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Tricorn PLC (TCN.L) -  A chart is worth a thousand words

5/25/2021

23 Comments

 
Picture

Most of my investment decisions happen very quickly now.  It's rare that I  labour over an idea to figure  out if it's  a buy or not. Tricorn PLC (TCN.L) is no different to the rest,

Everything lines up;

The market cap, share price, public float, price chart and situation.  All just how I want them.

Here's a quick company description and some numbers;


"Tricorn Group plc manufactures and supplies pipe and tubing assemblies for companies worldwide. It operates through two segments, Transportation and Energy. The Energy segment provides manipulated tubular assemblies for use in power generation, oil and gas, and marine sectors. The Transportation segment offers ferrous, non-ferrous, and nylon material tubular assemblies for use in on- and off-highway applications. Tricorn Group plc was incorporated in 1986 and is based in Malvern, the United Kingdom."

 Market Cap =  £3.814 Mil
Share price =  7.75p
Spread = 21%
Common outstanding =   49,219,285
​Public Float = 46.44%
Est. BV = £2.5 Mil 
​Loss-making


Now to the main attraction, price chart time!

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TCN.L Long-range Price Chart

One look at that long-range price chart and I've already got one foot through the door!

Look at the cyclicality  present in the chart, every 6-7 years the stock bottoms out before  going on a monster run.

2003;  Bottoms out at  3.86p before topping out at over 40p  in late 2008. A 10-bagger in   5 years.

2009; Bottoms out at 5.78p  before topping out at around 35p in 2011.  A 6-bagger in  2 years and 3 months.

2016;  Bottoms out 7.63p before topping out at  around 35p in  2018. A 4.6-bagger in  2 years and 2 months.

The long term support and resistance levels are clearly evident,  the accumulation zones, periods of consolidation, mark-up phases, distribution tops and mark-downs. All of them are there for those who choose to look for them.

Sadly, very few do. Many are fixated on quarterly earnings and trying to  capture short-term gains.  

Those of us who take the time to study the long-range charts are rewarded for our dedication to this peculiar obsession. We  get to observe the footprints of money. We  get to peer through the window into the collective mind of the market and gauge it's sentiment toward a stock, both past and present.

Let's zoom in a bit and see what else we can discern.

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TCN.L 5-Year Price Chart

The 5 year chart reveals  that the stock has bottomed out after its most recent decline  from  mid-2018  to early-2020.  It is now firmly sat in the accumulation zone where strong hands are quietly building a position in preparation for the next  rally. 

This is how support is created, an equilibrium is formed by those selling in disgust or  capitulation, and this selling is met by those buying with one eye on the past and the other on the future. 

Sentiment toward the company is currently bearish,  chatter on the stock boards is light and bears outnumber the bulls. 

As you can imagine, the global pandemic and accompanying lockdowns have not  done the company any favours.


Let's dig into the business.

The company has been granted  permission to delay publication of audited results till June 30th so we'll have to make do with the unaudited accounts they released  on March 31st. The report covers an 18 month period as  the company  has recently changed its accounting reference date.
​
We'll start with the balance sheet.

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TCN.L Balance Sheet (30th Sept. 2020)

You can see that there have been some big write-downs on goodwill and intangibles, there's also been some write-downs associated with inventories, debtors and loss of contracts etc. 

There's been a shake-up in management recently  including the appointment of a new CEO. Management also instigated an internal review of the company  and it was revealed that there  was a balance sheet risk identified. By all accounts the last captain of the ship wasn't  big on effectively implementing internal controls.  My interpretation of the accounts and the accompanying statement from the new CEO leads me to believe that there isn't an issue with  fraud at the company but rather the accounting anomalies  uncovered were  a result of incompetence  and poor management.

You may think differently so don't take my word for it, as always do your own research.

Since the issuance of these financials  TCN has been awarded further funds for its US subsidiary under the PPP loan  scheme

In April the company issued an RNS noting  that it's cash balances stood at £1.5 Mil. 

We'll have to wait for the audited results to hit in June but I calculate  BV to stand at around  £2.5 Mil though the firm will not doubt have burnt a little cash on wages etc.

