Value Investing

PV Crystalox Solar – Liquidation play

By Deep Value investments @DeepValueInv

Added a 9% portfolio weight to PVCS at 21.68p a share.

This is a solar manufacturer which has just won an arbitration case against a customer who refused to pay up.  This has been quite well covered in the Investors Chronicle and elsewhere so only a short post on this.

Their market cap is £34.7m.  The arbitration win is worth £30m, less the cost of 22.9m solar wafers the company is supposed to supply.  Looking at http://pvinsights.com/ the most that can cost is $0.80 a wafer, lowest $0.60.  This gives a net payment of £30-£13.6/£10.2.  This means a payment of £16.4 – £19.8m.

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The award is supposedly binding – via the ICC.  I don’t think there is any appeals procedure.

As at the interims the company held €27.86m worth of cash – or £24.5m.

They also hold €7m of inventories, from the 2016 Annual report some of this is silicon wafer – held at estimated selling cost.  Depending on exact specifications I would imagine that could be used to settle the liability of 22.9m wafers the company is supposed to supply.

In addition they have €2.3m accounts receivable / prepaid expenses and a €2.9m payable.

If we net all this out we get to a further £5.6m.

So the valuation comes to £46.5m – £49.9 – less a bit (£2m?) for ongoing costs / wind up costs – so we are at £0.28 to £0.30p a share – or hopefully a 30% – 38% profit.

There might be more in this than that.  They have £70.5m worth of plant – written down to £1.7m in the 2016 accounts.  Is this really only worth that ? I suspect it could be worth more, but I dont have any real evidence of or for this.

There may be a marginally profitable business here – they made £1.3m EBIT in 2016.  I personally would prefer the business wound up.

The company has also lost £88m since 2011.  This may create tax loss carry forwards worth something to somebody.  I am not an expert in this area at all so it’s only a hypothesis.

Shareholders – Management own 27%, Funds 30%, others the rest so management are not overly dominant and may act rationally in respect of the capital.  The outcome of a strategic review is due shortly – hopefully this will act as a positive catalyst.

As ever comments are appreciated.