Good morning!
PuriCore (LON:PURI)
Share price: 35.5p
No. shares: 50.14m
Market Cap: £17.8m
Interim results to 30 Jun 2014 have been published this morning. The company makes disinfection products for a number of markets - supermarkets (fresh food, and cut flowers), and medical (wound care both human & animal). I've always thought the products sound promising, and the company has won impressive contracts with major customers, but it has not as yet succeeded in making a commercial success of these products.
The area that was commercially successful, its endoscopy disinfection business, was recently sold for what seemed a good price. Therefore the nature of the investment has changed, in that it's now heavily cash-backed, with a loss-making business attached. So it is now critical what they do with the cash.
Balance Sheet - As you can see from the 30 Jun 2014 balance sheet, I've highlighted two items, firstly note that the accounts are published in US dollars, so everything needs to be divided by 1.68 to translate into sterling.
Secondly, the balance sheet is dominated by the $28.0m receivable from the sale of the endoscopy business. This sale completed on 1 Jul 2014, just one day after the period end. Therefore the $28.0m receivable can be considered as cash.
In my view the cleanest way of finding the current net cash position is to take the $28m receivable, add on cash of $1.18m, then deduct the $2.35m payable & the $2.2m borrowings figure, which gives a net cash figure of $24.6m = £14.6m.
Note that this adjusted net cash figure is 82% of the current market cap, which values the business at an enterprise value of just £3.2m.
Downside protection - Some might say that valuing the existing business at hardly anything is very sensible, given that it has not been established that they have a viable business there. I agree with that. However, it does mean that you have the downside protected to a considerable extent, whilst the upside potential (i.e. if they do deliver a good result from the ongoing business) is thrown in for very little.
Ongoing losses - The problem is that the ongoing business had a poor half year, and made an operating loss of $3.7m on turnover of only $8.6m. That was a significant deterioration from H1 last year, when turnover was $12.3m and the loss was…
