Tag Archives: Thalassa

Thalassa Holdings – April 2018

Thalassa Holdings – LON:THAL
Share Price – £0.85
Market cap – £16.5m

Introduction

Awhile back, I wrote about Thalassa Holdings when it trading at a significant discount to tangible book value. Unfortunately, I passed upon the opportunity to buy shares, only to see it go from £0.43 to £0.85 today. With their annual report due any day now, I thought I would take another look to see if I was still missing a trick. For extra background on Thalassa, I would recommend that you go back and review my previous post.

Transformation

When I wrote about Thalassa over a year and a half ago, their only revenue generating asset was the wholly owned WGP subsidiary, a business that provided deep sea seismic exploration services to the oil and gas industry. It also owned a non-revenue generating start-up developing autonomous robots to operate in the seismic exploration area, and also held an insignificant stake in Papua Mining PLC, a London-listed exploration miner nano-cap.

Since then, it’s been all change at Thalassa.

  • The WGP subsidiary was sold for $30m. $20m if which has been received with a further $10m subject to the business generating certain contracts (and not yet received).
  • A 20% stake in the autonomous robot start-up was sold to the same company for $2m with what looks like a two year option to acquire another 20% for an additional $2m. This sale was supposed to concluded by March 31st 2018, but we have heard no confirmation since.
  • A 25.2% stake (as of time of writing) has been acquired in the London-listed company, The Local Shopping REIT (LON:LSR).
  • The disposal of the entire stake of Papua Mining (LON:PML).

Essentially, in order to value the business, I am back to square one. Luckily, there are not a lot of moving parts here.

Sum of the Parts

  • Cash – £14.5m (as of the December 31st 2017 number and converted to GBP at today’s rate)
  • The Local Shopping REIT 25.2% stake – £6.5m
  • ARL (Autonomous Robots) 80% stake – £5.7m
  • Other – £0.5m

Total NAV – £27.2m

Using the end of year 2017 share count, the company currently trades at a discount to tangible NAV of 38%.

But it actually is even better than that again. Since the 31st of December 2017, the company has been buying back stock at below NAV.

  • 90,000 shares bought for £0.92
  • 75,000 shares bought for £0.8175
  • 92,865 shares bought for £0.847
  • 25,000 shares bought for £0.85
  • 30,000 shares bought for £0.85
  • 25,000 shares bought for £0.85

The cash balance can be deducted by £290k based on these purchases, which gives us a more update NAV of £26.91m. The share count not in treasury has subsequently been reduced to 19,474,775. That gives us a current NAV per share of £1.38. Note, that Thalassa have been active buying back stock even as of the day I write this. Further purchases of share below NAV will naturally generate value to shareholders, assuming the NAV can be relied upon.

Free Option

It could actually be better than that again.

As I stated above, when the WGP subsidiary was sold, Thalassa received $20m at the closing of the deal. What is not accounted for in the NAV number, is the extra $10m that the company could receive if certain customer contracts are entered into within the next five years. I don’t know how likely it is that the company can earn the full $10m, or even part of it. This might be something worth following up with management on.

Secondly, the $2m that is due to be received for the 20% stake in ARL does not appear to be counted as a receivable, or in the cash pile either. Between that $2m, and the possible extra $10m that the company could earn, you have a potential boost to NAV of $12m (or £8.6m). If we were to take the £8.6m as a given, potentially the NAV could be as high as high as £1.82. If the company was to recoup only half that amount, the NAV would still be £1.60, which is almost double where the current share price trades today.

There is also another small option in the value of The Local Shopping REIT shares that the company owns. LSR is a company that I have studied recently (but not covered here) which I feel is interesting. It is a REIT that is currently trading at below NAV and is in liquidation. The current share price is £0.316 while NAV is £0.42. From my analysis, and based upon the current rate of disposals and discounts applied, I thought that a £0.36-£0.38 was not an unreasonable range of a return that could be realised from this investment.  That would bump Thalassa’s NAV up by an extra £1m-£1.5m.

 

Risks

  • The ARL deal could be in jeopardy. Also given the nature this is a start-up, it is  entirely possible that this could suffer a catastrophic failure and be worthless.
  • Administrative expenses should be a concern for a company with a relatively small asset base and no revenues. What is the run-rate here now that WGP has been sold?

Conclusion

I like that this company is already at a discount to NAV, but yet the possibility for further growth to NAV. I also like the repurchasing of shares at below NAV. Duncan Soukup knows these assets best, and his track record has been very good, so I would be quite encouraged that he is active in buying back shares. However, I feel there is still a bit of uncertainty here regarding ARL and the run-rate of administrative expenses going forward. For now, I will be holding back on a decision with this company until I can read the most recent annual report, which should be due shortly.

