Description

WARNING: this stock is traded on the London Stock Exchange order book, it might be difficult to get a decent position but larger sizes could go through off-book via market makers.  

PVCS has been written up earlier on VIC in 2012. We are writing this up now because even though the stock is up since then, it seems that the situation has been de-risked materially in recent weeks whilst a decent discount still exists, creating a short-term special situation.

For background we refer to the previous write up and jump to the situation as of today:

• UK operations and German multicrystalline wafer production operations have closed
• EUR 28.8m received from customer settlement (mentioned as "icing on the cake" in previous VIC write up)
• Balance sheet mainly consisting of cash
• The company has announced that an “orderly resolution” … “would be in the best interest of the shareholders rather than the pursuit of acquisitions”

Most importantly, a 24p capital return has been proposed, whilst the shares have traded between 24-25.8p recently. We see no risk to the vote of this capital return at the general meeting to be held on the 14th of May 2019.

The 24p per share payment will then be received on or around 20 June 2019.

The company is still pursuing a transformation of the business “by applying our wire sawing expertise to the cutting and slicing of a variety of materials other than silicon and establishing relationships with new customers in Germany”. However, “a sale to a third party or a transfer of the business to the existing management team would be given consideration if an offer was made”. They would also be looking to maximise the value of their listing as a cash shell.

If we assume that cash burn going forward is EUR 2m per year (happy to explain calcs) and ignoring any growth prospects of the German business transformation, then a liquidation after one year would look as follows:

We see upside to this scenario as management has been prudent in the recent past to conserve cash, the transformation looks like a cheap growth option and we also note the fully written down PPE on the balance sheet at original cost of EUR 28m.

The risks are value erosion due to the transformation activities and/or the general passage of time beyond the scenario above without management pursuit of the orderly resolution. There is also a possibility that the stub gets taken dark.

These risks, however, are mitigated by the fact that management owns ca. 30% of the shares reducing said risks of value erosion, whist smart money funds at +20% mitigating a take dark scenario with high probability, due to owning a blocking stake (i.e. 20%/[(1-30%] > 25%).

Catalyst

Capital return of 24p becoming effective making the undervaluation of the stub apparent

Further monetisation of assets