Quarterly Investor Update

RNS Number : 0026F

Primorus Investments PLC

24 October 2018

 

Primorus Investments plc

("Primorus" or the "Company")

Quarterly Investor Update

Primorus Investments plc (AIM: PRIM, NEX: PRIM) is pleased to provide the Quarter ending September 30 2018 ("Q3") periodic portfolio update regarding its current holdings and activities acquired and managed as per its investment mandate.

Executive Director's Quarterly Comment - Alastair Clayton

We find ourselves at the end of the Quarter debt free and a large amount of cash and tradeable shares relative to our overall quoted market value. Despite the traditional summer slowdown, we have made some good progress in the Quarter. In terms of portfolio management, we have managed to exit our last our remaining 5% stake in HHDL, in exchange for cash and UK Oil and Gas plc ("UKOG") shares.

The current total value of the cash and shares received for the two sale transactions exceeds our total outlay for the investment over the last few years by circa £1m and we still retain upside from these levels to the recently declared commercial HHDL-1 well via shares in UKOG.

This I believe is an excellent result for shareholders and furthermore, we no longer have any cash calls to fund as we no longer hold any assets at project level. As a result, we expect the overall cash costs on the Company to drop dramatically compared to previous years.

As I hope we can demonstrate below, our investment portfolio continues to grow and mature and we are eagerly awaiting numerous events including impending IPOs and potential significant institutional financings of businesses in which we have been early-stage investors.

The share price performance over the past two Quarters has been very poor, however, I believe we have all the elements in place to reverse this. A simple sum of the parts of cash and shares, added to the in-cost of the investments we have made, exceeds our current market capitalisation, let alone the potentially significant but as yet unrealised gains we believe we have made within the portfolio already. As we begin to exit investments we believe the scale of these potential gains will become evident and pleasingly we are starting to see the first candidates lining up for IPO and many of those that are a little further back in the process are demonstrating significant growth within their respective businesses, as we demonstrate below.

Whilst exits are foremost in our minds, the underlying strength of progress of the businesses we invest in is the foundation upon which value is created.  We are working to have this more accurately reflected in the share price.

Below I list the highlights of the Quarter and at the time of compiling this document I am also pleased to report that Sport80 has advised it will, subject to any unforeseen delays, in the coming weeks, commence the IPO capital raise process. Subject to securing the requisite funds, we would expect them to gain admission to AIM a few weeks after confirmation of funding. We wish the Board of Sport80 every success in this endeavour.

Highlights for the period were as follows:

·      Sold the remaining 5% stake in HHDL to UKOG for £375,000 in cash and 63,644,030 UKOG shares. Currently valued £1m unaudited gain for the entire investment and retain significant UKOG share exposure to the HHDL-1 Oil Discovery.

·      Engage Technology platform continues outstanding growth rates in terms of customer contract wins and appoints City broker to raise additional pre-IPO funds in 2018/19 with a view to a 2019 UK IPO.

·      Invested a further tranche of £250,000 in Engage Technology to take our total investment in the company to £1.4m comprising £400,000 at £15/share and £1.0m at £22/share.

·     Regulatory approvals are now in place for the SOA Energy farm-in with a large regional oil firm covering both SOA's on-shore and offshore assets. Both parties are now completing final technical and legal process. Upon successful completion, drilling activities will be fully funded and are expected to commence late 2018 or early in the new year. UK IPO planned for H1 2019.

·      StreamTV executes full Beijing Optical & Electrical ("BOE") agreement now providing a credible supply chain path to mass production of its glassless 3D TV technology. Press conference and global launch event expected towards mid-November in Beijing. We expect further updates from StreamTV to coincide with this event.

·      Fresho business thriving with strong product and platform growth in Australia and New Zealand and further international expansion being contemplated. No new capital raisings being contemplated at this point in time. Given commercial sensitivities we are now limited in terms of hard data we can publish.

·      WeShop makes significant Board appointments and progressing next funding round. Detailed update spelling out detail expected in early November.

·      Simon Stephens, CEO of TruSpine in which we have invested £500,000, reports that they are on the cusp of a securing a long-awaited commercial funding arrangement to take their product range forward. Updates expected upon successful conclusion.

