Small Cap Value Report (2 Jun 2014) - ARL, TRB, DQE

Monday, Jun 02 2014 by

Good morning!




Atlantis Resources (LON:ARL)

This company is on my watchlist, after an interesting presentation by the CEO at a Mello investor evening a few months ago. It's a tidal power (from submerged turbines) company building an offshore project in Scotland.

Results for the year ended 31 Dec 2013 have been issued this morning. I was initially confused by these results, as the company appears to be heavily loss-making, and to have negligible cash, and a lot of debt, so from these figures it doesn't look viable. However I've just realised the company only floated in Feb 2014, i.e. after the reporting date in these results, so it must have raised fresh cash at that time.

Sure enough the Admission to AIM announcement from 20 Feb 2014 indicates that £12m in new equity, and £8m in "non-dilutive funding" (presumably loans or grants?) was raised. It generated a $13.7m operating loss in 2013, on $6.2m of turnover. So it's not possible to value the company based on these accounts. Instead one would have to get more information about the capex needed to complete the tidal energy project, future operating cash burn, and then look at forecasts for what profit it is likely to generate in the future.

One to watch, but I've not got any idea how much it's worth. Tidal energy seems conceptually a good idea - in that, unlike wind turbines, the amount & timing of electricity generation is entirely reliable & predictable. The only thing that could change it, is if the moon suddenly deviated from its orbit around the earth, changing tidal patterns.

The share price began falling soon after it floated, but has since stabilised at a lower level.





Tribal (LON:TRB)

Tribal describes itself grandiosely as, "a leading provider of technology enabled management solutions to the international education, learning and training markets" - what on earth does that mean? I know they do the OFSTED inspections for schools. So I am awarding them a grade D- for ability to explain what the company actually does.

It announces an acquisition of an Australian company, for A$15.2m, which at the current exchange rate of £1 = A$1.81 converts…

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SIMEC Atlantis Energy Limited, formerly Atlantis Resources Limited, is a vertically integrated turbine supplier and project developer in the tidal power industry. The Company's segments include Power Generation, and Turbine and Engineering Services. The Company's Power Generation focuses on the development of the MeyGen tidal energy project. The Company's Turbine and Engineering Services focus on the development and delivery of turbines and technology solutions for projects across the world. The Company's projects include MeyGen, Scotland, United Kingdom; FORCE, Nova Scotia, Canada; ETI TEC Project, United Kingdom; Daishan, Zhejiang, China, and Mundra, Gujarat, India. The Company's Turbine Technology offers various series, such as AR series, which include AR1500 and AR1000; AS series, and AN series. The Company's subsidiaries include Atlantis Turbines Pte Ltd, Atlantis Operations (Canada) Limited, Atlantis Resources (Scotland) Limited and Current Resources (Cayman) Limited. more »

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Tribal Group plc is a United Kingdom-based company, which provides software and services for education management. The Company's segments include Product Development and Customer Services (PD&CS), Implementation Services (IS), Professional and Business Solutions (PBS) and Quality Assurance Solutions (QAS). The PD&CS segment represents the delivery of software and subsequent maintenance and support services. The IS segment represents the activities through which it deploys and configures software for its customers. The PBS segment represents a portfolio of performance improvement tools and services, including analytics, benchmarking and transformation services, and the QAS segment represents inspection and review services, which support the assessment of educational delivery. Its products and services include license and development, implementation, maintenance, professional and business solutions, quality assurance solutions and other systems related. more »

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17 Comments on this Article show/hide all

FREng 2nd Jun '14 1 of 17

Wave power seems inherently problematic. The sea is a very hostile environment, maintenance is likely to be an issue, and corrosion and marine encrustation make it hard to predict the long-term return on investment. Has anyone made a commercial success of it yet without continuing subsidies, over even a five-year period?

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ericb 2nd Jun '14 2 of 17

its not wave power its tidal power

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Paul Scott 2nd Jun '14 3 of 17

In reply to post #83735

As Ericb says, Atlantis Resources (LON:ARL) is tidal power, not wave power. So its turbines are submerged in carefully chosen places where there is a strong tidal flow, which makes the turbines spin & generate electricity at predictable times of the day.

I asked the CEO about maintenance, and (from memory) he said that they have a plan for rolling 5-yearly maintenance - in that the turbines can be relatively easily removed & then serviced on land, then put back.

I also asked about build up of barnacles, etc, but he said they run a small electrical current through the outer casing, and this prevents anything from attaching itself to the turbines.

I don't know whether anyone has made a commercial success of tidal power without Govt subsidies. There are generous feed in tariffs for tidal power in the UK up to about 2019, if my memory serves me correctly. There was a thread over on TMF at my Pub, discussing this company a few months ago, so that would be a good place to go for further details. Hallucigenia gave them a hard time at the meeting, but seemed to be very positive about the company afterwards.

