Getech PLC (GTC:LON) - Buying at the point of maximum pessimism

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Getech PLC (GTC:LON) is a tiny little firm floating on the AIM  market of the LSE.  It currently languishes just above it's all time low  and market sentiment toward the company  is unequivocally bearish.   Sounds like my kind of company.

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GTC  operates in the O&G  Equipment and Services Industry, not a great business to be in right now!

 Here's a quick description of the company's history and operations;

"Getech Group plc is a leading consultancy providing geological and geophysical services to the oil, gas and mining industry. The client base comprises all the major and many smaller oil companies, as well as a number of major mining companies. The Company is based in Leeds, England, where it has more than 90 staff. It also has a subsidiary in Houston, Texas which operates primarily as a marketing entity. The Company originated as a spin-out from the University of Leeds, and since it started trading in 1986 has acquired the largest commercially available library of global gravity and magnetic data. In September 2005 the Company floated on the UK AIM stock market. In 2004 it established the Petroleum Systems Group. Since then it has built a multidisciplinary geoscience team which includes: geophysics, structural and tectonic analysis, geochemistry, palaeogeographic mapping, petroleum geology and palaeoclimatology. The Company maintains its technical quality and reputation through the quality and reputations of its staff and continuing innovation."


Here's a few numbers;
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Market Cap = £4.14 Mil
Share price = 11.5p
Common = 37.6 Mil
52 week high/low = 32.2-10.5p
Adj. BV = £8.98 Mil (£12.38 Mil - Goodwill of 3.4 Mil)
Cash = £2.99 Mil
Total Liabilities = £4.3 Mil

Here's BV for the previous 3 years;

FY2018 = £12.74 Mil
FY2017   = £12.17
FY2016 = £12.16

And here's Rev's and  Net Profits/Losses for the same time period;

FY2018 = £8 Mil/£544k
FY2017 = £7.2/£65K
FY 2016 = £7/£1 Mil

Given the destruction we've seen in the energy industry I won't be surprised if sales and earnings get obliterated in the next year or two.  I'm not interested in the next year or two though, I'm looking  four or five years down the line.

​Now to the charts.

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GTC 5 Yr Chart

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GTC is down 76% on the five year chart. Previous support was around  26p  which you can see  throughout 2016, late 2017 and most of 2019. Then comes the sell off.

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GTC 10 Yr Chart

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The ten year chart starts to give us a bit more perspective. GTC  has been on a downward trend for some time now, in the past it's sold several hundred percent higher than it does today. Even now it's still down 16% on where it was ten years ago, the market currently hates this stock and yet I am drawn to it.

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GTC Long-range Chart

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 And now to the long range chart,  stretching all the way back to Oct 2005. GTC hit its all-time low of 10p back in April 2010 after building a base in 2009.   As it moved into 2011 it passed into the consolidation phase rising to  the low 20's.  Then, in 2012, it moved into the mark-up phase as the  rally began which saw the stock top out at around £1 in early 2014, a 10-bagger in under  4 years.

Since then the story hasn't been good, aside from the occasional short term rally it's been a continuous  downward trend which has brought us right back to where we are now, hovering above the all-time low.

This is when I like to buy, when everyone one else is running for the exit and off-loading their stock at any price they can get.

Now back to some numbers.

At this point I should probably let you know that  as well as the £3.4 Mil of Goodwill on the balance sheet there's also  around £4.26 Mil of intangible assets , this is data sets  and other such ephemeral stuff that Ben Graham would apportion a big fat 0 in value to. 

Let's scrub that off the BV too.

That leaves us with a BV of  £4.72 Mil,  around £600k above the current market cap. Not much of a discount now but I'm picturing where this stock could be in five years, not six months.

Total liabilities are  £4.3 Mil but we've got the cash of £2.99 Mil and receivables of 2.4 Mil.

​We've also got some property to boot too. 

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GTC HQ

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GTC bought this pretty little thing back in 2006 for  around £2.5 Mil and it is currently being carried on the books at £2.4 Mil.  The property is presently on the market and has been since 2018.  Whilst management has noted some interest  they've yet to receive any offers. This isn't surprising given all the uncertainty Brexit created and we are unlikely to see a sale any time soon either. Nevertheless, it's another hard asset on the books.

Share dilution is to be expected here, back in 2009 the common stood at 29 Mil and now it sits at 37.6 Mil. 

An approved share option scheme is in place  for around 2.5 Mil shares with  expiration dates ranging from 2020-2028. On top of that there's an unapproved options scheme which could see another 1.7 Mil shares added.  

Earnings are lumpy with GTC, some years it earns £1 or £2 Mil and in others it bleeds red. There's no doubt that the current destruction in the O&G industry is a  bad sign for the firm. A few years of hard times are ahead. 

Much like all the other moribund stocks that find a home in my portfolio, I'm betting that some will scrape through and make up for the ones that don't. GTC is just another of these tiny hated stocks that catch my eye.

My buy decisions are painfully simple these days, my primary focus is on the balance sheet and long range price charts . If the stars align in a manner I see fit I buy without thinking about future earnings  too much. I'm asking myself a few basic questions;

"Where has this company been and where might it be in a few years time if the situation improves?"

and

"Does it have the financial resilience to struggle through until the good times return?"

For those of you that want a more thorough analysis of GTC which drills down into the accounts I recommend UK Value Investor Maynard Payton's excellent post   here. 


There are many risks here for sure, maybe management decides to take the firm private to save costs or another firm swoops in to buy it up on the cheap. Maybe the downturn in the energy industry is a painful drawn out affair and GTC ends up on the scrapheap of business history like most other tiny firms do.


Then again, maybe they manage to navigate a path through the carnage, maybe they end up selling the property and shoring up the balance sheet. Maybe when all this doom in the O&G industry passes the orders start to come in  and GTC becomes another 10-bagger.

Maybe, just maybe... 


David

Long GTC:LON