TIDMCRS
RNS Number : 3591W
Crystal Amber Fund Limited
22 April 2021
22 April 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 March 2021 was 139.24 pence (28 Feb 2021:
132.51 pence per share).
The proportion of the Fund's NAV at 31 March 2021 represented by
the five largest shareholdings, other investments and cash
(including accruals), was as follows:
Five largest shareholdings Pence per share Percentage of investee equity
held
------------------------------------- ---------------- ------------------------------
**De La Rue plc 68.8 14.4%
Equals Group plc 19.2 25.0%
*GI Dynamics Inc. 16.6 *
**Allied Minds plc 13.7 21.4%
Hurricane Energy plc 8.8 11.9%
Total of five largest shareholdings 127.1
Other investments 13.6
Loan Facility -1.0
Cash and accruals -0.5
------------------------------------- ----------------
Total NAV 139.2
------------------------------------- ----------------
* GI Dynamics Inc. is a private company 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 3.1% and 0.3%, respectively, of such holdings.
Investment Adviser's commentary on the portfolio
Over the quarter to 31 March 2021, NAV per share grew by 8.3%,
or 10.2% after adjusting for the 2.5p per share dividend paid in
February.
The top two positive contributors to NAV over the quarter to 31
March 2021 were De La Rue (9.8%) and Equals (3.4%). Top detractors
were Allied Minds (-0.8%) and Board Intelligence (-0.3%).
De La Rue plc ("De la Rue")
As stated in Crystal Amber Fund's interim results announced on 4
March 2021, the Fund believes that De La Rue enjoys a combination
of strong competitive positions in high return businesses and
attractive growth opportunities, and that its current equity
valuation is significantly mispriced.
Last week, De La Rue issued a positive trading update for its
year ended 27 March 2021, stating that after repaying all furlough
payments, adjusted operating profits for the financial year 2020/21
are expected to be around the top end of the GBP36 million to GBP37
million range previously indicated in the company's trading update
announced on 28 January 2021.
With the shares currently trading at less than 12 times current
year earnings, the Fund believes that this valuation fails to
reflect either its growth prospects or its operational upside. The
Fund strongly believes that its strategic value is far in excess of
its current market capitalisation.
Over the period, shares in De La Rue were up by 22%.
Allied Minds plc ("Allied Minds")
During the quarter, following the resignation of its Chief
Executive, Allied Minds continued its practice of poor
communications and the unacceptable lack of provision of financial
information. This included a botched Capital Markets Day, to which
invitations were only sent to analysts and not to investors. The
Fund is aware of two (paid for) analysts who cover Allied Minds.
Subsequently, investors were made aware of the Capital Markets Day,
with only a few days' notice. The company's broker subsequently
apologised to the Fund for this error.
During the Capital Markets Day, important financial information
was provided. The Chief Executive of Federated Wireless (which
represents 26p of Allied Minds' house broker's estimated net asset
value of 46p), reported actual Q1 revenues for 2021 and a financial
forecast for the full year.
Revenue forecasts were also provided by other portfolio
companies. The Fund believes that this information should be
provided to all market participants and not just to those that were
able to access the Capital Markets Day. More than a week ago, the
Fund requested that Allied Minds release this information without
delay to all market participants. This afternoon, this information
has finally been made available.
Separately, earlier this month, paid-for research from Edison
for Allied Minds was withdrawn, after the Fund highlighted an error
with the percentage holding in a portfolio company. Earlier in the
year, Edison apologised for a previous error: for several months,
estimated net asset value had been materially overstated, as a
result of not deducting the 12.6p special dividend paid to
shareholders in February 2020.
The Fund believes that responsibility lies with the Chairman of
Allied Minds. In light of this, the Fund has written to Harry Rein
to ask him not to seek re-election at next month's Annual General
Meeting. If he decides to seek re-election, the Fund (an owner of
more than 18%, of the issued share capital) will vote against his
re-election and write to other shareholders to explain its
reasoning. The Fund believes that Mark Lerdal, a non-executive
director of Allied Minds, should replace Harry Rein as Chairman.
Following his appointment as Executive Chairman of Leaf Clean
Energy ("Leaf") in 2014 with support from the Fund, Mark Lerdal
achieved an excellent outcome for all shareholders in the company.
Like Allied Minds, Leaf was a London listed, US based closed end
investment fund trading at a 50% discount to net asset value.
Over the period, Allied Minds' shares fell by 31%.
Equals Group plc ("Equals")
Equals had a strong end to 2020. This continued into 2021.
Several system improvements have been delivered that widen the
service proposition for SMEs and retail clients. These have
increased efficiencies and delivered cost reductions. New sales
processes have accelerated the growth in international payments
transactions. The business is now a cash generative fintech
company.
