig] 29/10/2020 11:15

The broker (Berenberg?) is forecasting eps 4.63p for 20-21, amd 7.76p for 21-22. Market seems to believe the first, but not the second.

[leedslad001] 29/10/2020 10:52

Distressed seller that's all

[imperial3] 29/10/2020 10:24

I cannot understand why this share has proved to be so disappointing.The fundamentals of the company seem to be OK, and they are operating in a growth market.So what is wrong?

[jonwig] 29/10/2020 09:47

BBC2 tonight, new series "Powering Britain". First programme is about Hornsea One. (7:30pm. 30 mins.)

[leedslad001] 28/10/2020 18:29

Certainly a distressed seller out there

[leedslad001] 28/10/2020 10:25

You can trade inside the quote