Regards, Paul.

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FREng 2nd Jun '14 4 of 17

Yes, tidal - I apologise for the slip.

I believe there were a number of planned prototypes for tidal stream energy:

Seagen had a 1MW marine current turbine approved for Strangford Lough in
Northern Ireland around 2006.

Hydrovision had a mid-water system prototype.

Lunar Energy had a seabed system (again 1MW) planned for around 2007.

Anyone know what happened about these?

There's also the cost of connecting to the Grid, as the best tidal power streams tend to be in remote locations.

The corrosion/maintenance and connection issues also apply to offshore wind, of course, which is one reason why there's more investment in onshore wind than offshore (around 7GW onshore against less than 4GW offshore currently; if you add in the amount under construction and with planning consent, the figures are 12.7GW onshore (6,694 turbines) and 8GW offshore (2,117 turbines)). Offshore wind is now a mature technology with higher subsidies than onshore wind gets. Over the next five years, onshore wind will receive £95 –£90/MWh and offshore wind will receive £155 –£140/MWh on contracts that will last 15 years.

An important factor in justifying significant capital investment in tidal power will be the ’strike prices’ for tidal power "Contracts for Difference" feed-in tariff subsidies. Do we know what these will be, and for what period?

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Ramridge 2nd Jun '14 5 of 17

Hi Paul. Re' Tribal. The acquisition is likely to contribute £1.1m in operating profits. RNS doesn't say what the net profit is likely to be. Could even be negative?
Regards, Ram

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Jardine 2nd Jun '14 6 of 17

In reply to post #83738

If you are looking at the prospects for tidal energy production you might want to look at what this company are doing in West Wales. They plan to deploy their equipment in Ramsey Sound this Summer.

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James1314 2nd Jun '14 7 of 17

I read these reports every day, but.....
I get a bit disturbed when I read supposed (and somewhat misleading) background information about a company I know something about (Tribal).
Of course, this won't invalidate anytjing written about other stocks.

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Paul Scott 2nd Jun '14 8 of 17

In reply to post #83744


Please could you explain what you think was wrong about Tribal (LON:TRB) in today's (or previous) reports.
I'm always more than happy to correct any factual errors or misconceptions.

Thanks, Paul.

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FREng 2nd Jun '14 9 of 17


You last commented on Concurrent Technologies (LON:CNC) last Christmas and put it on your watch list. I see that there was an AGM statement on May 27 suggesting that things might change this month. Here it is:

RNS Number : 1344I

Concurrent Technologies PLC

27 May 2014

27 May 2014

Concurrent Technologies Plc

AGM Statement

At today's Annual General Meeting of Concurrent Technologies Plc (the "Company"), a world leading specialist in the design and manufacture of high-end embedded computer products for critical applications in the defence, aerospace, telecommunications, transportation, scientific and industrial markets, Michael Collins, Chairman, will make the following statement:

"I am pleased to report that the Company's performance in 2014 has been in line with the Board's expectations. Our investment in developing single board computers with AMC architecture is producing good revenues, particularly from product applications in telecommunications. These revenues have helped to offset the UK Government export licencing issues that the Company expects to be relaxed during June 2014.

Our Engineering skill set has been expanding since we began recruiting for our new R&D facility in Massachusetts, USA, and our financial position remains strong after paying an increased second interim dividend. The Board remains positive about the outlook for the rest of the year."

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Beginner 2nd Jun '14 10 of 17

does anyone else have constant problems trying to log into this site? i gave up subscribing becasue of this. (Twelth attempt today)

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Paul Scott 2nd Jun '14 11 of 17

In reply to post #83748


No - I find it extremely rare to have any problems at all with this site. Works perfectly virtually all the time. No issues whatsoever today. Sounds like you need to upgrade your computer or broadband!

Regards, Paul.

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Hallucigenia 2nd Jun '14 12 of 17

Atlantis have had a 1MW unit exporting to the grid for three years, and there's several other companies that have had similar 200kW-1MW units in the water for a year or more. So the basic technology is proven - they've adapted a lot of wind turbine technology for marine use. The last few years have seen a lot of the small engineering companies taken over by multinationals - you mentioned SeaGen by Marine Current Turbines, who are now part of Siemens. Alstom bought Tidal Generation Ltd from RR for ~£50m, OpenHydro is perhaps the closest match to Atlantis but a bit behind them, even so the French shipbuilder DCNS took a majority stake last year in a deal valuing OpenHydro at ~£100m. That interest reflects the technology now being mature enough for the multinationals to consider it - and now that the UK has guaranteed generous subsidies for installations commissioning in the next 5 years, capital is going to start chasing IRR's which Atlantis claim are over 30% ungeared.

