This week the headline was “£10 Billion Leaves The London Stock Exchange”. It was actually mostly kind of good news, that journalists (bad news sells), managed to spin a mini M&A frenzy into sounding like a disaster. Where do they get these writers from? Certainly not a pool of people who have been in and around the markets for nearly 35 years, and actually want investors to make money.
Spirent
Correct me if I am wrong, but if a US company buys a UK listed company for say £1bn, then that is money coming into this country which we sorely need. This is what happened with telecoms firm Spirent (SPT), in an all cash offer from its US counterpart Viavi. Of course, it means one less listed company on the London Stock Exchange. But as revenues from the LSEG only make up 4% of the parent company, who cares? Clearly, not them.
Master Investor
A couple of weeks ago I suggested that we have begun a nascent stock market recovery. Attending the annual Master Investor event, one might have been forgiven for thinking that this might be the case. There was a decent crowd, with billionaire event owner Jim Mellon checking on those who had paid for their stands whether the footfall was up to scratch. Apparently it was. That said, it was noticeable how many service providers were in attendance. For what it is worth, the exhibiting company highlights were Ananda (ANA), Poolbeg (POLB), Equipmake (AQSE:EQIP), EnSilica (ENSI), and ASX listed Kinetiko (KKO), on the basis of the effort they all made at the stands with the punters.
Footfall
There was a decent crowd at Master Investor, with billionaire event owner Jim Mellon seen checking with those who had paid for their stands whether the footfall was up to scratch. Apparently it was. That said, it was noticeable how many service providers were in attendance. I noted though, that there were not that many of them in the PR / IR area who have been brokers in the City, written for national investment publications, floated their own listed company, and built up their own significant social media following over the past 15 years. Alas, it would appear too many CEOs succumb to the hard sell, something which is quite understandable given that normally only have their specific industry knowledge, rather than being experts in how to get the message out to investors.
Share Buyback
Of course, footfall at a stock market event is one thing, but liquidity at the small end of the stock market is another. There is clearly liquidity around, otherwise we would not see the S&P, Nasdaq, Bitcoin and Gold at record highs. So why is the London market missing out? The answer is that it almost certainly will join in. It is just all the cost, red tape and talking it down in the press that will delay matters. Luckily, US companies and / or private equity know a bargain when they see one, and there are many that are dirt cheap. After all, and I was speaking to a listed investment company CEO at Master Investor, who reminded me that many companies are trading not only at a discount to NAV, but also to a discount to cash. The answer is share buybacks. Unfortunately, for some strange reason not many such companies are interested in doing this in a meaningful way.
Cadence Minerals
One of the signs of a stock market turnaround is when the market finally starts to re-rate companies that have been out of fashion during the bear market. One of the better risers of the week was Cadence Minerals (KDNC), a company best known for its Amapa project. KDNC said it has taken a substantial series of steps forward since it announced the MoU with TCIDR in October 2023. The kicker though may have been the revelation in this week’s RNS that Cadence’s engineering team has identified a flowsheet which can produce a 67% concentrate product instead of the previously proposed 62% and 65% product mix. The 24% rise in the share price shows that the market has appreciated the improvement in margins and project economics the higher concentrate mix will deliver on the U$949 million net present value. The market may appreciate KDNC even more after the event that I am hosting for the company at lunchtime on Thursday 14th in St James’s. Anyone keen to attend and see a couple of other small cap situations of note, let me know.
CleanTech Lithium
During the week I also attended a presentation by the management of CleanTech Lithium (CTL). Here the differential between the now improving lithium price, the CTL share price, and research note price targets has widened significantly. For instance, CTL brokers Canaccord and Fox Davies are looking for £2.95 and £4.45 respectively, as compared to the current 15p share price. There are also some aspects that the market has so far not really cottoned onto. The first is that CTL’s Direct Lithium Extraction (DLE), absorbing lithium from brine, a cheaper and greener process that those with spodumene projects. The other is that last autumn Toyota set out its strategy including three new electrolyte battery technologies to reduce cost (-40%) and charging times (-80%), and increase EV range (+20%). The flagship here is the so-called Polarisation battery, featuring lithium iron phosphate. Given that the new batteries and production from CTL’s Chilean projects are likely to coincide in 2026, a 15p looks like cheap option money at the moment.
Tirupati Graphite
If lithium has been something of a roller coaster, it would appear that graphite has been under the cosh as well. This has been seen particularly at Tirupati Graphite (TGR), a company which seemed set to shine as the EV revolution gathered momentum. Instead, the company has been hit of course by both operational issues, as well as armchair / failed CEOs. The latter factor has taken the share price down to a fraction of the IPO value, before much of the acquisition gains that have arrived since. 2024 has seen the company tighten up corporate governance, and the board. This process has gathered pace, and one would suspect that should the combination of funding and production come out correctly in the wash, the present share price of 5p will be seen as something of a downside overshoot. Broker Optiva have a 30p a share price target, and in their flash note entitled “Strength in the field, weakness in the boardroom” even have a NPV/share of 61p. One might suggest that with a refreshed management, the TGR situation would not be too hard to fix.
I3 Energy
Finally, in the good old days pre-pandemic, pre-inflation, and pre-Ukraine, one might have thought that $80 a barrel for crude oil was a big number. Apparently, not so much these days. We are reminded of this in the case of i3 Energy (I3E), where the shares are still bumping along the bottom, despite decent director buying telling us that they are too low. But with last month’s update telling us that the company is producing at the upper end of guidance, it has paid over £15m out in dividends, and drilling has gone well, there seems to be little excuse for reticence here given that the stock was trading as high as 30p plus not too long ago versus 9p now. If we are really going to see more M&A coming in for the London market, perhaps this is a target too given the Canada focus.
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