Thinksmart Share Discussion Threads

[whentobuy] 29/12/2021 13:05

Carcosa - thanks for filling in some of my gaps. I understand that this is perceived as a "slam dunk". However, the acquisition note in Block shows how much things have changed since the agreement:

NOTE 8 - ACQUISITIONS Afterpay On August 1, 2021, the Company entered into a definitive agreement (the “Afterpay Agreement”) with Afterpay Limited (“AfterpayR21;) to acquire Afterpay by way of a court-approved Scheme of Arrangement (the “Scheme”) for 0.375 share of the Company’s Class A common stock or 0.375 CHESS Depositary Interests, traded on the Australian Stock Exchange, representing ownership interest in Square Class A common stock for each outstanding Afterpay ordinary share (the “Afterpay Transaction”). Based on the Company's closing Class A common stock price of $239.84 as of September 30, 2021 and the outstanding shares of Afterpay as of the same date, the aggregate consideration, excluding the value of replacement equity awards, is estimated at $26.6 billion, comprising approximately 111 million shares of Class A common stock of the Company. The determination of the final value of the purchase consideration will depend on the Company's stock price and the outstanding shares of Afterpay at the closing of the Afterpay Transaction.

So from $239.84 to $163.67 are all the "soundings" still comfortable with the deal? Your point is relevant i.e "What's the alternative"? I'd like to know what the scenario would be if there's a "No vote" even if it is unlikely

In the mean time June 2022 $140 puts are priced at $10.15 + spread and commissions providing a way to buy a stop loss

[carcosa] 29/12/2021 11:36

The 14 Jan vote is in the bag. Already 41.3% of the vote is in the bag. They would have been foolish to proceed without sounding out there major share holders.

If by some remarkable reason the vote goes against them then the ESOP shares come into play again because the Put/Call option would remain in place. That effectively means non-ESOP shareholders would have to get a deal 35% higher in value than that already on the table just to be at the same level as the proposal. So in reality to make it worth voting against the proposal those shareholders would be expecting a deal some >70% higher than is currently available.

Remember that the proposed deal will result in the allotment of new shares in the capital of Afterpay by Afterpay for ESOP holders.

As of today TSL intrinsic value is ~75p against a current share price of 55p.

What I really want to know is what TSL are going to do in the short term once the AfterPay/Block shares are allocated. That will go some way to determining the discount to NAV.

Currently all they have said is they have not determined the future strategy regarding the shareholding in Afterpay, or Block if the Scheme is implemented, and whether they will retain such shareholding or seek to sell such shareholding.

However, it is expected that in due course the Directors will seek to return value to shareholders once a form of return of value has been determined by the Board, mindful of the Company's existing operating businesses and future cash requirements to meet running costs.

The Company intends to return any surplus cash, but determining what that means is reality is debatable; Surplus cash could be after a number of acquisitions!

[whentobuy] 29/12/2021 09:36

The key to the vote on 14th January is the perception of what is going to happen to Block $ price. The RNS announcement assumes the Block strike price of $167.06. Currently this is $163.67. The 10Q for Q3 to Sep 21 saw the gloss come off the numbers with a $150m increase in OHDS. However, they are showing a $250m profit for the 9 months and $4.5bn of cash (net debt $200m). With the balance sheet growing by $4bn or 40% in total assets in the 9 months there maybe some indigestion. They look like they have put a lot of cost into the business in Q3 and the market is still not sure governed by the price.
The Directors are stating "..there's no reason for the price movements...." / "..... see through the volatility...". In that case let us have some quality PR agreed with Afterpay and Block that supports your statements. Otherwise it is misleading to put out positive statements about the price.
Additionally if the Directors are so convinced about the future of Block share price, now that it is in the public domain, have they hedged this position with protection on the downside, (which should be cheap if they are right) and calls for the upside?
There's a desperate lack of reconciliation and clarity here from the board. Why not at least defer for the Q4 Block 10Q if this overhang continues? Some Direction is required here.