I normally like to buy at a discount to tangible assets  but I'll make exceptions  depending on the situation. I like the set-up here so I'm willing to pay above book.

With that cash balance the firm should be able to keep the fires stoked till business picks up. I also think there's a good chance the 2nd PPP loan gets forgiven like the first one did.  The UK Government  is also backstopping credit extended to the UK subsidiary and maybe that gets forgiven too. 

Either way, I don't see the firm going under, now the lockdowns are lifting and business is  improving I'm willing to bet  brighter days are ahead for TCN.

What about revenues and earnings?

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TCN.L Annual revenue and net income; 2004-2020 (Chart courtesy of TIKR.com)

The last column in the chart represents the most  recent unaudited financials and covers an 18 month period  so revenues are  a bit higher than they would be  on an annual basis.  For the prior two years revenues were coming in at  around £22 Mil 

I don't know about you but I'll happily pay  £3.8 Mil for £22 Mil in revenue for a company that's been left for dead and has decent business prospects going forward.

As with all cyclicals you can see earnings are lumpy. The most recent column for net income shows that the firm lost a huge chunk of money resulting from the pandemic and write-offs etc.

Prior to that you can see that TCN swings from profit to loss every few years. When times are good the firm pulls in between £0.7-1.0 Mil in net income.

Assuming  we return to these levels in short order that's a P/E of between 3.8-5.4.   I'll take that bet.


Okay, what about ownership?

Picture
TCN.L Shareholder Register

Notice anything interesting?

Okay, I'll go first.

Nearly 54% of the float is tied up, the stock is highly illiquid and the spread is wide. What do you think happens if and when the firm puts out a bullish press release or strong results?

Who's R. Allsop?

He's a Non-Ex Director and the former CEO.   Little chance of this guy having paper hands and aside from the odd sale here and there he's  been a net buyer over the years.

Canaccord seem in no mood to sell either.   They bought in way back in Sept 2017  around the 20-22p mark. I don't see them selling out down here unless it's a forced liquidation.

Those of you who've read the book 'Free Capital' will know who the Swedish  gentleman is.

Peter Gyllenhammar is a  private investor based out in Sweden who has a long track record of investing in the AIM market. He has a penchant for taking  positions in tiny  firms that are  down in the dumps. He'll often push for change if management are  not running the company  in the best interests of  shareholders.

I've noticed he's scaled back his position  a bit over the last month or two, I don't know if this is because he was pushing for  change and met with resistance from management or if he is just reallocating capital.  Either way it's not a huge position  for him.

Right, we should talk about risks.


A big one is the amount of debt, despite the possibility of  some loans being forgiven  by the US and UK Governments there's  still plenty of liabilities relative to assets.

Another risk is the possibility that there are more skeletons hiding in the accounting office. It can't be ruled out.

How long will it take  for business to pick up? Maybe it's a long drawn out affair and TCN runs at a loss for the next few years.

As well as the UK and US subsidiaries there is a Chinese joint  venture to think about. Maybe it works out  well but you can't rule out political risks. These could come directly from the CCP or deteriorating relations between China, the US and the UK.



For me the potential rewards outweigh the risks here.

The stock is sat way down in the accumulation zone, the public float is tight and shares  are thinly traded. It's hard to see how business can get worse from here given the pandemic is receding and lockdowns are lifting.

There's a new guy in charge and thus far he seems to be focused on fixing  past problems and moving the company forward.

If TCN swings to a profit or secures some big orders sentiment can quickly change. The price chart shows that the stock  has sold several hundred percent higher in the past  and   yet here we are back down near the low again.

​This is exactly when I like to do my buying, as the stock languishes in the shadows and few care to  pay it any mind.

All that's left to do now is wait and watch. 


Thanks for reading,

David




Disclaimer: Long TCN.L
23 Comments
Dan Schum link
5/25/2021 11:24:32 pm

love it

Reply
David
5/25/2021 11:55:07 pm

Thanks man,

Appreciate everything you've taught me.

Reply
mike
5/26/2021 08:07:36 am

interesting stock. difficult is the high spread of 20%+

Reply
Paul Singh
5/27/2021 09:57:30 pm

Thanks for sharing the idea. Really appreciate it.
Does anyone know which brokerage trades this stock in the US? Interactive Brokers doesn't have it. Thanks.

