A month or so ago I took Faye, a uni student currently doing some work experience with me, along to a UXC analyst briefing. Surprisingly, it was an entertaining affair.
Executive Chairman Geoff Lord was pummelled from all sides about the company’s performance and lack of structure. Perhaps as a result, perhaps not, Lord subsequently relinquished the ‘executive’ part of his title and handed the operational reins over to Cris Nicolli, the man responsible for building its substantial IT business over the past seven years.
So Faye was expecting more big things when I dragged her along to the Photon Group AGM. She was sorely disappointed.
The meeting was all over in 25 minutes. New CEO Jeremy Phillips gave his spiel, answered one question from the floor and sat down. The chair ran through the resolutions, all were voted through without a hitch and that was that. Time for a cup of tea.
It was all somewhat of a surprise to me. Granted, Phillips isn’t responsible for the near death experience this company has been through over the past 12 months. But, shareholders usually use AGMs to vent their anger, irrespective of who is responsible, and Photon shareholders certainly have the right to be angry given the losses suffered over the past few years. Perhaps those shareholders have left the register already, which would explain why no one, bar me, seems interested in buying the shares.
We should have gone to Alinta Energy’s AGM instead. I outlined the arbitrage on offer here in Alinta Energy Makes It Two From Two. The first interesting snippet to come from the AGM, according to the transcript, is that the Extraordinary General Meeting to approve the 10-cent cash payment to securityholders will likely take place at the end of March.
Assuming it takes another month for the cash to get paid out, and that the deal takes place as expected, you’re looking at a 17% return in five months (the current price is 8.5 cents per security and you’ll get a minimum of 10 cents if the deal gets approved).
The other comment of note is that there has been a small change of rhetoric regarding the value of Redbank Power Station, which will be Alinta Energy’s only asset once the deal goes through and the cash is paid out. There has been plenty of shareholder animosity about the value of this asset and I’m sure there was some interesting debate at the meeting (if you were at the meeting, I’d love to hear a first hand account). While the board is still officially saying they expect it to have no value, they are at least prepared to add that it might have some value.
Having said that [the equity is probably worthless], over the remaining life of the asset, it is possible Redback will develop equity value – provided that the plant is not confronted by extended unplanned outages or technical failures and provided that we are able to conclude an agreement with project leaders that delivers sufficient liquidity in the company for equity value to emerge.
It is possible to realise any equity value within the foreseeable future then this will of course be returned to securityholders. Management is currently examining whether it will be realistically feasible to achieve this and will update securityholders at the EGM.
So you get a likely 17% return in five months and possibly, if Redbank works out, more over the coming years. Seems like a pretty good deal to me.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.