[paleje] 23/12/2021 17:52

We are always at the mercy of incompetent or self-interested, corrupt or not, directors. The share price nearly always suffers disproportionately though, to the downside of course, and I think that's the case here having made the deal at a bad time for the Block share price but on a consensus analyst view Block is currently undervalued and expected to improve in the new year.

As for behind the scenes shenanigans well I simply don't know and nor does anyone else on this board.

[coyy] 23/12/2021 16:29

COYY Should read portugull.

[coyy] 23/12/2021 16:28

John L sorry for my typo in post 539.

The share price is down again today currently 53p to sell.

The more I read the RNS from the Thinksmart Board the more I realise that Shareholders are at their mercy. However I keep telling myself they hold 41.3% of the Shares so why would they act in any way which would disadvantage Shareholders? Am I naive?

It is all about trust so it goes back to the old adage "you pay your money and take your chance"

[portugull] 23/12/2021 08:12

Jon I thank you so much for your very informative post.

What you say more or less confirms my numbers in terms of my Share entitlement.

By not selling I am trusting the Thinksmart Board who own 41.3% of the TSL Shares and in theory should have their interests aligned with the Private Shareholders.

Time will tell.

[jacqedia] 23/12/2021 02:39

Thank you, Jon L, for your detailed clarification. Much appreciated.

[jon l] 23/12/2021 01:55

Hi Portugull and Jacqedia.

We do not become owners of Afterpay/Block shares, the Thinksmart company does. We are merely private shareholders in that company.

Thinksmart is a not a UK company but is headquartered in Perth, Aus. Thinksmart shares trading on the LSE are Depository Interests (DI). Dividends etc. are quoted in Aus$ and paid to us in UK£ at prevailing exchange rates.

The end result of this deal, if/when it goes ahead, will be that we remain shareholders in TSL, whose board controls ownership of 618,750 SQ shares after late January. The TSL share price is worth less than the asset value of that shareholding because, as we have seen, the Thinksmart board is quite capable of doing things with its control that you and I would not do (unless, ahem, we were offered a private inducement that is not publicly declared...).

For UK residents interested in fintech and specifically in the Block-Afterpay offering, it would be better for us if we could hold SQ shares (or DIs) directly in our own control, to buy and sell as we like on the LSE. But that is not available, with SQ traded only in New York (and after January also as DIs on the Australian exchange). So holding LSE-traded TSL as a proxy is all we have in London - with the attendant risks of illiquid shares, the TSL board making its own decisions, and light regulation on AIM.

Stockopedia shows the number of TSL shares in issue as 106,587,814; ADVFN shows "106.57m" which isn't quite the same. I haven't checked the truth but will use Stocko.

1. TSL shares in issue 106,587,814
2. APT shares to be acquired by TSL by sale of the Clearpay interest: 1,650,000
3. APT shares per TSL share (2)÷(1) = 0.01548
4. Block(SQ) shares per TSL share (3)x.375 = 0.0058
5. 40,000 TSL represents 619.2 APT which will become 232.2 SQ in late January.
6. TSL's NAV also includes the small legacy business being run out.

Hope this helps. This is my understanding and open to correction by anyone!

[jacqedia] 22/12/2021 20:17

Have I misunderstood this deal? I thought TSL would be receiving and holding the shares in Afterpay, which then become shares in Block. Shareholders are not directly receiving shares in Block, are we? We will still hold shares in TSL, which will hold shares in Block if/when the Afterpay takeover goes through.

[portugull] 22/12/2021 12:21

I have a position in TSL having first bought in on 15 June 2020 at 20.5p.

My problem is in trying to work out how many shares I will end up with in BLOCK in the New Year.

I know the deal is we will receive 1,650,000 Shares in Afterpay and for each Share we will get 0.375 Shares in BLOCK.

However the Board of Thinksmart have been very economical with their explanation of how the deal will play out in reality.

I strongly feel they owe it to Shareholders to provide more detailed information.

I think I qualify for 622.71 Shares in Afterpay based on the 40,000 Shares I hold in TSL.This would give me 233.50 Shares in Block.

I wonder if carcosa and Jon L who know far more than me on this Company can comment on my workings?