There's an argument that the current price of electricity is too low at around £50/MWh wholesale, just about every form of generation needs a "subsidy" to enable new capacity to be built. Witness the Hinkley Point deal for new nuclear - 35 years at £92.50/MWh. Atlantis reckon they can get tidal stream down to ~£130/MWh by 2020, and in the £70-100/MWh range by 2030. At which point it's cheaper than nuclear, and if you have two projects half a tide apart, it provides steady baseload power that's more reliable than nuclear (there's no 6-week refuelling periods and any maintenance doesn't need the entire "power station" offline, just individual 1.5MW units). In a way Atlantis don't care too much as the politicians love them, the first phase will have a 20-year contract for 5 ROCs, under CfDs they get 15 years at £305/MWh. House broker talks of £70m/year free cash flow and NPV £722m from 245MW - obviously they're going to farm it out, but you can see the attraction for investors.

Yes they have the grid connections planned and booked (in fact that is a major asset for them although they don't like to talk about it much), they've got enough for the initial phase although under current published plans a big batch of their grid doesn't arrive until 2018. Other people are having to wait 7 years for their grid.

As Paul said, I've posted at length in the Pub:

Per the handout we got, the phase 1A (a 86MW substation and 6MW of turbines) will cost £41m, although the recent Sunday Times article talked about £50m. Whether that means budget overruns or adding turbines of a different type, we'll have to wait and see. They've had  ~GBP16m of free money in government grants and ~ £20m in government loans so it's nearly all paid for, they should announce the remaining wedge of funding imminently (they were talking about June 2014 from way back, so we'll see).

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oLTo 3rd Jun '14 13 of 17

Regarding Tribal (LON:TRB) their main products are software for education providers - ways to record who your students are, what courses they are enrolled in, etc. Some of these products are very well established and there is probably a bit of a moat there as this kind of software seems to become deeply embedded. Not sure they still do ofsted inspections and even if they do I wouldn't describe it as their core business.

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cig 3rd Jun '14 14 of 17

In reply to post #83748

Works for me too at the moment. It's very hard to diagnose intermittent problems but I had frequent issues before I upgraded my networking kit with various sites (though this one wasn't too bad). If you have an old router, upgrading may help, the web now works very differently from how it did 5 years ago and old routers often don't cope as they were not designed for this.

As a quick hack, an ad/web bugs blocker may help, as it greatly reduces the number of connections to the world a site makes.

Stocko could help make it more robust by making the site less of a denial of service attack (nearly 100 TCP sessions per page is really overkill when only 1 of them has actual user-useful content) which would also make it swifter and more reliable for people in distressed conditions, say overloaded office, mobile or hotel networks.

Stocko is not unusually bad (almost all web 2.0 sites suffer from junk overload) but still it could be improved, some suggestions:

- first reload your pages with network monitoring enabled, and see if it does more than you thought...
- configure HTTP cache setting correctly so that the browser doesn't need to ask "has this changed?" for every single page load for content that hardly ever changes (logos, icons, scripts, etc)
- move analytics to the server side (feed the logs to your analytics provider)
- or at least use the less antisocial analytics packages that minimise connections/traffic
- package icons in one file (e.g. pseudo-font)
- make links to third parties, e.g. twitter button,passive where you just have a static button and a link or popup that's triggered on a click, not for every page load (good for privacy as well as active buttons enable surveillance, giving away your subscribers financial interests to people who should not know)
- test the site every so often behind a crap connection emulator

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Paul Scott 3rd Jun '14 15 of 17

In reply to post #83758

Hi oLTo,

Thanks. I'm pretty sure Tribal (LON:TRB) do still do the OFSTED inspections, as they refer to this contract maturing as being the reason why their order book is shrinking - see their announcement from 16 May 2014 to confirm this.

Looking quickly at their 2013 Annual Report, I see they capitalised £6.9m of software development spending, which I'm not keen on.
£64.2m turnover in 2013 was from their Systems division, and made an adjusted operating profit of £14.8m.

Their Solutions divison delivered £61.6m in turnover, and made a £6.1m adj operating profit in 2013.

There is a breakdown from their 2013 Annual Report, but the terminology is too vague. The OFSTED thing is clearly a significant part of their business, but I don't know whether it's in systems or solutions?

If a company isn't capable of clearly explaining what it actually does, then it's not really my fault if I describe it wrongly! Although going forwards maybe I'll just describe it as a systems & solutions provider in the educational sector, and let people decide for themselves what they actually do!

Regards, Paul.

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oLTo 4th Jun '14 16 of 17

No argument from me - the amount of companies you cover is far too large for you to be expected to know every detail of their business. Was just trying to fill in the information James chose not to add.

I'm surprised about the whole ofsted thing, I'd assumed that contract was over by now. As you can tell I haven't really been following the company, but know them from encounters with their software at various points over the years.

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Paul Scott 4th Jun '14 17 of 17

In reply to post #83772

Thanks oLTo, useful pointers. I'll emphasise their software more next time it's mentioned.

Cheers, Paul.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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