Small Cap Value Report (25 Jan 2016) - TRAK, POS, HAL, RBN

25th Jan '16 by Paul Scott

45 comments 27574 reads

Good morning!

Trakm8 Holdings (LON:TRAK)

(at the time of writing, I hold a long position in this share)

Final call for questions (using this form only please) for my latest CEO interview, which I will be recording this afternoon, with the Executive Chairman of TrakM8. A very topical one this, as there was a (frankly rather half-baked, and backward-looking) bear raid on the share last week.

I believe that decent companies should have a right to reply to criticism, as demonstrated with my Brady (LON:BRY) interview, who wanted to respond to my sharply worded comments about them.

TRAK were asked if they would like to answer investor questions, through an interview with me, and they agreed. So I'm really looking forward to conducting what should be a fascinating interview later today.

(Incidentally, I refer sometimes to a company in the plural, because whilst strictly speaking it may be a separate legal entity, hence singular, in the real world a company is actually a group of people, speaking and acting as a group. Therefore the more natural reference, for me is to use the plural when referring to a company. Pedants, may I suggest taking some calming medication, or yoga, as I'm not going to change my writing style on this point!).

Remember that the format for my interviews is always the same - questions come overwhelmingly from investors, and I am happy to ask any question, regardless of how difficult - sourcing the questions from investors is great actually, as it means I can ask things that would otherwise be too impertinent! So it's a terrific format, that works well for everyone. I'll be focusing a lot more of my time on this in the future.

Just because I like the company, and hold shares in it, doesn't mean I'll hold back on asking them the tough questions that need to be asked. I'm a great believer in considering both the bull and the bear case for every share. Only then can you come to an intelligent overall view, which is more likely to be correct.

The way I see thing, the bears have come up with one or two relatively minor points, and blown them way out of proportion in a hysterical manner, clearly designed to induce investor panic. That worked for a couple of hours last week, but has…

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janebolacha

25th Jan '16

The biggest threat by far in the long term to the oil market is the development and commercialisation of efficient electric vehicles, something almost certain to happen within perhaps five to ten years. Almost 70% of petroleum in the US is used for transportation and almost 60% of that is for light vehicles, cars and so on.

http://www.c2es.org/energy/source/oil

The Saudis and the other countries dependent on oil may have seen their best days already.
It may be now only a medium-term market, not a long-term one, and they may all just want to get the stuff out of the ground and sell it before the market stops growing and then starts reducing.

Richard Goodwin

Although the existing shale drillers may go out of business this doesn't necessarily kill the sector in the medium term or even the short term. Chapter 11 bankruptcy which enables companies to continue to operate whilst negotiating with creditors or if liquidated then the assets will be bought by companies unencumbered by debt.

There s a received wisdom about the secret being "not to lose" money but assuming an investor to be risk neutral I have never understood why missing a few percent on a rise differs from taking a few percent extra fall?

Novice Investor

Isn't it Richard, that aside from the former not losing money, it's because the need to go from 80 to 100 is a 25% rise, but the missed opportunity to see an SP rise from 100 to 120 is only a 20% rise.

NI

JohnEustace

The point for me is about momentum. I prefer to let others find the bottom and establish the up trend. I'll join the party once the music is playing and the drinks are flowing - and I'll try to leave before everyone is drunk.

Jane,
One factor to consider when looking at electric vehicles is the infrastructure to charge them. In terms of overall generating capacity we are already running with hardly any spare capacity in the UK without adding electric vehicles to the mix. The other factor is the distribution network. The supply to domestic streets is nowhere close to what will be needed if more than a few people want to charge their car at once - the grid just isn't designed or built for that scenario.
This in my view is why Elon Musk / Tesla are pushing home batteries and micro grids. The home batteries charged by solar or wind with local diesel generator backup for peak demands and local distribution to ease the pressure on the main grid. All do-able but a considerable extra infrastructure beyond the vehicle development itself.
For those in cities without off street parking to charge an electric vehicle, the future looks to be Uber type driverless electric vehicles summoned on demand, presumably driving themselves back to a depot to swap out battery packs as needed.

Hi John,

You may be right about driverless cars, although having one's own car is perhaps a matter of personality or home extension as much as of simply being a question of practicality for city driving. I actually was not thinking specifically of Tesla and the like but rather of the big manufacturers who are now investing seriously in electric cars, all over the world. One example is Nissan's announced investment in Sunderland to develop the next generation of batteries:

https://www.northeastautomotivealliance.com/news/f33f2def-15c0-e511-80e1-000d3ab00f2b/

Note the mention of the Nissan Leaf, already with an autonomy of 250km between recharges.

Whichever way the electric vehicle market goes, the impact on oil demand will be very serious, given that about 70% of petroleum is used for transportation and 60% of that part is for light vehicles, meaning that over 40% (0,7 x 0.6) of petroleum use is at risk of replacement by electric vehicle use. Obviously, not all vehicles will be electric and the changeover will be spread over years but the impact on the demand for oil will be very substantial.

Best wishes,
Jane.

cig

You may need some more generation capacity, but the grid is well below capacity at night, so assuming mostly overnight charging there's no big problem that can't be solved with a bit of software (the car communicates with the grid to smooth the load through the night).