Thalassa Holdings – September 2016

Thalassa Holdings – LON:THAL
Share Price – £0.39
Market cap – £8.94m

Introduction

Thalassa Holdings has been a company that has been on my radar for quite some time. The company provides life of field and seismic surveying services to other companies in the oil and gas sector. Back in 2013 and on the back of $100+ oil, demand for its services sent the share price soaring from about £0.50 to £3. As the oil price came crashing back down, Thalassa’s major customers drastically cut back on expenditure, sending the share price to an average price of about £0.40. At this point, the company started to look interesting to me. Trading at below tangible book, while not losing too much money, it looked (and stills looks) like a company that should come through the current crisis in the oil and gas industry.

Duncan Soukup

Ordinarily, I would steer clear of nano-cap companies in the oil and gas space. Typically, with these types of company, you have management with very little skin in the game with regard to personal shareholdings. Inevitably, they end up filling their own pockets through inflated salaries and expenses. When the company coffers run dry, they can simply raise more capital, keeping their jobs, while wiping out existing shareholders so the cycle can begin again. At Thalassa, the situation is a little different.

As I already outlined, a significant margin of safety exists for Thalassa on the balance sheet and through earnings of their core oil and gas services business. With regard to management, another less tangible margin of safety exists in Duncan Soukup. The Telegraph did a piece on Soukup many years ago that provides background on him. I won’t duplicate what it said, the crux of it is that he’s an activist investor who isn’t afraid of a fight. When you combine that, with his shareholder letters, it’s clear that he’s someone with a long background in investing who should understand how to provide the best returns for shareholders. With a large personal shareholding, logic states that he will try to maximise shareholder value, rather than engaging in self-serving behaviour.

Jury’s Out

Thalassa have continued to buy back stock throughout the year at well below tangible book. According to my figures, 1.13M shares were bought back this year at a total cost of £536.6K and an average cost of £0.475. Based on the current share count (excluding shares held in treasury), that gives us a current tangible book value of £0.86 as opposed to book value of just £0.79 as of 2015 year-end numbers. Credit has to be given to Soukup on this, the share buy back has created serious value for shareholders.

On the other hand, a few things have caused me to raise eyebrows with this company, including a rather big announcement that came out today.

  • The first was back in 2012 when Thalassa acquired shares in a public company called Rock Solid Images that worked in a related field that was de-listing from AIM. The company was struggling, and despite knowing the company was going dark, Soukup put out a tender offer for shares. We don’t know specifically what happened to the company, but the investment was written off according to the 2014 annual report.
  • Not so much of a red flag, but something to be aware of, Soukup moved the premises of the company from Cornwall to Wiltshire. It was only later that the company eventually disclosed the fact that the new premises in Wiltshire was actually owned by Soukup. The company did provide further justification on the move. I am fine with the decision, just a little nervous at why the company wasn’t upfront about it earlier.
  • The holding of the annual meeting in France. While this is suitable for Soukup (who lives just down the road from where the meeting is usually held), it makes it look like the company is trying to dissuade attendance.
  • In 2014, the company spent £1.9M acquiring the assets of Go Science, a start-up that was working in the autonomous underwater drone area. This asset was listed on the books as intellectual property, but was written off shortly afterwards. As of 2015, it is at the prototype development stage.
  • The latest acquisition is a proposal to take a £400k stake in an copper exploration company called Papua Mining (LON:PML). This company has a current market cap of £1.45M, very little cash and whose only asset is exploration licences in Papua New Guinea that have yielded nothing in the way of commercial grade deposits of copper. Based on current expenditure, the £400k Thalassa investment (combined with £800k from others) might be enough to keep the company on life support for another year.

Final Thoughts

Thalassa have a pretty decent core business that looks to be back to moderate profitability even in the bad oil & gas environment that we’re in now. The balance sheet is extremely healthy and the stock buybacks have delivered real value to shareholders. What’s less promising is the corporate governance issues and the speculative nature of Soukup’s capital allocation. I don’t know anything about copper mining in Papua New Guinea, but the latest acquisition looks nothing more than an expensive lottery ticket. Having said that, it does look like the market has overreacted slightly to the news. 1.75p of cash is being used to fund the acquisition, whereas the share price has fallen by over double that, down 3.75p today.

For now while I will continue to monitor Thalassa, but will not be buying shares.