Hot Features
Premium
Level up your trading with our powerful tools and real-time insights all in one place.
PV Crystalox (LSE:PVSC) has current assets exceeding all liabilities by £34.2m (to be really conservative non-current asset values are ignored). This net current asset value, NCAV, per share of 21.4p compares with its current share price of 13p – 14p (MCap = £21m).
The reason Mr Market has pushed this share down is that it has a history of monthly of losses of between £0.5m and £1m, month after grinding month. This has been going on for years. As recently as December 2013 it had over £30m of cash and a NCAV of £43.4m. Now cash is only £9m and NCAV has fallen by 21%.
Mr Market clearly thinks this downward trend will continue until almost all value has disappeared. However, in the AGM yesterday the directors made it plain that there are three other paths that the company can follow. Which of them will end up being taken not even they do not know yet, because there are so many variables. But each of these three result in much greater value for shareholders than is reflected in today’s share price.
I was the only non-employee shareholder present, but they were very generous with their time, and as candid as they could be given their positions. I pestered them with questions for about half-an-hour. (Previous Newsletters on PV Crystalox: 15th – 21st Jan 2015, 26th – 27th Mar 2015, 1st – 2nd June 2015, 15th and 18th April 2016).
Scenario 1. Current output and continued losses.
A tantalising prospect was dangled before the directors in December – the world price of the company’s output, silicon wafers for solar panels, rose sufficiently that they could sell at more than the “cash cost” of production – presumably meaning costs excluding long-term capital item expenditure, and consequent depreciation and amortisation.
So, they thought to themselves: is it possible that the market price of wafers could keep rising while the raw material bought-in (Polysilicon) continued falling? If so, we have a viable operating business.
A reinforcing positive-mood factor is the French government’s preference to buy from Europeans. They are fed up with the Chinese distortion of PV and wafer markets, and with the death of European companies in this area. They therefore specified that for 1GW of power European content must predominate (for perspective: worldwide sales of PV is about 60GW pa).
Seeing as PVSC is the last man standing in Europe for wafer production they are in a good position to benefit from the French action (there are two other producers, but their output is used in-house)
The path of continued production led-on by the perennial hope that good wafer prices are just around the next bend is one possibility. But, so often hope can kill, as the company bleeds money in the meantime.
Scenario 2. Closing down the operating business in early 2017
Unfortunately, the price trends since December have gone the wrong way, and so profits still look a distant prospect. However, because they no longer have to buy so much polysilicon above market prices……..To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
