Small Cap Value Report (Thu 28 Dec 2023) - TRYB, CHLL

Good morning from Paul!

Quiet for news again today, but I'll be taking a look at a couple of £20m market cap minnows. Today's report is now finished.

I was pleased to see there's clearly subscriber demand for SCVRs in this quiet period, with 4,713 reads, and 154 thumbs up for yesterday's report. If the market is open, then there will be an SCVR, as subscribers need somewhere to discuss topical issues every trading day.

I'm keeping my eyes peeled for unusual share price movements - in the usually modest liquidity of the Christmas break, price spikes can occur, presenting the occasional opportunity for people paying attention.

Same as every year, I'm planning on writing my year end review, and my top 20 value/GARP shares for 2024, over the New Year break. I also really enjoy reading subscriber posts about your investing year, and how you see 2024 panning out, so I encourage everyone to share your thoughts either by creating a separate post, or in the comments here.

While I'm preparing today's report, take a look at Keelan's review of the mining sector in 2023.

Two more 2023 reviews have been published today -

Graham's 10 share picks for 2023 have delivered a remarkable +25% (including divis)! Article is here.

 Megan posted some more macro-focused themes today in this article.

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Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps (usually) between £10m and £1bn. We usually avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green (thumbs up) - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced. OR it's such deep value that we see a good chance of a turnaround, and think that the share price might have overshot on the downside.

Amber - means we don't have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.

Red (thumbs down) - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk. Sometimes risky shares can produce high returns, if they survive/recover. So again, we're not saying the share price will necessarily under-perform, we're just flagging the high risk.

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Tribe Technology (LON:TRYB)

Down 8% to 8.5p (£19m) - Trading Update - Paul - RED

As it’s a quiet day, this is an ideal time to look at a recent float, so we can get some details into our archive here for future reference.

TRYB was created in 2019 in W.Australia,now having its HQ & factory in Belfast, UK (20,000 sq.ft, 30 people). It develops autonomous mining equipment (eg self-propelled land-based drilling rigs, said to be cheaper & safer to operate). It floated on AIM recently in Sept 2023, raising a modest £4.6m before expenses (only £3.2m after expenses!).

There’s a useful slide deck here from the IPO. The story seems to be that it has two initial orders of £6.4m and £4.1m from mining companies, and a pipeline of sector interest. There’s no financial information in the slide deck though. So I’ve had to download the AIM Admission Document from this page. These can be daunting, as they’re large documents, but I only dip into it for key information, when doing an initial review to see if the share looks interesting or not.

Key IPO facts -

Shares in issue expanded from 150m pre-IPO to 221m post IPO (230m fully diluted after options & warrants).

10p placing price.

Allenby organised it.

c.10% of enlarged share capital is EIS/VCT money (less discerning, due to attractive tax breaks).

IPO raised £4.5m gross, but fees were £1.3m, so only £3.2m after fees! That’s bonkers.

Risk factors - cash constraints mentioned, and contract risks (can be terminated any time by customers), early stage nature of the company.

Zero revenues, and £(1.7)m loss after tax credit for FY 6/2022. NAV negative £(1.2)m at 6/2022, but will have gone positive after IPO.

Overall - this is clearly an under-capitalised, jam tomorrow company, which cannot afford any project delays. Unfortunately, that’s exactly what has happened -

Today’s news - project delays mean there’s a risk that first revenues may slip from FY 6/2024 into FY 6/2025.

Cash position £3.34m at 23 Dec 2023. Is that gross or net of debt? (note that a new £3m loan was arranged in Oct 2023, at 13% pa interest). What is the monthly cash burn? It doesn’t sound very good, for a pre-revenue company with 30 staff. Hence I suspect high risk of dilution from another equity raise.

Paul’s opinion - after spending about 20 mins skimming through the admission document, I’ve seen enough to realise this share is not of any interest to me. Why?

TRYB is pre-revenue, and loss-making/cash-burning. It’s got 2 big contracts, and there are now contract delays. Cash looks tight. Yet again, a jam tomorrow project has been floated on AIM with inadequate funding, far too early (pre-revenue), and has already run into problems just 3 months after listing.

I cannot see why this is valued at £21m at this stage. Why get involved, when it might need another placing in 2024?

Upside? That the company claims to have spotted a gap in the market, contract values are large, and if the product is well received by the first 2 customers, then it might see a surge in repeat orders perhaps?

There’s no broker research available that I can see.

Overall then, I have to introduce a note of uncertainty, and flag it as high risk at this stage, so it’s RED for me. We can keep an eye on it, and see how the newsflow and figures develop, but risk:reward seems unattractive to me at this stage. Early stage companies like this hardly ever succeed on the IPO plans, with share prices usually performing badly, and delays plus more funding needed being the usual outcome. Why get involved at this stage? Liquidity is also likely to be very poor, due to the concentrated shareholder register and small size.

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Chill Brands (LON:CHLL)

Down 3% to 4.65p (£20m) - Interim Results - Paul - RED

Chill Brands Group, the international consumer packaged goods company, announces its interim results for the six months ending 30 September 2023 (the "Period"), which can be viewed below and also on the Company's website at www.chillbrandsgroup.com. 

About Chill Brands Group
Chill Brands Group plc (LSE: CHLL, OTCQB: CHBRF) is concerned with the development, marketing and distribution of wellness and recreational products containing natural, functional ingredients. The Company's proprietary product range is distributed by some of the most recognisable convenience retail outlets in the US and includes nicotine-free disposable vapour products that cater to the rapidly growing market for tobacco alternatives. Chill Brands also operates the chill.com e-commerce website, on which it is building a marketplace of products from third-party brands.

I’ve not looked at CHLL this year so far, because my impression is that it’s rubbish.

Looking at today’s interim results has very much reinforced this view. The numbers are terrible -

H1 revenue only £83k!

Loss after tax in H1 £(1.56)m

Balance sheet is weak, with NTAV negative £(1.9)m.

Cash is £1.95m, which looks about enough for another c.6 months after Sept 2023, so it will almost certainly need to do another fundraise in early 2024. Hence very high risk of a possibly deeply discounted fundraise.

Note there is already debt on the balance sheet, of £4.6m, including £3.2m in current liabilities, so how is this going to be repaid or extended?

Outlook - deals have been done with retailers, to list CHLL’s products, which it says will lead to a big increase in H2 revenues. Although it also mentions some up-front costs associated with getting products listed at retailers. Given that it’s fast burning through the remaining cash, this looks a precarious situation.

Paul’s opinion - I’ve seen enough to want to completely avoid this jam tomorrow cash burner. It hasn’t yet delivered any meaningful sales, let alone profits. Cash will need replenishing in the short term (on unknown terms). So why on earth is this share valued at £20m? There must be some punters who believe in the story - good luck to them, but personally I won’t be going near this share until it’s properly refinanced again (I think it needs £5m+ in fresh equity), and has proved that it is generating decent revenues and positive cashflow. At this stage, I doubt it will ever achieve that. So it’s a bargepole job for me - RED.

We keep an open mind here at the SCVR, so if the facts & figures improve, then we’ll take a fresh look at it.