Reply
David
5/27/2021 11:31:55 pm

Hi Paul,

Thanks for taking an interest in my blog.

Someone on twitter said that Degiro covers TCN.L so maybe try them.

Regards,

David

Reply
Paul Singh
5/28/2021 12:24:55 am

Thank for quick reply, David. Ok I'll check with Degiro. Cheers!

Gamwah
5/28/2021 05:36:23 pm

Thanks for sharing, also helps with my own research and things to take into consideration.

Reply
P
6/1/2021 09:57:48 pm

Great find. Their Interest cover in 2019 was 5.55. This seemed high enough to reduce the risk. However, the unaudited figures released in March show an increase in current liabilities, specifically borrowings, of £1.3m. Non-current borrowings have also increased dramatically by around £3.6m. What are your thoughts on TCN repaying the debt? What options do you think they have? Thank you.

Reply
David
6/1/2021 10:28:59 pm

Debt is a concern for sure. If push comes to shove they could do an equity raise which would obviously result in some dilution, we'll have to wait and see how things go this year now the lockdowns are easing.

Reply
P
6/2/2021 09:36:29 am

Thanks David. I have noticed that in their unaudited results, a summary states, 'Successfully completed a Placing and Open Offer of new ordinary shares at 10p per share raising £1.34m (net of costs), strengthening the balance sheet and providing working capital headroom'. Therefore, dilution has already occurred. This was necessary to strengthen their balance sheet.

However, in FY2018-19, they had 35,047,000 shares outstanding. As you mentioned above, there are now 49,219,285. The additional placing of around 14,000,000 shares is of concern in the context of currently being loss making. I cannot find the historic share issuance/buy back history and take therefore will take a pessimistic view on this point. If someone can shed light on this, that would be great.

I agree that with the accounting taking place over 18 months instead of 12 months, the reduced revenue doesn't come across as catastrophic as countries locked down and reduced operations.

This is an interesting company, and looks cheap based on several metrics. Yet, with PPP other incentives from governments not lasting forever, and debt increasing substantially, is the 'only' way to dilute further to survive?

I appreciate you spending time reading comments, and hope this comment makes sense...

Take care.

Reply
yas
6/3/2021 12:46:31 am

P, There has not been a dramatic increase in the number of shares prior to the recent aforementioned placing- more than a decade ago the number of shares stood at around (approx) 33,000000 so this is not a serial issuer of equity by any stretch of the imagination.

You are right the debt is a worry - it could potentially prove to be a noose around the neck of the Co. However,I think it is overly bearish to think the only way (absent further State funding) is to further dilute existing holders of equity. You see, one key aspect you overlook is that there should be an improved outlook in their key target markets as these sectors bounce back following constraints related to disruptions caused or compounded by Covid, coupled with the fact that they are actively looking to reduce the cost base. Risky, but the odds look very favourable to me which is why I recently have patiently been accumulating a reasonable position here.

Reply
yas
6/30/2021 11:35:58 am

Poor update today - firstly the disclaimer but then I had invested on the basis of the unaudited results so assume no further skeletons notwithstanding the disclaimer today. But, more of a concern is the revelation today that further funds are necessary to bridge the gap to profitability. What we do not know is the amount required, nor the method by which funds will be secured. Debt is already a substantial burden and issuing equity here won't be ideal by any stretch of the imagination even if the amount required was modest.

Reply
P
7/21/2021 11:11:02 am

Thoughts on today’s drop?

Reply
yas
7/21/2021 12:35:18 pm

Well, they have conceded they cannot become profitable without access to more funds - the suns derived from recent grants/existing debt facilities being insufficient. In other words, they are stuck - issuing equity at this price is a bit of a non-starter. Increasing the debt facility (even if granted) simply compounds the problem (they ought to have tried to issue equity when the price was twice the current level). Anyway, they have opted for the option of putting themselves up for sale - which, against the background above, inevitably means they are not calling the shots in any negotiations. If you tell potential buyers we are stuck and likely not even a going concern absent a bid, you are hardly likely to attract great bids - the only exception to that would be if there were multiple potential bifdders and there was competitive tensions between parties. As for this blog, well, it is a bit 'promotional' for my liking. No discourtesy intended, but, from what i have seen, the author labours any investment that goes his way but then fails to mention those that go horribly wrong (as many seem to have from what I can see). It makes no difference to me since I make my own judgement and undertake my own analysis, but novice punters ought to take note. Caveat Emptor

