SELL ALERT: Haydale and update on Sheritt
9th November 2018 |
After a decline like Haydale has had, the decision to sell is an agonising one because we are essentially giving up hope that the company will recover. I have been scouring news flow about the company for any additional news on what the company is doing to turn around its situation, and I am coming up empty.
At the 30 June earnings call Haydale had £5 million in cash equivalents, which almost equals the current market cap of £5.7 million. The share is trading on a price-to-book value of 0.51, which is cheap if the value of the company’s assets is not written down.
The primary issue is Haydale is spending a lot more money than it is bringing in with the operating margin at -177%. A lot of that money has been going on administrative expenses, which in a company this small should be kept to a minimum.
That’s not a situation that can persist indefinitely. Therefore, the reason the share is falling is because the market has concluded the company will need to come to the market, and existing shareholders, for additional capital or it will go bust.
Against this background I can only conclude the company does not have an effective solution to what ails it so I am recommending you sell.
Action to take: sell Haydale
Ticker: HAYD: LN
Price when recommended: 178.50p
Last close (as at 08/11/2018): 23.50
I am disappointed in my performance with this investment, as I am sure you must be, and I really should have closed it earlier. Haydale’s failure to capitalise on the promise of graphene does nothing to negate the bullish case for the sector over the medium term.
I am monitoring a different way to engage with the graphene sector and I hope to be in contact soon with a buying recommendation that should go someway to undo the loss from this investment.
I received this email which I believe is representative of how many people feel with this position and thought I should publish it here:
Please pass the question on to Eoin – what are his latest thoughts on Haydale and Sherritt? Haydale is near worthless now does he see anything helping it turn a corner? And what’s the general problem with Sherritt? thanks!”
Let’s turn to Sherritt International.
The company has been a victim of two separate issues. The first is the fact that under the Donald Trump administration sanctions against Cuba have been re-imposed. As a result, Panasonic is no longer buying Sherritt’s cobalt for Tesla’s batteries. That is at most a temporary delay since Panasonic is not the only buyer of the commodity and there is substantial growth in demand for batteries expected over the coming years.
The second issue is the decline in the price of cobalt and nickel. Cobalt’s decline is less of an issue since the company primarily produces nickel. Nickel has been the best performing industrial metal this year but it was not immune to the widespread selling pressure which the slowdown in the Chinese economy has meted out on the broad commodity sector. Nickel prices are still trending lower at the time of writing but the wider commodity complex is firming up so there is scope for at least a short covering rally in the nickel price.
Sherritt does not have to refinance any of its three bonds until 2021 so that is not an issue right now.
The issue Glencore reported last week with radioactive cobalt at one of its mines, which has now been shut down, has had a deleterious effect on its subsidiary Katanga Mining who will be warehousing cobalt until it haas figured out how to process the radiation out. That’s potentially good news for a non-DRC producer of the metal, like Sherritt.
The price is currently right in the region of the 2016 low at present so this is an area where investors are likely to think about returning to the market.
All the best,
Eoin Treacy,
Investment Director, Frontier Tech Investor
