QPP Quindell worth a try

What an interesting twist today on QPP. Lets get it straight. I am not a fan of QPP, nor would I normally buy the shares, but occasionally an interest trade presents itself.
QPP is an out and out gamble and not for the faint hearted but what we saw today looks to be viewed by the QPP BOD as a bunch of shorters taking a position, then a small unit releases a devastating research note.
What we probably saw were the shorts being closed today at 20-24p.

"The Board of Quindell Plc (AIM:  QPP.L), is aware of the publication today by Gotham City Research LLC. The Board rejects the assertions raised in this note and considers the note to be highly defamatory, deliberately misrepresentative and entirely rejects the conclusions that are made. A more detailed response shall be announced before the end of this week. In the meantime the Company is also consulting its legal advisors on what immediate action can be taken against Gotham City Research LLC and is reporting coordinated shorting activity to the appropriate authorities."

In other words they refute all the accusations, they will issue a point by point rebuttal in the next 3 working days and they have noticed strange shorting activities.
If the response is good enough you might well see 40-45p, if its reasonable then 35-40p, if its not good enough 20-25p. If its dire and they admit problems 5-10p.

I've taken a punt and brought £10k @ 22p i see enough upside to make 50% quite easily in the next 3 days.
Its a gamble but worth it.
One things for sure i wouldn't want to have had an open short position and closed it today as they police will be all over you. If legal actions follows against Gotham, I also wouldn' tbe surprised to see that expanded to cover various blogs etc on the subject....An interesting few weeks ahead.

Gulf Keystone away with the fairies..

I had an operation on Thursday and whilst recovering from my general anesthetic, I started looking at the bulletin boards for good old GKP to see if I could make sense of anything new happening……

Now you might think that a big mistake for many reasons, but for once while still away with the fairies it all became clear. Nobody has a clue and we have so many emperor’s with new clothes on we could create a world record for the number of naked posters at any one time!

If this insults a few people then, sorry. But it’s the truth. Along with our naked emperors we have our boiler room shorting derampers. We have our unhappy campers who lost money on the fall and blame the BOD. We have our optimistic posters positive they will be buying new cars on a £5 takeover bid. We have our “experts” who know more about the oil, drilling and geology than the BOD’s own geologists. We have our armchair football managers who think they could do a better job than the BOD, although I bet most haven’t managed 10 people let alone 100.

This next comment won’t make me popular but if you’ve been in GKP from the 250p days and haven’t sold then you seriously need to look at your investment strategy. You should always have a good and bad exit strategy and if you didn’t sell as it came down, I don’t think you had an exit strategy.

Lots of unsubstantiated accusations floating around, with many of the people complaining about the BOD probably not realising the difficulty of taking an explorer to a producer, particularly in an unstable part of the world, nor do they understand the exploration/production SP cycle, nor do they understand that almost every BOD in the world makes mistakes sometimes.

Make no mistake this is the key 12-18 month period for GKP, if they move successfully to a fully profit making oil producer their SP will be multiple times of what it is now I’d suggest 3-4bn MCAP.

If they don’t then the bond holders will take all and the 30-40p predictions comes true.

The news we need is all around GKP’s ability to make this transformation successfully. Drill results will be helpful IMHO if they add BOPD production to the new facilities as they come on line. They have the funding to create the new facilities, they need the oil drills and they need the political framework for certainty around payment and profit.

Everything else is fluff.

Hope this didn’t offend too many peeps, but the only reason you invest in Oil explorers is for large greedy returns. That includes me. Take the rough with the smooth and accept both the risk and the reward in good nature.

AFRIAG Food for Thought

Afriag PLC TIC AFRI                                                                                                                      15/04

Afriag isn’t my normal kind of investment. Indeed who wants to invest in lorries and food, when normally its oil and expensive commodities, but it tweaked my interest.

So what do we have, AFRIAG is an investment company with 40% of AFRIAG SA. It also has a few hundred thousand in AIM shares of companies connected with agriculture in Africa. These holdings are a useful source of money if needed due to very liquid holdings.

The main reason for AFRIAG though is as a vehicle for AFRAG SA on the AIM index. Using such an investment vehicle, AFRIAG SA can bypass all the normal oversight connected with an AIM listing.

