Stockopedia StockSlam - July 2018

30th Jul '18 by Damian Cannon

15 comments 6356 reads

After a very positive response to the very first StockSlam, in June, we decided to squeeze a second event in before everyone left for the summer. So last Thursday a predominantly new crowd assembled in Central London for ten short but interesting pitches. Personally I thought that all of the presenters did an excellent job getting their thoughts across in 5 minutes, or less, before the audience came up with some very sensible questions.

To give everyone who couldn't make it a flavour of the event Keelan Cooper, an intern at Stockopedia, transcribed an audio recording of the event. This is no easy task and I'd like to thank him for turning this around in less than 24 hours. For the sake of brevity I've edited this transcript to bring out the key points for each presentation. If this proves interesting, and perhaps encourages you to consider pitching at the next StockSlam, then I'll consider the effort worthwhile!

Medica (LON:MGP)

IT services company in teleradiology where remote radiologists consult on CAT scans, MRI scans and X-rays
at night they can turn these around within an hour, typically within 25 minutes. This service, NightHawk, accounts for 50% of revenues
daytime service, 1 or 2-day turnaround, accounts for the other 50% of revenues
company has only been listed just over a year or so and IPO'd at around 180p
profit warning before the final results due to capacity constraints and lower demand
risks associated with the NHS, their main/only customer
recruiting radiologists is also difficult as you need good people who want to work remotely
despite low value and momentum ranks, the company has high quality metrics with ROCE more than 15%, PEG 0.5-0.6 and they are reducing debt using great cash flows
recent trading update cause huge spike in the share price as the company confirmed that it would be trading in-line with expectations
Q: Who are their competitors and how much market share does the company have? A: The company does reference the competitors in their annual report but do not specify their market share
Q: What is the company going to do about recent reviews which have said automated systems reading scans do it better than doctors can? A: The company has said in its reports that they are looking at AI and doing research on that front, to automate some of the scans and not put radiologists out of service but…

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jonthetourist

29th Jul '18

Brilliant. Much appreciated, Damien and Keelan.

Jon

mrosbiston

30th Jul '18

thanks for the write-up Damien and Keelan - brilliant event

Johnny2509

Nice one!

garbetklb

Thanks a lot - some v interesting commentary. One I hold, another I'm going to take a good look at.
Andy

mrgrowthvalue

Great event! Thanks all.

BlueFrew

3rd Aug '18

Thanks for organising a great event. A really good and interesting selection of companies we're presented.

I should correct some fake news. BP actually own 5% of Serica, not 3%. Silly mistake on my part.

Really good deal announced this morning which means Serica Energy (LON:SQZ) will own more of the BK assets they will (hopefully) be buying from BP. I do enjoy paying for things from money we didn't know we had.

It does mean the share price now has further to fall in the (in my opinion) unlikely event the BKR transaction doesn't go through.

thanks for the presentation on Serica Energy (LON:SQZ) , after the talk i went and did some of my own research on the name - i concluded it was a significant opportunity and asymmetric risk (50% loss to gain 200-400% potentially) - so i opened a position based on the research.

So thanks very much for bringing this to my (our) attention

I'm glad somebody found the presentation useful. Or at least I will be if the BKR deal goes through. :-)

Today's news gives a bit more upside, but doesn't really change the downside. It does show that management is absolutely committed to this deal. They've spent so much time and effort and there is no other game in town for them.

willhampson

Great read - thanks for providing this. Only minor thing I would flag is that re Frontier Developments (LON:FDEV) Tencent didn't pay £17.70 for its 9% stake last year. Unless I am being a colossal idiot, I thought it was £5.23 they paid. Thanks again!

9th Oct '18

Well, it took a little longer than I thought, but I hope all Serica Energy (LON:SQZ) holders enjoy today. I think I will.

https://www.investegate.co.uk/...

I hope nobody sold yesterday, although it looks like some people did. Ouch.

(Long Serica Energy (LON:SQZ) )

pgs501

10th Oct '18

Hi Blue,

Firstly thank you for highlighting this share to me and the others at the event, and thank you to Stockopedia for arranging it. Following the event I did some further research and bought quite a few Serica Energy (LON:SQZ) shares so yesterday was a good day.

Following reading the update it appears to me that the deal's last major obstacle has now been passed (I do not view the openning of an escrow account for the IOC part as a major hurdle) and the completion date has been agreed as 30 November.

I am at this point confused as to why the share price has not risen significantly more. The PE is forecast at 3 currently and due to the nature of the deal we know that both revenues and profits will increase substantially as Serica's revenue % share increases. How is this share this price?

I am currently on the fence as to whether to add more, am I missing something?

Pete

Hi Pete,

I'm pleased some people found my spiel useful and have made some money. Personally, I added yesterday when I saw the price action in the morning (the best thing about risk management rules is breaking them). The escrow account setup has been used before. In fact the Government had to change the law last time, to allow it. But there are no such issues this time.

Perhaps people are worried (unduly in my opinion) about the escrow account. Or perhaps they haven't been following the story and don't realise that the transactions are backdated to 1st January meaning they aren't aware just how much cash Serica Energy (LON:SQZ) are due on completion.

Whatever the reason, I think there is still upside from here. Clearly not as much as before. But I do think once the deal completes and the final cash terms are announced then there could be a nice kick up in the share price.

Malcolm

i don't believe PE is a appropriate measure for Serica Energy (LON:SQZ) due to the finality of the assets - absolute best case for Rhun is 2027, Bruce and Keith have significantly less useful lives, however we would expect significant amounts of cash to be generated in this time.

more appropriate is DCF, which is always difficult to make a valuation due to the sensitivity. The best investment cases i have seen imply as DCF price of between 140p and 200p.

I believe the reason the share price is not around these levels is there is still a bit of future uncertainty due to the license only being extended by 12 months (although this can be increased subject to meeting the terms - e.g no change in operations). There is always going to be a bit of risk as long as the IOC are involved, but every chance the share price creeps up to between 140p and 200p over the next 12 months.

Thank you for adding that mrosbiton, a little dense of me there. May I ask where you found your DCF examples and if they are publicly available?

posted on the Serica Energy (LON:SQZ) thread last thursday - will repost in full (there are also broker forecasts on research tree)

interesting pitch deck on Serica Energy (LON:SQZ) and outcomes of the OFAC decision (e.g there are alternative plans in place).

the research expects the BK transaction to close in 2018 regardless and outlines the options available in the event of no license.
- use of non-US specialists to run/maintain the rig (thereby not triggering IOC sanctions)
- shutting down the field (Rhum) for 1-3 years
- obtaining a license at some point in 2019 instead

the main risk is the BP have the option to cancel the transaction in the event of no license - the argument against this is how far along the process BP are and committed, through the transfer of employees, opening a new office

https://seekingalpha.com/article/4209579-serica-energy-upside-potential-driven-acquisitions

Stockopedia StockSlam - July 2018

Medica (LON:MGP)

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Damian Cannon

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