Reply
David
7/21/2021 07:00:07 pm

Yes, the situation does not look good at present. Perhaps Gyllenhammar will try and buy them out on the cheap. We'll have to wait and see how this progresses, there's a chance they could sell off a division or their equity stake in the Chinese JV to raise some funds to keep them going but there's no doubt they are stuck in a difficult position. I am continuing to hold to see how it all plays out.

I'm sorry that you find my blog 'promotional', I always try and outline the risks I see in each investment idea I write up. I wasn't aware that I had written up a lot of ideas that went 'horribly wrong', in fact I think my win rate is actually pretty good.

Here's the record for each AIM stock I've covered.

ENET -wrote it up at 30p, hit a high of 50p in <1yr, now at 42p (+40%)

GTC - wrote it up at 11.5p, hit a high of 46p in <1yr, now at 23.20p (+102%)

HDT - wrote it up at 44p, hit a high of 72.3p in <1yr, now at 63p (+43%)

MIRI - wrote it up at 5.75p, hit a high of 24p in <1yr, now at 42.5p (+639%)

MNO - wrote it up at 3.4p, took >1yr to break out, now at 11.5p (+238%)

MYX - wrote it up at 27p, hit a high of 74p in <1yr, now at 42.5p (+57%)

PHSC - wrote it up at 8.5p, hit a high of 23.7p in <1yr, now at 22p (+159% not including 11.76% dividend yield)

TCN is my only AIM listed underperformer thus far.

I don't currently have time to go through and post the results on the OTC stocks I've written up but most of those have resulted in a profit. At some point I'll do a blog performance page so people can see how each stock has performed.

No one should buy a stock because they read a blog article someone posted on it, everyone should conduct their own due diligence and measure their risk accordingly.

I understand some people don't like my style of writing or presentation of ideas but I cannot change my approach to suit each reader. I must stick with my approach and remain focused.

I appreciate you taking the time to read my work.

Regards,

David

Reply
yas
7/22/2021 12:30:38 am

David,
Thank you for your response.

So far as regards the blog being 'promotional', perhaps that might not be the right word - what I was alluding to was that several picks I recently have noted (not just AIM listed and not just on this blog but your tweets which are linked to the blog) were heading in the wrong direction - I grant you that regular commentary is not justified if you have along term approach, but, I take the view that if I were to publish a view on a stock then it warrants a brief response if the shares tank by some 50% (as TCN has on the basis of the last two updates).. Anyway, I do not think it important to scrutnise this point further since it is of little value to readers.

As far as your picks highlighted above are concerned (I have only read your blog the past few months at most and so am not privy to them) but based on what you have highlighted, there are some good calls there. I do not know some of the names, but coincidentally, I am invested in HDT and GTC (the latter from around 20p but having seen it double a few months ago I took some off the table and have gone in again around 25p on average on the second occasion).

Back to TCN. I hold and am well aware of the risks. I do not see PG bidding since PG was very recently reducing exposure here. selling off the stake in the chinese JV would simply be a case of kicking the can down the road since it would not generate a sufficient sum. If there are a few parties that have an interest in the underlying business, that is the best shot for shareholders to try and recover some ground here.

Incidentally, and for balance, I do think your blog raises some interesting companies which is very welcome. i will try to review some of the older offerings you have highlighted.

Regards

Yas

zzz
8/21/2021 07:51:03 pm

wonder how performance would change if he wasn't pumping up illiquid microcaps on this blog. you'll notice many of them jump after being promoted here

David
8/21/2021 08:57:16 pm

zzz,

The reason I focus on illiquid nano-caps is because it is one of the few places where small private investors can have an edge as there is little to no analyst coverage, mispricings tend to be greater and institutional buyers/funds can't play here due to corporate charter restrictions and having to deploy large amounts of capital.

A tiny illiquid stock with a wide spread can move up on a single trade and can just as easily move back down. I buy for the long-term and have no interest in pumping and dumping stocks. That strategy requires more liquid issues where one can easily sell into volume.