·     Invested A$500,000 (circa £275,000) into a 12 month loan note to Zuuse Pty Ltd yielding a 12% coupon and free attaching options.

·      Company finishes the Quarter debt-free with significant cash and tradable AIM shares. Board foresees no short term need or intention to raise capital.

As described above we exited the last of our direct, project-level investments namely our remaining 5% of HHDL for £375,000 in cash and 63,644,030 shares in UKOG. We note subsequent to this transaction completing, news from HHDL and its shareholders regarding early-stage performance of the Kimmeridge portion of the extended well test programme was highly encouraging with initial observed short-term flow rates exceeding expectations. This is on top of the excellent flow-rates from the Portland announced in the summer upon which a declaration of commerciality has already been made.

We are pleased to now be in a position to leverage off the activities at the HHDL-1 oil discovery without being a direct contributor to the overall development budget. We view UKOG, as the largest shareholder of HHDL, as the best exposure to the project, so we have now sold our shares we held in the other previous and current members of the HHDL consortium.

We believe Engage is a rare opportunity as pure, mass market SaaS is often a chimera. The homogenisation of thought (group think) amongst very large investors means sometimes opportunities like Engage can come our way. We don't apply cookie-cutter evaluation techniques and, to be frank we don't have hundreds of millions of pounds to invest across scores of companies.

Engage Technology is now our largest investment in term of committed funds with £400,000 invested at £15 per share and a further £1,000,000 invested at £22 per share. Our enthusiasm for this company, the team and the business model is considerable. We believe this investment has the potential to yield a step-change investment return for our shareholders.

Shareholders will recall that Engage has developed a cloud-based vendor management through to pay, bill, tax and compliance platform that focusses on managing the complexities and inefficiencies of the contingent workforce sector. Since we first invested some 18 months ago it has been especially pleasing to watch the targets be met and exceeded in terms of product delivery, contract wins.

Aside from huge growth in corporate users, from 55 at the end of last Quarter to 75 at the end of this Quarter and a further 17 contracted but yet to go live, what is new and highly significant is the recent number of strategic partnerships developing for the cross selling of Engage products, particularly VMS (Vendor Management System), by several global recruitment providers. This is astonishing as, whilst we are restricted in revealing their names, these global companies have recognised the strengths of Engage as a tool to win their own client contracts at the expense of some of their own legacy product offering. To put it simply, Engage is now being actively sold by its competitors.

Given the above we firmly believe that Engage has already gone through a fundamental inflection point. One of the only limiting factors on revenue growth now is the need to onboard customers for some product streams manually. Current product development is focussed on moving these processes to a "fully self-serve" status. As this occurs between now and the end of Q1 2019 we expect revenue to lift off exponentially through the end of 2018 and into 2019.

On the corporate front Engage is now formally working with a well-known City Broker ahead of the pre-IPO process of bringing some larger institutional shareholders onto the register in advance of a planned IPO in 2019. Engage is due to share its Q3 Report in the coming weeks so we will come back with further news once we receive it however we are already aware through discussions with management, that in many other areas other than those mentioned above it has been a fruitful one.

Fresho has had another strong quarter with the key take-aways being that platform growth in Australia and New Zealand continues to grow at excellent rates and annualised order volumes will soon exceed A$300m. What is also very exciting is the potential for expansion into other markets with several proposals being explored. Beyond that I am unfortunately limited in what I am now allowed to say. This is fully understandable as disruptive technologies often need to fly under the radar at times to protect their IP.

StreamTV's Ultra-D product now has a credible path to mass market with the final execution of the development agreement with Beijing Optical and Electrical "BOE". BOE is the world's largest flat panel manufacturer and provides the supply chain to mass manufacture panels containing StreamTV's unique glassless 3D technology (Ultra-D) in its final chip and bonded screen form for televisions, tablets, Smartphones and outdoor advertising.

To this end we met with management recently and they are in the final stages of completing a circa US$70m capital raising to support some final product refinements prior to full commercial production in 2019. Having had the opportunity to view the latest 8K Ultra-D enabled 65-inch pre-production model I can attest that despite my scepticism regarding 3D as a concept, the Ultra-D product is quite remarkable.

