A short update today.
Share price: £9.29 (up 17%)
-Management admits they didn’t see the disruption from their CCD division. Here is their quote: “As reported on 22 August 2017, the implementation of the new operating model resulted in a significant amount of unforeseen disruption.”
When you cut 4,500 self-employed staff and turn this to 2,500 full-time employees, along with reducing management from 800 to 400 in a short space of time, then it is bound to cause disruption.
Here are some problems management would have foreseen: –
-Real talent leaving the company, by which I mean the loss of personal relationship with their customers;
-The enjoyment of being self-employed and the flexibility that it brings to the employee work and family life;
-Disruption to organisation and scheduling when trying to half management in a short space of time. A BIG REASON WHY it saw collection rate fell to 57% from 90%.
Why change something that works?
Management admits their new strategic mistakes and has reverse course in their CCD division by:
Moving from two UK divisions to four through the recruitment of two additional general managers and increasing the number of regional managers from 12 to 24;
- Appointing assistant area managers to support compliance, administration and arrears in order to free up the 160 area managers to focus on local resource allocation and management of individual CEM activity in the field;
- Recruiting at least 300 part-time employed CEMs, primarily from the previously self-employed agent workforce to accelerate the reconnection with customers;
- Providing additional training for new and underperforming CEMs, including extending the shadowing period and reintroducing a ‘buddy’ system;
- Increasing contact centre resource to handle significantly higher call volumes, undertake a customer contact programme and assist customers making their regular payments; and
- Management of the field organisation is being supported by the extensive use of analytics including tools that allow field management and CEMs to view and manage activity on a real-time basis via handheld technology.
Their collection rate rose to 65% from 57% in August. That reduces their revenue to £6m from £9m. Although, Provident did lose £60m of sales in two months.
Pre-exceptional loss of £80m to £120m is still in place from their last statement and is pending upon their recovery.
This division is delivering on fast growth as new accounts opening are up by 5%. It also delivers this: “Year-on-year customer growth of 13% and receivables growth of 14% have been delivered against credit standards that have recently been tightened.”
But there is no profit forecast. Maybe this is down to the continuing FCR investigation of their “ROP” as any fines look uncertain.
Satsuma and Moneybarn
Both continue to improve but represent a small part of the group.
Funding and Capital
The one thing I like is their lending is funded by customer deposits which are cheaper to finance than borrowing the money from the markets. Total deposits have reached £1.2bn and account for 70% of all borrowings.
There are some fears from a leading analyst that the FCR could fine Provident up to £300m for mis-selling ROP. This analyst went on to say the recovery of their CCD division is uncertain. However, the dividend cancellation would negate some of these fines because last year Provident paid out £180m to shareholders.
Overall this looks like a tempting recovery play after “self-inflicting” their business model and causing grief and reputational damage for the firm.
2017 will be a washout, but markets are forward-thinking and I get the vibe it might recover in 2018 as the problem is fixable. So, at £8 per share, this is a stonking buy.
Provident Financial won’t suffer a deposit outflow because of FCR deposit guarantee of £85k (I think). And with customer deposits surpassing £1.2bn, this protects them from short-term market borrowings. The suspension of dividend helps to conserve cash.
I can see a minimum 100% upside in a years’ time if the recovery remains on course.
My downside is the uncertainty of ROP fines, inconsistent improvements in CCD division (though this is unlikely) and the UK or world economy start suffering their second financial crisis.
Other than that, it looks like a Buy to me. And peeking at the share price investors got the same vibe as I have.
Share price: 7.5p (up 1.7%)
(I hold a long position, so beware of bias!)
The company won a further three contracts in the Middle-East in UAE and Saudi Arabia. It anticipates working operation in 2018.
For those who aren’t aware it helps to perform NIPT for pregnant women. Since 2015, it has won numerous contracts around the world, but with one problem it is being sued by Illumina, a US genome giant.
My Crazy Investing strategy
I recently bought into this stock recently as the court case is nearing a conclusion.
The thing about small biotech businesses is nine times out of ten it turns out to be a fad, a failure and so forth. But, with Premaitha it was getting sued by a $30bn (£24bn) company that makes $2.4bn in sales.
Meanwhile, Premaitha has a market cap. of £20m or less.
Ask yourself this question: “Why would a multi-billion Dollar company goes through all the trouble to sue a smaller company?”
The only logical conclusion is Premaitha technology is real and could (will) be a big money-spinner!
If Premaitha wins this court case then expect to see some serious upside, given that it is against a giant corporation. But, until we know the outcome, I have no idea if Premaitha is going to win or lose. So, I will classify this as a speculative investment.
JKX Oil & Gas plc
Share price: 12.5p (down 10%)
This oil producer not only suffers from the fall in oil price but is caught between a rock and a hard place because it has operations in Ukraine and Russia. The political fallout between these two countries is ongoing, along with economic and military uncertainties.
It reports a fall of 6.1% in oil production from 9,146 boepd to 8,590 boepd. On a nine-month basis, JKX Oil and Gas have seen daily production fall to 8,645 from 10,155, 16% decline.
Some good news
It was able to restructure their $16m (£12m) bond payments to amortised over three years starting from February 2018. The company made bond interest of $1.1m.
Their next bond payment of $6.9m is due in February 2018 and it is able to finance from cash flow.
There is a total of $37m in claims from the UKRAINE, an area that accounts for 35% of production with the hearing expected shortly.
Some Historical Analysis
Oil production remained at similar levels for some time, but the revenue for that oil has changed.
Back in 2011/12, JKX produces oil production equivalent of 8,000 to 9,000 per day, but their revenue (in £ terms) fell from £148m in 2011 to £54.7m in 2016.
In the past three years, it recorded annual net losses totalling £120m, whereas it made a £37m net profit in 2011.
It has net borrowings of £2m, along with cutting their asset values down to £200m from £400m.
Net cash flow has declined dramatically from £80m to £12m. Meanwhile, capex is cut to £5.5m in 2016, although this will rise to maintain production level because depreciation and amortisation is £14m.
Oil reserves 2P
The company has 109m barrels of oils at the 2P level and 169.5m barrels at 3P level (though given the low price could mean uneconomical).
The annual rate of production is equivalent to 3m-4m barrels per year.
At current market capitalisation, you are getting $30m/109m, then the market is valuing JKX at $0.3 per barrel. Meanwhile, Tullow Oil is selling for $3 per barrel.
Stockdale securities have forecast a share price of 40p, a 280% share price appreciation.
The market capitalisation is nearly obliterated, falling from £540m in 2010 to £24m today, a 95% decline.
If they lose the claims, then JKX would need to raise financing from shareholders and investors.
It looks like a punt if you can stomach the tension between Ukraine and Russia. Therefore, I can’t value this business. But if they raise significant finance from shareholders (£50m) then I will be more confident about their prospect.
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The above analysis is my opinion and nobody else. It does not constitute professional investment advice. Data is correct on available information at the time.