[jon l] 22/12/2021 11:26

TSL has generally traded below NAV as an illiquid AIM minnow. If it continues to do so then from today they will presumably track SQ at the 20% discount to NAV now seen.

I addition there is short-change in the asset deal the board has agreed. Just why TSL board and its advisors have agreed this is not explained and perhaps will not be. Clearpay was ~13% of Afterpay's market cap when last disclosed on 30 June, and growing fast. Even with the recent decline in APT's market cap, TSL's interest in 6.5% of that 13% represented ~£92.5m on 17 December when they agreed the sale (giving NAV about 95p/share), much higher than the £73.4m taken.

That's why the TSL share price was holding above 95p until knowledge of the sale agreement started to get out.

[carcosa] 21/12/2021 10:39

kadvfn1,

Yesterday's RNS implied that shareholders would get the value announced less 35% due to the ESOP. Todays's RNS says that shareholders will get the full amount.

Currently that is:
1,650,000 - AfterPay Shares
AUD 83.0 - AfterPay Share Price
1.86 - Exchange Rate
£73,704,944 - Total Value
106,600,000 - ThinkSmart Shares in Issue
£0.69 - p/Share
£0.04 - TSL Legacy business
£0.73 - NAV

You can do the same calculation using Square/Block conversion and arrive at much the same valuation. Basically TSL is trading 20% below NAV.

The 'problem' now is that TSL shareholders are selling no matter what and the TSL value is tied to Square's share price which many people think will continue to decline due to covid/lockdowns/regulation/earnings miss and whatever else. A further 20% fall in Square's share price is not out of the question according to some commentators. There will also be an element of discount given the TSL/AfterPay/Square deal has yet to complete.

[weatherman] 21/12/2021 09:59

I guess if Block/Square INC can claw its way back above $250, then TSL NAV will go back above 100p in time. Looking oversold to me now, but dependent upon the parent co's performance now.

[kadvfn1] 21/12/2021 09:33

Hi Carcosa,

I'm trying to understand the RNS...is that how you understand it? So why didn't they defined yesterday RNS to include number of shares we will get for our 10% so how much are we going to get for our 10%

What I understand is that this deal is only good for management as ESOP will get extra AFT shares from this deal and us PI have been left out...

Still doesn't match the previously reported NAV of 126p

[carcosa] 21/12/2021 09:17

. Edit: (Inaccurate post)

[weatherman] 20/12/2021 18:24

Another of STs tips that has underperformed - he seems to focus on asset plays, but doesn't factor in the negative market influences.

[paleje] 20/12/2021 16:22

For anyone who hasn't seen the ST rationale for buying of 10th Nov, here it is below and his name hasn't been removed from the article as some are saying on the other board. There's lot of understandable anger here as it's a different proposition now but UBS have BLOCK as their favourite play in the sector for 2022, maybe the selling's a bit overdone.


November 10, 2021
By Simon Thompson


Square’s takeover of Afterpay to complete on 18 January 2022
Afterpay can exercise its call option early to buy out ThinkSmart’s 10 per cent holding in Clearpay
ThinkSmart to return A$5.6m to shareholders in December
The key take for me from Aim-traded finance company ThinkSmart’s (TSL: 105p) annual meeting today is chairman’s Ned Montarello’s commentary on the takeover of Australian Stock Exchange-listed technology group Afterpay (APT:ASX – A$117) by New York Stock Exchange-listed Square Inc (NYSE:SQ.), a US$106bn fintech group led by Twitter founder Jack Dorsey. At current market prices, the all-share offer values Afterpay at A$34bn (£19bn).

The takeover is expected to conclude on 18 January 2021 at which point Afterpay has the right (on change of control) to exercise its call option early to purchase ThinkSmart’s 10 per stake in Clearpay, a fast-growing UK payment platform that enables consumers to split the cost of retail purchases into interest-free payments. The 10 per cent stake is also subject to a call/put arrangement between the two parties exercisable in 2023-24. The valuation methodology is based on key financial metrics as well as the market capitalisation of Afterpay.