We expect global interest in the product and management inform us that numerous household technology groups are already in discussions regarding branding and or investment opportunities. We expect this will only increase following the global launch event in Beijing in mid-November. We will return with news from this event next month and hopefully a PR link for investors to investigate.

In chatting recently with Simon Stephens of TruSpine, where we have £500,000 invested, he made it clear that the company continues to progress multiple funding opportunities, and while an inevitable slowdown during the summer months has delayed completion of some very significant potential inbound investments, he firmly believes TruSpine is on the brink of securing additional substantial funding in the near future.

Simon also attended the North American Spine Society annual meeting (keep the date in your diary for next year!) and he was pleased to report that the TruSpine Faci-LOK proposition remains in a class of its own and represents significant disruption in the marketplace.

Clearly the securing of an adequate funding package has taken longer than we had hoped for initially. Boards stacked with medical experts are not always the best commercial closers, however with Simon at the helm now, we are comfortable that the Board has the requisite skills to close funding in the near term and drive the product commercialisation forward. As soon as we have tangible news on TruSpine funding we will report back to shareholders.

With regard to our other energy investments we are particularly excited about the potential for a breakthrough at SOA Energy. We have been waiting for them to secure a funding/farm-out partner for their onshore and offshore Israeli oil and gas assets. We can now report that the proposed deal with a large regional energy company has now received the required regulatory approvals and has now moved to final legal documentation. We are of the understanding that the proposed deal covers both the onshore and offshore assets and should conclude before Christmas.

With successful completion SOA, management inform us they will move quickly to IPO on the AIM market in 2019.

NOMAD Energy appears a little gridlocked. We have been informed that commercial negotiations for the gas off-take agreement with the Ivorian Government are still stalled with a fundamental disagreement on price. The majority partner (70%) in the gas project, VITOL, carries significant influence in the industry and region and we understand they are now leading negotiations with a view to breaking this impasse.

As we make mention in our opening remarks, Sport80 is, subject to no unforeseen delays, ready to hit the road to for its IPO funding round. With success we would expect their shares to be admitted to AIM a few weeks after the funds are received.

Whilst we only have £100,000 invested in Sport80, we are particularly keen to have this first of our investments made under the Primorus name, to go through from private financing round, pre-IPO to IPO. The Sport80 business has grown at an impressive rate since we first invested and now services 24 UK Sporting Associations representing over 700,000 members records adopted to the platform.  We see an exciting future for the business as a listed entity going forward and we certainly won't be in any hurry to sell our shares given our overall strong liquidity position.

As evidenced above, our portfolio is moving forward well, and despite being sometimes limited in what we can say, we are firmly of the belief the potential value of our investments is not being reflected in the current share price.

Whilst we are frustrated at the poor share price performance over the last few Quarters and will work harder to get the message out, we are however realistic that we need to demonstrate tangible results before we can expect our portfolio to trade at a premium to our initial investment in-costs. Pleasingly these results are beginning to drop with a significant unaudited gain on our HHDL investment in the past Quarter and Sport80 looming this coming Quarter. Furthermore, as described above, we have a large number of significant events backing up for Q1 2019.

The Board believe we have all the elements in place now to achieve share price appreciation in the near-term. Our goal of growing the balance sheet substantially, we believe, can be achieved largely via the investments we already have in the portfolio, We have a strong liquidity position with adequate cash and shares to preclude us from the need to issue any shares to raise funds in the foreseeable future. We have no more project-level investments and therefore no more cash calls to finance out of existing cash reserves. All this means we can allow the time required to demonstrate the value within the existing portfolio in terms of trade sales and IPO without having to necessarily suffer dilution at unpalatable share prices. The Board is totally aligned to share price-based outcomes via large share purchases over the past year and looks forward to demonstrating more tangible results in the coming Quarter and into 2019.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

For further information, please contact:

Primorus Investments plc:	[phone]
Alastair Clayton
Nominated Adviser:	[phone]
Cairn Financial Advisers LLP
James Caithie / Sandy Jamieson
Broker:	[phone]
Optiva Securities Limited
Christian Dennis / Jeremy King

 

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