Thursday, August 16, 2012

Thu 16 Aug - PVCS, XAR

Good morning. Sorry I'm late again today - more technology-related mishaps. It's another windy, but gloriously sunny day here in the Hebrides. We're back on the island of Mull, in a terrific cottage we've rented for the week - only £650, and it comfortably sleeps 6, with new kitchen & bathrooms, superb & highly recommended - here's a link. With wifi, you can work anywhere these days!The most interesting results today for me are interims from PV Crystalox Solar (PVCS), which describes itself as, "one of the world's leading providers of photovoltaic ('PV') silicon wafers", which are the building blocks for solar panels.The results are pretty catastrophically bad, with turnover down by over 75%, and it has moved into heavy losses. 

This is a good example of why it's a bad idea to invest in any company that makes essentially a commodity product, as the Chinese have been dumping solar products on the market at below cost for some time now, which has resulted in massive over-supply and a collapse in spot prices.

PVCS has responded in the only way it can, by slashing production, and cutting costs. So they effectively don't have a business any more, but are in cash conservation mode, hoping for the situation to improve.

This is reflected in a share price which is now well below the company's own net cash, which stands at E122.4m (so roughly £100m) versus a mkt cap of only £35m. So it looks interesting as a potential special situation - i.e. it might pay for someone to come along and shut the company down, in order to return cash to shareholders.

They secured a massive (E90m) cash settlement with a customer, to terminate a long-term supply agreement which was no longer competitive for the customer. Interestingly, they note that negotiations are ongoing with 2 other customers to terminate agreement, although they note that one might not have the money to be able to settle.

So potentially interesting, I might look into this in more detail again, as a special situation. It really would get interesting if the shareholder register began to show activist funds accumulating shares, but no sign of that yet.

The other angle on PVCS is that they have enough cash to survive for a few years, which might be long enough for enough competitors to have gone bust to allow product prices to rise again? PVCS do note that a lot of competitors have either withdrawn from the market voluntarily, or gone bust. Interestingly also, Governments seem to be taking measures against China for dumping, through tariffs. So that could be another life line for PVCS. I am intrigued, so am putting it onto my memo pad here for future research when time permits.

Back in the TMT boom/bust era, one of my favourite shares was Xaar (XAR), a maker of industrial inkjet printing heads, with some very interesting technology. I don't hold the shares, but good to see them having succeeded, when so many of those tech shares have flopped since.

Their interims are good, but the price looks about right, with a PER in the low-mid 20's. Outlook sounds positive, with more growth to come. If you think there is the potential for explosive growth, then could be worth a look. I don't know the company well enough to make that judgment, so will pass on this one.

OK that's it for today, am off out in the sunshine. Have a good day!

1 comment:

  1. Ah, PVCS. It is a shame that it fallen so far but then as you rightly pointed out, it is a commodity product. Something to bear in mind when investing in sustainable products I guess or at least a company that do unusual commodity products anyway.

    As it is, I once bought shares in PVCS, attracted by "Hey, it is solar & it pay dividends as well!" back in 2010. I finally decided to sell it a year later after seeing it going up by 25%. Glad I did, considering how quickly it fallen since then.

    Still, nice to see PVCS mentioned again.