TIDMCRS
RNS Number : 6601M
Crystal Amber Fund Limited
25 January 2021
25 January 2021
CRYSTAL AMBER FUND LIMITED
("Crystal Amber Fund" or the "Fund")
Monthly Net Asset Value
Crystal Amber Fund announces that its unaudited net asset value
("NAV") per share at 31 December 2020 was 128.99 pence (30 Nov
2020: 133.96 pence per share).
The proportion of the Fund's NAV at 31 December 2020 represented
by the ten largest shareholdings, other investments and cash
(including accruals), was as follows:
Ten largest shareholdings Pence per share Percentage of investee equity
held
------------------------------------ ---------------- ------------------------------
**De La Rue plc 58.6 15.1%
**Allied Minds plc 19.1 20.5%
Equals Group plc 15.2 25.7%
*GI Dynamics Inc. 14.0 *
Hurricane Energy plc 6.6 11.2%
*Board Intelligence Ltd 4.6 *
Sutton Harbour Group plc 3.0 10.8%
**Camellia plc 2.5 1.1%
**Kenmare Resources plc 2.0 0.5%
*Leaf Clean Energy Co 1.6 *
Total of ten largest shareholdings 127.2
Other investments 5.4
Loan Facility -3.8
Cash and accruals 0.2
------------------------------------ ----------------
Total NAV 129.0
------------------------------------ ----------------
*Board Intelligence Ltd, GI Dynamics Inc. and Leaf Clean Energy
Co are private companies and their shares are not listed on a stock
exchange. Therefore, the percentage held is not disclosed.
**Within the percentage of investee company held in Allied Minds
plc and De La Rue plc, contracts for difference were held amounting
to 3.0% and 2.1%, respectively, of such holdings. The holdings in
Camellia plc and Kenmare Resources plc are held on contracts for
difference.
Investment Adviser's commentary on the portfolio
Over the quarter to 31 December 2020, NAV per share grew by
20.0%.
The top three positive contributors to NAV over the quarter to
31 December 2020 were De La Rue plc (11.8%), GI Dynamics Inc (4.8%)
and Equals Group plc (2.1%). Top detractors were Hurricane Energy
plc (-2.5%) and Allied Minds plc (-1.8%).
De La Rue plc ("De la Rue")
During the quarter, De La Rue released interim results for the
six months to 30 September 2020. The company's turnaround plan is
proceeding well. The Fund continues to believe that De La Rue
enjoys a combination of strong competitive positions in high return
businesses and attractive growth opportunities. It holds a 30%
market share of global commercial banknote printing, which enables
the Currency division to accelerate and fully capitalise on the
structural shift towards polymer notes. The higher margin
Authentication division is forecasted to generate revenues for the
year to March 2022 of GBP100 million as against GBP68.5 million for
the year to March 2020.
The Fund believes that De La Rue's current equity valuation of
11 times calendar 2021 forecast earnings does not reflect either
its growth prospects or its operational upside. The Fund also
believes that its strategic value is considerably in excess of its
current market capitalisation.
Over the period, the De La Rue share price increased by
29.2%.
Allied Minds plc ("Allied Minds")
Following its initial investment in the fourth quarter of 2018,
the Fund focused on securing a major reduction in the excessive
parent company costs of Allied Minds: ongoing HQ expenses were
running at an estimated US$17-20 million at the time. These have
now been reduced to approximately $5.75 million per annum. In
response to concerted pressure exerted by the Fund, Allied Minds
ended its extraordinary practice of paying management 10% of gains
arising from any successful individual investment, without taking
account of the losses incurred on other investments in the
portfolio (the "Phantom Plan").
In October 2020, Allied Minds released its interim results and
referred to the "underlying strength of the portfolio". Spin Memory
was described as "the preeminent MRAM IP provider [...]
transforming the semiconductor industry". Reassuringly, it was
stated that "Spin Memory has made significant progress against its
key operational objectives since its last funding round". Allied
Minds'43% shareholding in Spin Memory, based on that last funding
round, was valued at $77 million. This compares with its $44
million cash cost since 2006. In July 2020, Allied Minds invested a
further $4 million into Spin Memory. Spin Memory's carrying value
therefore comprised around 35% of net asset value. After 15 years,
Spin Memory remains a "pre-revenue" business.
