Good morning!
Let's kick things off with a backlog section on Serabi from Mark.
Today's Agenda is complete.
Companies Reporting
| Name (Mkt Cap) | RNS | Summary | Our view (Author) |
|---|---|---|---|
Ocean Wilsons Holdings (LON:OCN) (£342m) | A response to Arnhold’s open letter (external link) which described the merger with Hansa as “deeply flawed and unfair”. | (Graham to do) | |
James Latham (LON:LTHM) (£223m) | 6m initial investment for the land, then £39m over two years to construct and fit out the warehouse. | ||
Avacta (LON:AVCT) (£223m) | Deferral of several bond payments. £3.25m equity placing at 50p to settle the quarterly bond payment for October. | ||
Serabi Gold (LON:SRB) (£149m) | H1 Gold production +14% to 20.545koz. EBITDA +102% to $26.3m. AISCC flat. $30.4m cash balance (31 Dec: $22.2m). | AMBER/GREEN (Mark) Production and cash are known, so the new information is sales and costs. Sales beat my expectations as they catch up with production. However, there is a huge jump in costs in Q2 which isn’t fully explained in the narrative. If I assume the Q2 cost profile for the rest of the year, I now get a risk of a material miss on PAT compared to the current broker consensus. However, not all is lost, even if my current estimates based on Q2 cost profile going forward prove closer to the reality, the stock remains on a P/E of around 4, with net cash. This still looks too cheap to me. The big question is if the market cares more about valuation or the estimate momentum? As a value investor, I’m sticking with the valuation-based view, at least until we have more information. | |
John Wood (LON:WG.) (suspended at £127m) | Sells North American Transmission & Distribution engineering business for $110m. | PINK | |
Carclo (LON:CAR) (£35m) | Rev -8.6% (£121.2m). Adj. EBITDA +12.3% (£16.4m). Outlook: “expect to continue this positive trajectory through FY26”. | AMBER/RED (Graham) A large pension deficit, a more expensive debt facility, and a red flag issue (failing to publish its annual report on time): I think a high degree of caution is appropriate here. This company has many mouths to feed and shareholders can't be particularly high on the list of priorities. |
Backlog
Serabi Gold (LON:SRB)
Up 4% to 205p - Results to 30th June - Mark - AMBER/GREEN
Production and cash figures here are already known:
Gold production for the first half of 2025 of 20,545 ounces (corresponding six-month period of 2024: 18,010 ounces).
Cash held at 30 June 2025 of $30.4 million (31 December 2024: $22.2 million).
What matters in these results is sales and costs. Here it is a mixed bag compared to what I modelled following the Q2 production results. Sales beat my expectations for Q2, but with production guidance the same this just moves revenue forward. Together with a higher Q2 gold price than I modelled this means that PBT for Q2 beats my expectations:
However, costs have also increased significantly for Q2:
And here’s what these look like in my summary model:
The only comments they make about this are:
While mine development expenditure has increased year-on-year, the investment continues to underpin our growth and expansion plans. All-In Sustaining Costs (AISC) for the period were $1,792 per ounce, reflecting both inflationary pressures and the increased development activity. Nevertheless, the Company continues to deliver strong margins, underpinned by the high gold price environment and improved production profile.
So, in the absence of other information, I think we must assume the Q2 cost profile is more realistic going forward. This takes a big chunk out of my PAT estimates which now stand at $46.2m for the year, whereas previously I estimated $55.6m. At the time, the PAT looked like it would be a healthy beat on expectations. However, since then the consensus estimate has increased from $49.9m PAT to $56.4:
Presumably this is on a higher gold price, but even if I put current spot into my model for Q4, I still get a reduced figure of $46.5m:
This is some 18% below consensus estimates.
Mark’s view
It may be too early to panic, as high costs for a single quarter don’t necessarily mean that these will be significantly higher going forward. However, in the absence of a clear explanation, there will be many, including myself, who will want to take the conservative view. So, with a single set of results I have gone from thinking they will beat expectations, to the risk of a material miss. This adds to my existing concern that a H2-weighted production profile can be risky in this industry.
However, not all is lost, even if my current estimates based on Q2 cost profile going forward prove closer to the reality, the stock remains on a P/E of around 4, with net cash. This still looks too cheap to me. The big question is if the market cares more about valuation or the estimate momentum? As a value investor, I’m sticking with the AMBER/GREEN rating. At least until we have more information.
