Silver lining in a cloud of investor misery?

Following today’s news that Seeing Machines is having a deeply discounted  conditional placing and subscription to raise £27.5m, the management of the company seems to have lost both the goodwill and trust of many private investors. 

Indeed, the fact SEE couldn’t get even get a placing with existing institutional investors away at 5p tells you a lot.

It’s quite frankly shocking that the company had to offer shares at 3p in order to raise cash and follows a long series of fleet and train related mishaps that Chris Grayling would be proud of.

The only silver lining I can see is that with the expected OEM wins still to be announced it becomes a sitting duck for an opportunistic bid. My sources tell me that last year, after numerous ‘discussions’, it came close to being snapped up by Bosch for around 17p. Well, I dare say, it is still available at a knock-down price.

Anyone want a to buy a company with great tech but poor management? 10p? Anyone? 7.5p?

UPDATE

For those investors despairing tonight, I’ve some hope. Ironically it comes from house broker Cenkos who put out a note today. Analyst Jean-Marc Bunce clearly cares about his reputation and though he lowered the price target to 9p, Bunce can’t help but admit on page 15:

“Strategic value is significant – 39p at 8% discount rate

To demonstrate the significant value in the increasingly visible future cash flows from Seeing Machines’ automotive license fees, we note that a large organisation with a market average Beta of 1 would have an equity cost of capital of 8%. At an 8% cost of capital our valuation for Seeing Machines rises to 39p and we note the weighted average cost of capital for a large corporate would likely be even lower through debt financing.”

In fact, the more times I read this note the more I get the sense that it is setting out a case for SEE being sold at a particular price. We’ll see.

The writer holds stock in SEE.

eServGlobal: M&A thoughts

FinnCap, the house broker for eServGlobal, has published a note highlighting the accelerating pace of M&A activity in the payments industry and its implications for the AIM-listed minnow.

There have been 3 big mergers so far this year in the payments industry:

  •   Fiserv’s acquisition of payments processor First Data for $22bn;
  •   Visa’s acquisition of Earthport for £200m; and
  •   Worldpay acquisition of FIS for $43bn.

In addition, after missing out in the Earthport auction, Mastercard has bought Transfast. This prompted EservGlobal to issue an RNS today in which it stated: “Transfast is a network partner of HomeSend, offering reach and connectivity principally into Africa and Latin America, together with foreign exchange and ancillary services. Network relationships are a critical element of HomeSend’s services and HomeSend continues to grow these partnerships through several regional network partners, such as Transfast, together with HomeSend’s own direct connections, to deliver across multiple markets and channels.”

FinnCap Director of Research Lorne Daniel explained: “After missing out in the Earthport auction, Mastercard has bought Transfast. We see this as augmenting not replacing HomeSend. The Transfast acquisition will augment Mastercard’s well-defined and established strategy to dominate global payments with a range of solutions. Purchasing one of the technologies underlying Mastercard Send gives greater control, adding capacity as well as reach.”

Daniel noted: “We continue to expect Mastercard to seek full control (from its current 64.31%) of HomeSend, which it continues to flag as a key platform to dominate international Account-to-Account and Business-to-Business transfers. Indeed, the recent surge in M&A activity in the segment should hasten that move.”

Daniel currently has a target price of 20p on the share.

The writer holds stock in eServGlobal.

Is it time to React?

React Group is a tiny AIM-listed company that has a chequered history and recently decided to concentrate on specialist cleaning. It is also a sub penny stock. So far, so bad.

The good news is that star fund manager David Newton has a chunky 15.74% holding and the company’s management has been strengthened with the addition of a Non-Executive Director Michael Joyce, former CFO at InterQuest.

Joyce and his wife have recently bought stock in the company (management of SEE, please note) which has helped spark this week’s increase in the share price.

Mark Braund has also been brought in as an operational and strategic advisor. He is a former CEO of InterQuest and also ex-CEO of Redstone Connect.

I briefly held this stock about 3 years ago when Adam Reynolds (the cash shell king) was a holder. He has since moved on and I feel that with a clearer strategy the company is now gearing up for a period of accelerated growth.

It made a loss for the year ended 30 September of £1.93m but the net cash outflow from operations was far less at £625k, with turnover up 25% at £3.3m. If the business continues on its current growth trajectory it could easily multi-bag from here.

At this stage it has be regarded as a fairly speculative investment and is certainly not one to sink your pension pot into. Yet, it is certainly worthy of further investigation.

At the time of writing its share price was 0.27p.

The writer holds stock in React.