AFRIAG SA is a joint company owned by Paul De Robillard and David Lenigas (through AFRI) that aims to become a logistic giant spanning the African continent. This is a very profitable space currently occupied by the likes of DHL and Lonhro. David is the Chairman of Afriag SA.

Those familiar with Paul and David will know  about their relationship with Lonhro in the past and Paul’s track record of creating one of South Africa’s largest logistics companies that Lonhro then went on to takeover.

Afriag SA started from scratch around 8 months ago and in this time has already obtained the following contracts.

08/13 Contract to transport Spring Water with Premier Spring Water

10/13 Contract with United exports to transport fruit to European Supermarkets

03/14 Contract with Mozambique’s largest fresh vegetable growing

03/14 Contract to move animal forage to the UAE (approx. 50 containers a week)

The case for investment.

“British researchers Analytiqa projects logistics spending in Africa by manufacturers and retailers will increase by almost $28.8 billion, or 5.19 percent, in a four-year span, from $128.5 billion in 2012 to  $157.3 billion in 2016. The size of the outsourced logistics market alone will increase by 38.4 percent in the period, Analytiqa says in its February report, “Africa Logistics: Keep Cool for Growth; Charting growth trends in logistics markets to 2016.”

It is abundantly clear that logistics is a growth area in Africa and the stated aim of AFRIAG to become the fastest growing logistics company in an estimated market of 157bn by 2016 is certainly a lofty aim.

With Paul and David together they have the track record of creating a multi hundred million logistics business and then selling it.

Afriag has also chosen to concentrate on the sub market specialising in temperature controlled storage and transportation. The below quote is taken from a research paper that supports the view that this is the most important higher end, high margin, high growth sub market.

“Much higher levels of trade in food products will create further opportunities for 3PLs.

Facilitating trade will require vast improvements in cold-chain services, including both

transport and temperature controlled storage facilities.”

Afriag has won the very lucrative contract to perform such a service to the largest producer in Mozambique, which is quite a feat for a company less than 12 months old.

Both Paul and David are very well connected business men in Africa, with large business networks.

Afriag plc has a current SP of .475p with an MCAP of 5m. This values Afriag SA at £10m. Is this fair value ?

It’s very difficult to judge the potential current profitability of Afriag SA. It has no past accounts due to being only 8 months old. No information has been forthcoming about profit margins or potential profit from contracts. Due to this the AIM Market has applied the uncertainty principle and so gives very little value. The potential of Afriag is massive though, given its positioning, its targeting, the size of the market and the strength of its owners. The possibility that in 5 years time this is another company valued in the hundreds of millions is real.

Afriag is suitably funded at current levels after raising £300k with Yorkville Advisers at an average of over 2p a share, well above current levels. The funding contained a second SWAP component that was announced on the 15/04/14, with the monthly swap payments starting on the 30th of June. This was delayed at David’s and YA’s consent due to the low share price that AFRIAG is currently experiencing. That both parties are now happy to start the monthly payments is an indication that they both see an increase in the SP by June. The agreement also means that AFRIAG is fully funded until June 2015, with the obvious caveat that new investments or reverse takeovers might happen with share dilution.

So where does all this leave the share price? Well in the short term until the market sees realisation that Afriag is expanding its profitability rapidly, the share price will struggle to respond much above 1.5p, Over an 18 month period a share price of 5-6p is a real possibility as the market starts to get regular updates of profitability trends.

The short term Share Price could be helped with the following.

1.       A detailed vision being given by AFRIAG as to how the logistics firm will create profits and grow.

2.       A 3 or 5 year plan of where the company is expected to be, what important milestones for profit , margins and revenue they expect to reach and when they expect to reach them.

3.       An overview of the contracts and bids logs with discussion about industry standard margins.

AFRIAG shares a very good place in my Portfolio, it offsets the industry heavy holdings in oil and exploration nicely without the risk of tech stocks. For me this is a BUY with my own 3 month target of 1.5p and 18 month target of 5p.

Some useful research for Logistics in Africa:

http://www.pwc.com/en_M1/m1/publications/africa_gearing_up_-_transport_and_logistics_industry-web.pdf

http://www.africastrictlybusiness.com/news-analysis/logistics-high-growth-industry

http://www.joc.com/sites/default/files/u52092/Arica.pdf

Oxus Gold might well glitter soon

Oxus Gold is an unloved share at the moment, when news that the arbitration was to be fully funded broke the share price reached 6p. However after several years wait people have moved on to other things.