Back of the envelope calculation: at 8000 miles per annum for an average car, 0.4 KWh/mile (Tesla), that's 8 kwh daily, overnight say 10 hours makes about 3 amps at 240V, which is not particularly taxing (less than a kettle).

Where did that intelligent grid that talks to the car magically arrive from?

underscored

26th Jan '16

The stone age did not end due to a shortage of stones.

Same kind of route as the smart meter programme.

CMWilliamson

Jane

Electric vehicles do indeed offer the prospect of disruptive technology in transportation. However, electricity is not a primary source of energy in the same was that hydrocarbons, hydro, solar, wind, nuclear and wave power are - it still needs to be generated. So while we might not put fuel directly in our vehicle tanks, we would still need to pipe an equivalent amount of oil to power stations to be burned there, subject to the differences in overall efficiencies, before plugging in electric vehicles.

Of course, investment in electrical power generation is another whole issue that makes the Heathrow runway debate look simple!

Colin

Hi Colin,

That's actually a common mis-perception. In fact, only 5% of the world's electricity is produced from oil. Gas as a source accounts for 22%. So almost three-quarters of electricity is not produced from either oil or gas. Here's a link with those figures:

http://www.tsp-data-portal.org/Breakdown-of-Electricity-Generation-by-Energy-Source#tspQvChart

So the point that I and others made about the very real, serious and near threat to oil and gas producers from the advent of electric vehicles (as well as from increased investment in renewables) is valid.

PS: Yes, there would of course be the need for additional electricity generating capacity but I doubt that that would be via oil or gas stations, given the greater competitiveness of renewables now and that, politically and for reasons of climate change, fossil fuels are not the flavour of the day now.

Surely the only way that electric vehicles will achieve mass market sales, is for the cars to be able to run at higher speeds that they do now for longer periods, without the battery needing to be recharged, and there being a massive rollout of charging points around the country that can charge the battery to half to full capacity rapidly. Are we not a long way away from that?

Hello Jane

Thanks for the link, very interesting to see the data so clearly presented.

It also helps put in perspective the additional generating capacity required to power electric vehicles. Using the back of another fag packet, I estimate that the current 1bn vehicles in the world using cig's 8kWh/day figure gives an annual generation requirement of c2900 TWh (ignoring transmission losses etc). Current global usage is 485,000TWh. So electric light vehicles would add less than 2% to the demand for electricity - less than I would have guessed.

Rgds

Colin

Rusty2

Yes but the problem is 39% is coal and that is being phased out in the west due to pollution. Gas is good but is it viable without oil? Problem with electric cars is the price, the range, it maybe ok for city cars. There is already a shortage of electric in UK, there are concerns it will not be enough to meet demand. If my car used 8kw a day, that would more than treble my electric consumption from 3kw to 11kw. The growth in cars is in Asia, countries like China and India. I can't see it happening for at least 10 years maybe 20 to 30.

No.

28th Jan '16

I came across this article about a fast-charging system for electric vehicles:

http://www.insidermedia.com/insider/northeast/funding-fuels-filling-station-scheme?utm_source=northeast_newsletter&utm_campaign=northeast_news_tracker&utm_medium=deals_article

"A new type of electric filling station will soon appear on the roadsides in Newcastle and Sunderland after funding was secured for the project.

The North East Combined Authority (NECA) has been awarded £1.5m to help take forward plans for new electric filling stations on the Science Central development on Tyneside and on the A19 on Wearside.

Each filling station will feature six to eight rapid chargers which top up electric vehicles in 15-20 minutes, as oppose to the eight hours it takes for a standard charger."

Your vehicle charged while you have a coffee? Or do your shopping?
When supermarkets start installing these kinds of fast chargers, the charging problem solved?
Together with the numerous research programmes on better batteries,
the move to electric cars may well be faster than anticipated.

4th Feb '16

Following on from my post in message no. 11 of this thread, here's a very interesting report and video from Bloomberg showing that many shale operators in the US can actually produce oil at $30 a barrel or less, even as low as $22.52.:

http://www.bloomberg.com/news/articles/2016-02-03/texas-toughness-in-oil-patch-shows-why-u-s-still-strong-at-30

This report also shows that the numbers of oil rigs have continued to increase in such operations.

This suggests that looking only at the overall rig count is misleading , as is also thinking of "the US shale producers" as one homogeneous mass, as this article seems to do:

http://www.oilvoice.com/n/How-Saudi-Arabias-grip-on-oil-prices-could-bring-Russia-to-its-knees/2bae675edba4.aspx

It also, perhaps, indicates that Hunting (LON:HTG), mentioned in the post referred to, may be more resilient than thought to low oil prices and perhaps also more liable to benefit from an oil rebound. One other factor in that may well be that there are reportedly already 4,000 wells drilled but not yet producing, ready to be brought into operation at very short notice, for which equipment from Hunting (LON:HTG) may be needed.

All IMHO, DYOR.

(I am a holder of Hunting (LON:HTG), very pleased with today's rise).

Noodle Hat

29th Feb '16

Plexus Holdings (LON:POS) continuing downwards? today @ 45.75 bid.... makes me regret buying at 54!! :) oh well long term view and all that :)

Small Cap Value Report (25 Jan 2016) - TRAK, POS, HAL, RBN

Trakm8 Holdings (LON:TRAK)

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Paul Scott

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