As an example, I bought MIRI back in early 2019 after finding it trading at a large discount to net cash. I wrote the stock up, it spiked up 300% on news of contract with Tencent. I held and watched it drift back down to my buy price before eventually selling it in late 2020 for a profit of over 800%.

I wrote FULO up in June 2020 and still hold it, it is up close to 1300%, if I had sold after writing it up I would have made close to no profit due to it's illiquidity and wide spread.

If you think I'm trying to pump and flip stocks for small gains you are mistaken. I buy for the long term to try and capture large moves. I know that some stocks will not work out but that others will provide large gains if I can be patient.

I have no interest in promoting or pumping stocks, I write them up to help myself formulate a thesis and for other small private investors who appreciate my work. I always make a point of discussing potential risks with each stock., no one should be buying a stock purely because they read a blog post on it.


I appreciate you taking the time read my work and comment though, even if you don't find much value in it.

Regards,

David




P
7/21/2021 01:03:41 pm

Thanks for responding Yas. As you can see on 1st and 2nd June 2021, I was critical about the firm, yet searching for positives.

The main driver for discomfort here is the incorrect financial statement.

Reply
yas
7/28/2021 08:07:08 am

Despite updating the market a week ago stating they are operating within facilities, only days later it appears things are tightening and restrictions are being imposed. Looks like it is game over, although shareholders might get left with a paltry sum from the proceeds of any sale once everything is accounted for.

Reply
P
7/28/2021 09:55:41 am

Interesting to see the update the morning. However, I’m not sure what their motivation was to publish. I can’t glean any useful info over and above their previous update.

If funding is available, and Tricorn can show a path to free cash flow, then their bank(s) May consider further lending. Surely other firms have been in a similar position and came out ‘OK’?

Reply
yas
8/18/2021 11:48:24 am

So, not even the paltry sum I referred to above to be left for shareholders - they have made it fairly clear it is a wipeout for equity holders.

End of the road for Tricorn. Incidentally, although it was tipped in this blog and within 3 months has become a total wipeout, not a single mention from the author on this news. Perhaps this article will shortly just vanish form the thread - this is how many promote their offerings by concealing the duds. Not that it is overly relevant, those who rely blindly on others deserve all they get...I simply point it out to highlight promotional puffery..

Reply
David
8/18/2021 05:49:35 pm

Looks like it is game over for equity holders, debt and liquidity was always a major risk here but I'm surprised management couldn't figure something out to keep the company going. My assumption that the company would survive and enter a new growth phase as they had done several times in the past proved to be wrong. In general I prefer companies with little to no debt and sufficient liquidity to see them through the bad times. This result shows me I should maintain that habit.


Yas, I didn't respond earlier today as I have been busy at work and only heard the news when I got home and logged online.

I can guarantee you that this article will most certainly not vanish, I've never deleted a stock write-up and I never will. I stand by what I write, whether the thesis plays out or goes against me. I do these stock write-ups for myself as much as I do them for others. Writing up the stock helps me to order my thoughts and formulate the thesis. It also acts a public record that I and others can look back at and reflect upon.

In every post I make I try to balance the potential I see with the risks present in the investment. As I mentioned in an earlier response to you I think my win rate is quite good. 7 out of the 8 AIM stocks I've written up have performed very well with TCN being the only dud thus far.

As for my posts being 'promotional puffery', that is your view and I do not share it. I am not writing up stocks to try and pump them and sell out for a quick profit, that is not my style and it simply doesn't work with these tiny and highly illiquid stocks with wide spreads. I buy for the long term and my average holding period is several years.

Unfortunately not every stock I write up will be a success, I will make mistakes and errors of judgement much like every other investor. As long as I learn from those mistakes and try to improve I think I'm moving in the right direction.

Thanks for taking an interest in my work although I get the impression that interest will be fleeting. Such is life.

Regards,

David

Reply



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    David J. Flood

    UK based Investor. I focus
    ​on Net-nets, Pico/Nano caps, AIM/OTC/Dark stocks & Special Situations. Balance sheets & Long-range price charts are my guide. Caveat Emptor!


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