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
Now to the main attraction, price chart time!
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.
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.
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?
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?
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,
Disclaimer: Long TCN.L
David J. Flood
UK based Investor. I focus
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