Following this update, the Fund held detailed discussions with
the board of Allied Minds and expressed its concerns.
On 4 January 2021, Allied Minds announced that due to COVID-19,
the required testing of Spin Memory's chip had been delayed for
nearly nine months, that this delay had affected Spin Memory's
ability to secure new customers and that as a result, this, coupled
with an unexpected loss of a government bid in late Q4 2020, Spin
Memory is now facing liquidity issues. The contemplated funding
round is expected to be at a far lower valuation than its carrying
value.
On 15 January 2021, Allied Minds announced that its Chief
Executive had "decided to step down from the board with immediate
effect." Going forward, the portfolio will be managed by the three
non-executive directors. The Fund welcomes the streamlined
management of the portfolio, in which three companies comprise more
than 90% of the latest reported carrying value.
The Fund notes that the current 28p share price compares with an
estimated 26p per share carrying value of the 36.6% holding in
Federated Wireless together with parent company cash of 6p per
share. Holdings in BridgeComm, Orbital Sidekicks, TableUp and Spark
Insights are together valued at 12p per share. Whilst there is
uncertainty as to the current value of the Spin Memory holding, the
Fund estimates that at least 5p per share could be achievable.
Overall, therefore, to trade at the Fund's estimated net asset
value of Allied Minds, the share price would have to increase by
75%.
The Fund expects the Allied Minds board to proactively seek to
realise the inherent value of the portfolio in a timely manner and
return proceeds to shareholders. It should be open to any structure
that could achieve this objective including, if considered
appropriate, reversing Federated Wireless into a Special Purpose
Acquisition Vehicle (SPAC).
Over the period, the share price of Allied Minds declined by
10%.
Hurricane Energy plc ("Hurricane")
During the quarter, Hurricane maintained guidance of producing
average daily production of between 12,000 and 14,000 barrels a day
for the period from September to December 2020. Earlier this month,
the company confirmed that it had achieved average daily production
of 12,500 barrels per day. The Fund believes that production uptime
of 98% is impressive. Partially reflecting the recent sharp
recovery in crude oil prices, Hurricane reported cash at 31
December of $106 million, an increase of $19 million from a month
earlier.
From the Fund's detailed engagement, it is clear that the board
of Hurricane does not seem to be focusing on the upside potential
of the fractured basement play within Hurricane's licences. It is
unclear why Hurricane is not keen to tie back the existing Lincoln
Crestal well which was reported to have tested at a sustained
commercial rate. Production from Lincoln could significantly
increase overall output with minimal pressure drawdown at
Lancaster. The Fund is unconvinced that investment in water
injection at Lancaster will stabilise pressure decline in the
reservoir and increase recovery. The Lancaster basement play may
contain resources greatly in excess of the pool currently being
developed by the Early Production System at Lancaster. The Fund
believes a farm-out ought to provide the optimum mechanism to both
fully access and maximise the value of Hurricane's substantial
assets.
Over the period, the Hurricane share price declined by
30.7%.
GI Dynamics Inc ("GI Dynamics")
The company had a successful inspector audit in November 2020
and continues to make progress toward gaining regulatory approval
to commercialize in Europe.
The Fund is delighted that Joseph Virgilio was appointed the
company's CEO in November 2020.
Transactions in Own Shares
Over the quarter to 31 December 2020, the Fund bought back
6,149,567 of its own ordinary shares at an average price of 82.61p
per share as part of its buyback programme.
The buyback contributed 2.9% to NAV per share growth.
Interim dividend declaration
On 23 December 2020, the Fund announced the declaration of an
interim dividend of 2.5 pence per share in respect of the financial
year ending 30 June 2021. This dividend will be payable, to
shareholders on the register as at 8 January 2021, on or around 5
February 2021.
For further enquiries please contact:
Crystal Amber Fund Limited
Chris Waldron (Chairman)
Tel: 01481 742 742
www.crystalamber.com
Allenby Capital Limited - Nominated Adviser
David Worlidge/Liz Kirchner
Tel: 020 3328 5656
Winterflood Investment Trusts - Broker
Joe Winkley/Neil Langford
Tel: 020 3100 0160
Crystal Amber Advisers (UK) LLP - Investment Adviser
Richard Bernstein
Tel: 020 7478 9080
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