Over 2020, the company continued to refocus on business
customers, with B2B revenues up by 10%. This included 51%
international payments revenue growth. The company also generated
revenue from new partnerships including Homesend, a subsidiary of
Mastercard. Retail revenues were down 30%, impacted by the Covid-19
related reduction in international travel. With a common
infrastructure across B2B and B2C, the company can continue to
focus on business customers and deliver improvements to its retail
user base. We expect revenues from the latter to recover when
Covid-19 restrictions to travel are lifted.
The company has also announced an initial venture to allow its
customers access to decentralised finance ("DeFi") payment
solutions.
Over the period, Equal's shares were up by 29%. Despite this,
the shares trade on an equivalent enterprise value of just two
times current year's forecast sales.
Hurricane Energy plc ("Hurricane")
During the quarter, Hurricane delivered average production of
11,200 barrels of oil per day. Production efficiency of 95%
exceeded the company's planned assumption of 90%. Encouragingly,
during the quarter, the average water cut was unchanged from the
previous quarter at 25%. Net free cash at 31 March 2021 was $127
million as against $106 million at 31 December 2020 and $87 million
at 30 November 2020.
Early in April 2021, Hurricane published a summary of the yet to
be published full CPR (Competent Person's Report). The summary CPR
was broadly consistent with management's estimates for Lancaster
and Lincoln presented in September 2020. The Fund believes these
estimates are very cautious and pessimistic in the critical issue
of oil-water contact. Logs and sampling demonstrate the occurrence
of oil below the 'new' oil water contact. The Fund, as well as all
market participants, only have visibility over the limited
published data. The Fund awaits publication of the full CPR in
order to comment further. The Fund also notes the company's failure
to update market participants on the positive financial impact of
the oil price, which has doubled over the last year and since 31
December 2020 has increased by $15 a barrel. Nor has the company
commented on the financial impact of the $40 million increase in
free cash over the four months to 31 March 2021.
In September 2020, Hurricane stated that it would be engaging
with all key stakeholders regarding its work programme and
financial arrangements. The company guided that more definitive
estimates of the range of reserves and resources would be made
available in an updated CPR in Q1 2021.
As reported in our interim results announced on 4 March 2021,
the Fund is extremely concerned with the company's failure to
engage. On the same date the Fund wrote to Hurricane asking for
responses on matters including bondholder consent and the Fund's
request to nominate a director. The Fund also requested that market
participants be made aware of the quantum of financial commitments
that the board has contracted with professional advisers, including
Evercore.
On 22 March 2021, having had neither a response nor an
acknowledgment, the Fund wrote again asking for these points to be
answered.
Hurricane's website states that: "the board as a whole has
responsibility for ensuring that a satisfactory dialogue with
shareholders takes place. It believes that shareholder dialogue is
key to developing an understanding of the views of shareholders and
encourages two-way communication, providing prompt responses to
queries received orally or in writing."
The Fund's experience with the board of Hurricane is contrary to
the above assertion. Moreover, it makes a mockery of such a
statement. It is now more than two months since its Chief Executive
wrote that he would have a telephone call and since the Fund
requested to nominate a director to the board of Hurricane. The
Fund regards it as both astonishing and appalling that the board of
Hurricane purports to value shareholder dialogue, yet fails to
respond to a long-term supporter and provider of substantial
capital that has been a shareholder for eight years and owns more
than 14% of the equity.
In total, the summary CPR recognises 2C contingent resources of
125.7 million barrels of oil. Whilst this is a small fraction of
previous estimates, it nonetheless represents a commercially
significant volume of good quality oil at accessible depths with
the availability of floating production facilities. Previously, the
Fund had expressed its concerns around the proposed side-tracking
of the Lancaster 7z well, and in March 2021 the company backtracked
from its intention to drill it this summer.
The Fund believes that Hurricane's assets are valuable but are
still at the exploratory stage of characterisation. Further
investment in well stock together with a plan for gas disposal
agreed with the Oil and Gas Authority is likely. The Fund believes
that management's current focus on production from existing wells
will fail to maximise shareholder returns from Hurricane's west of
Shetlands portfolio. Crystal Amber believes that Hurricane's focus
should be on its fractured basement assets. This could involve a
farm out or a strategic partnership.
The lack of communication with market participants in general
and with the Fund in particular is indicative of a board that has
failed to provide evidence that it is acting in the interests of
all stakeholders. As a result, the Fund has lost confidence in the
board of Hurricane. As soon as Hurricane provides overdue
operational and technical information, the Fund intends to assess
this and provide its comments accordingly, in order to protect
shareholders' interests, restore investor confidence and fully
capitalise on the opportunities from this potentially significant
UK strategic asset.
Over the period, Hurricane's shares were up by 24%.
Transactions in Own Shares
Over the quarter to 31 March 2021, the Fund bought back 533,000
of its own ordinary shares at an average price of 102.38p per share
as part of its buyback programme.
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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END
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