Graham's Section
Carclo (LON:CAR)
Shares suspended at 47.4p (£35m) - Full Year Results - Graham - AMBER/RED
These are results for the year ending March 2025.
On the LSE’s main market, companies have four months to publish their annual report (it is six months on AIM).
As Carclo failed to meet that requirement, its shares have been suspended during the month of August.
That is a huge red flag, but Carclo has insisted that it has been trading well: a July trading update confirmed that FY March 2025 was ahead of expectations and that the company expected its margins to continue to improve.
What Carclo does: they have a “CTP” division (Carclo Technical Plastics) that manufactures and designs various complex products and parts - this seems to have a healthcare focus. They also have a “Speciality” division focused on parts for aerospace and for optics/LED.
Results highlights: these results are very backward-looking now, but let’s cover the main points.
Revenue -8.6% (£121.2m(
Adj. EBITDA +12.3% (£16.4m)
Operating profit £7.6m (previous year: £1.7m)
Net income £0.9m (previous year: loss of £3.4m).
The depreciation charge for the year is £6.5m and I don’t know why we’d leave that out of the calculations for a manufacturing business. So my instinct is to completely ignore EBITDA.
Operating profit of £7.6m is an impressive figure given the low market cap, and that’s after suffering over £2m of refinancing costs. These were “legal and professional costs”.
Debt position
The debt situation looks complicated. As of March 2025, total loans and borrowings were £30m, or about £22m if we exclude leases. And on the balance sheet date - 31st March 2025 - Carclo was “briefly overdrawn due to timing of cash flows, however, the balance was immediately repaid… with no adverse consequences”.
The new arrangement is with a lender called “BZ Commercial Finance”, and involves a £27m term loan and a £9m RCF. The previous lender - HSBC - has been fully repaid.
BZ is charging a higher margin over base rate than HSBC: according to the announcement in April, there was an increase of 1.75% over the previous facilities.
Pension deficit
Also in March 2025, the pension deficit was revalued by actuaries at £64.5m (as of March 2024). Carclo agreed to pay £5.1m in April 2025, then £3.5m annually until 2029, and then indexed annual payments starting at £5.8m until 2037.
An accounting valuation was also carried out and came up with a deficit of £51.7m as of March 2025. Higher life expectancy assumptions were primarily responsible for this having increased by £14.5m compared to March 2024.
Carclo also mentions having made a loss on its “liability driven investments” (LDI). LDI funds were at the heart of the gilt market crisis in 2022, and are designed to hedge interest rate risk for pension funds.
Interest rates increased in FY25, which is a good thing (it reduces the present value of liabilities). However, LDI funds did their job in hedging rate risk, both positive and negative, and so the value of Carclo’s LDI funds fell, causing the pension fund to make a loss of £8.7m.
Outlook
Now that I’m clear on the latest debt and pension deficit situation, I’m not sure if I care too much about the trading outlook! It sounds like the company’s pensioners and lenders will have to be their priorities (and rightly so!).
We’ve generally been AMBER/RED on this one - my last time was in December 2024.
Anyway, here’s the outlook:
The success of the strategic actions taken in recent years to turn the business around are bearing fruit and their success is evident in the improved operational and financial performance reported for FY25. The Board expects the Group to continue this positive trajectory through FY26 with continued margin expansion and positive cash generation, notwithstanding an increasingly complex global backdrop…
Growth in the medium-term will focus on accelerating expansion in the Life Sciences sector, where demand for high-precision solutions continues to grow and continued momentum in our Speciality Division, particularly in the aerospace sector. Strong cash flow performance, an improving net debt position and the new borrowing facility with BZ provide a solid financial platform for this growth.
They finish the outlook statement by promising “enduring value for all our stakeholders”; shareholders are indeed just one constituency, among many, that the company needs to care for.
Graham’s view
I think AMBER/RED continues to make great sense here.
Checking the balance sheet for one final sense-check on the company’s position, I see that it has negative equity of £12m. Exclude intangibles from the calculation and the number becomes minus £34m.
With that hole in the balance sheet, I can’t take a positive or even a neutral stance here.
In other industries, e.g. highly profitable software or media businesses, I can sometimes look past weak balance sheets. But in engineering and manufacturing, I can’t. There is also the red flag issue that the annual report could not be published on time.
I have no idea how the share price might react when the shares begin trading again, but I’d have little interest in getting involved here.
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