This is a mistake in my opinion. The timetable for the arbitration is secret, however with a bit of work and research you can determine a rough plan. Oxus received funding from Darwin to take it through the arbitration. Last year it changed this funding to terminate in September 2014. I find it inconceivable that OXUS would arrange funding to finish just a few months before the award. So its safe to assume that the award will be known to the market by this time.

If we delve a little deeper into past Uncitral arbitration's we can see that the normal plan is to decide on the fault, then to decide on award value if any, then both parties submit costs and finally the arbitration board decides on who should bear costs and the final monetary award is announced and the arbitration concludes. If we look at timescales for the above its highly unlikely imo that OXUS will not be told the fault decision i.e whether its won or loss after June.

This means that we have a 2.5 month window now for the most important decision. (probably may but that’s more of a hunch).

With a 2p Share price currently, if they lose it goes to around .25p a share, if they win then what…?

Well I think given the depressed prices against NPV atm, gold price etc you could possibly make a case that they will only get 150m rather than the 1.5bn they are asking for. However the court might well give far higher than this. So if they win a rise in the SP to 10p (before the award is announced) is very possible. Any further gain will depend on the award.

For me it’s a buy before the end of April situation and I fully intend on getting another 500k of shares.

GKP, Bonds and Pricing

Gulf Keystone has recently released bonds at 13% with a 3 year maturity…A great deal has been written about the rate of the bonds and that they are “junk” status…..A few have even used this “junk” status as a reason to value the company and to judge the company’s credit worthiness.  This is a mistake. The valuation of bonds is based on far more than just the credit worthiness of the company.

But first let’s just dismiss this usage of “junk”, it’s a very antiquated term, which was originally used to define bonds from companies that were close to or had defaulted on the bonds. Essentially a company issuing bonds with a rating of BBB has bonds called “junk”, This applies to many household names and a large percentage of the FTSE INDEX companies. Where the bonds are BBB or higher they are investment grade…

Financials and funds are normally very limited in what they can and can’t buy and many won’t buy shares or bonds where the company is rated BBB or lower.

Most bonds issued are “junk”, the term junk isn’t really used anymore and the more accurate term of high-yield is the preferred term. GKP has only just joined the main index and I can’t find any company in the last 10 years that has moved from AIM to the main index and NOT been categorised as “junk” for its bonds. To expect GKP’s bonds to be valued at anything other than “junk” is frankly absurd.

The next mistake made seems to be referring to the reputation or credit worthiness of GKP based on the interest rate its paying on the bonds.

The rate on the bonds is made up from a large variety of components. Firstly we do have the Credit rating. However this isn’t a simply rating (as those that work in credit risk will know), its actually a multitude of information including Loss Given a Default, Default Frequencies i.e the chance of a default after 1 year, 2 years, 3 years etc. All of this information builds up a risk picture and profile for the financial instrument.  Associated with the CDF is the length of the bond.  A good example of this is that if you lend money to Greece for 1 year the risk in considerably less than for 5 or 10 years..

Other major components that affect the rate are country risk profiles, industry profiles and speed of issue. So not being able to issue investment grade debt might reduce the number of buyers by 70%, Geographic location might well reduce it by 20% (simply as some funds will focus only on certain countries and Iraq probably isn’t one of them ! ). The industry type will also reduce this further by maybe another 15%. Add on other factors and the pool of potential buyers will be less than 1% of all the buyers….As we all know if you reduce demand for a bond the rate will go up. Add in that GKP, through bad management wanted the money very very quickly and you can see why they had to pay 13%.

Does this 13% reflect the credit worthiness of GKP  ? no it reflects all of the above as well. Did the management cock up ? YEP. Is the term “junk” relevant ? No. Can you make a judgement on the value of the assets of GKP based on the interest rate ? No. You can only make a judgement that the BOD should never have allowed the company to have gone below 6 months working capital.

Reason for Blog

To keep it short and simple. Its because Twitter is too limiting and BB's are too fluid.
I hope everybody enjoys it, the aim is simple, to add clarity to investing and to encourage folks to perform their own research.
For me my method is very conservative, buy when a share is near its bottom and sell when the market sees the value in the share. Never buy a share if your in doubt as to whether you've missed it, its better to miss an opportunity than lose money...

Enjoy !