Frankly, it would be irrational for Afterpay not to exercise the call option early as the cost of buying out ThinkSmart can only rise in future given that Clearpay’s growth is likely to accelerate as part of the Square and Afterpay combined business. Importantly, any buy-out of ThinkSmart’s stake will now have to be made in cash.

Bearing this in mind, the 10 per cent stake in Clearpay is held on the Aim minnow’s balance sheet at £125m (117p a share) after applying a 17.5 per cent liquidity discount and a 35 per cent further discount to take account of shares subject to an employee share option plan. Thinksmart’s valuation is more than justified given that in the 2020/21 financial year Clearpay accounted for 35 per cent of Afterpay’s cash profit, 13 per cent of its active customer base and 8.5 per cent of its underlying sales.

Afterpay has not updated the market on its first quarter trading to 30 September 2021, but Clearpay’s financial contribution is likely to be proportionately even higher, and rising. However, even if you ignore that possibility, then ThinkSmart’s fully diluted stake in Clearpay is still worth £151m (142p share) after adding back the 17.5 per cent liquidity discount applied in the June valuation.

I also note that the wind down of ThinkSmart’s legacy finance leasing business continues to generate cash, so much so that the board is returning A$5.6m (about 2.85p a share) of its A$13m (6.5p a share) cash pile to shareholders next month. The company has £2.5m (2.4p a share) of receivables on its balance sheet, too, and they are low-risk as customer defaults are neglible.

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Effectively, ThinkSmart’s sum-of-the-parts valuation is 151p a share with the valuation risk weighted to the upside. More importantly, Afterpay’s imminent change of control could lead to a major liquidity event to turn ThinkSmart’s valuable holding in Clearpay into cash.

I last advised buying the shares, at 103p, when I covered ThinkSmart’s annual results (‘Targeting undervalued technology stocks’, 14 September 2021), and the holding has so far produced a 666 per cent total return since I initiated coverage, at 14p, in my April 2020 Alpha Report. Strong buy.

[eezymunny] 20/12/2021 15:44

Always a likely outcome IMO.

Be careful using other people's lofty valuations. The linking of TSL's value with the daft valuation of it's holding were fraught with risk. Did Simon T offer up any risk/reward calculation?

[kadvfn1] 20/12/2021 13:03

massive buy order just went through, wonder if we're missing something?

[tigletpiglet] 20/12/2021 12:57

This reeks of insider dealing and misaligned board to shareholders. Only 2 weeks ago they issued an RNS to say they had no idea what was going on with the share price It's perfectly clear now. To me this is just like Baconara Lithium with the board wholly at odds with the interests of shareholders. This is a rubbish deal. Anyone invested here is acknowledging the volatility of the markets inherently. I don't want to have my exposure managed by the board of TSL. I want to get fair value for my shares. How do we go about blocking this rubbish deal?

[jon l] 20/12/2021 10:47

Sadly, TSL shareholders are being stitched up.

This announcement does suit Block/Afterpay's goal to tidy up a minority interest at little inconvenience or cost. Importantly, it does not wait for the December quarter numbers which we can presume will show a handy rate of Clearpay growth since the last numbers, both standalone and relative within Afterpay. As others have noticed the public valuation of Clearpay is not reflected in the deal.

That violent gyration in TSL shares on 7 December can now be seen as insider knowledge of the discussions and some shares being dumped. With hindsight it was a signal for other shareholders to bail out too, and the decline since shows some have done so.

TSL now trades at a price exactly matching the relative share price of APT (which in turn tracks SQ), when 2 weeks ago TSL traded at a 25% premium to APT. It is that premium which has been foregone.

[whentobuy] 20/12/2021 09:53

If the foreseeable underlying earnings of Clearpay are still strong then this deal does not make sense. However, with 41.3% the Directors must not like the alternatives?
Why did they sign off the accounts with the £125m NAV if they were "...looking through the current market volatility...."? Why not wait for the call/put in 2023/24 based on Clearpay's profits etc? There seems more questions than answers. The only positive seems to be that Block Inc shares down 33% in 2 months have been beaten to the $167.06 marker with 31 analysts targeting an aggregate $288.

[coyy] 20/12/2021 09:38

Something not right here.