Primorus Investments plc
("Primorus" or the "Company")
Quarterly Investor Update
Primorus Investments plc (AIM: PRIM, NEX: PRIM) is pleased to provide the quarter ending 30 June 2019 ("Q2" or the "Quarter") investor update regarding its current holdings and activities acquired and managed as per its investing policy.
Executive Director's Quarterly Comment - Alastair Clayton
Compared to previous Quarters there is no doubt that Q2 has been a relatively quiet one with news focussed around several key investments such as Fresho, WeShop and Greatland Gold.
As we discussed in our Q1 Report, the IPO market for growth companies in London is still very weak. This however does not mean we cannot generate profitable investment exits. As such I am pleased to report that we have recently agreed pricing regarding the potential sale of our A$500,000 Series B Zuuse loan note that, subject to final agreement and execution, would result in a significant gain above investment price. We look forward to advancing this sale process and will keep shareholders updated as to pricing and timing.
Fresho grabbed a lot of the headlines during this quarter. The participation of several high-profile investors in an equity investment round at a significant premium to our investment cost was fantastic news. This brings a wealth of global technology scaling and banking experience to Fresho as it embarks upon its global expansion in 2019/2020.
Those who follow our @priminvestments twitter page will have seen the extensive national press this generated in Australia. Given the long period in which we have been subject to commercial in confidence it was personally pleasing for our shareholders to be able to read about Fresho for themselves from external sources.
Elsewhere WeShop reported significant progress and Greatland Gold ("GGP.L") reported significant news from its Havieron JV with Newcrest Mining ("NCM.AX"). In the last few days we have received updates from Engage Technology Partners ("Engage") and SOA Energy ("SOA") that we shall discuss in detail below.
So once again (share price aside) it has been another successful quarter for the Company and we hope to sustain any future share price rises as further exits and portfolio growth become more compelling to existing and new investors.
We currently see no short to medium term requirement to raise capital thereby reducing the risk of any potential dilution to existing shareholders.
· As announced on 17 June 2019, Fresho attracts high-profile technology and senior banking investors and undertakes widespread external press that "lifts the veil" on the business to industry for the first time. Pressing ahead on global expansion plans including the UK.
· First assays since the Greatland Gold (GGP.L) Farm-in Agreement with Newcrest Mining (NCZ.AX) ('Newcrest") over the Havieron Project released. Excellent Gold and Copper results reported from first batch of holes. Newcrest add a third and fourth drill rig to the Havieron project.
· Post-period Primorus agrees pricing on a sale of its A$500,000 in Series B loan notes by a known third party. Expecting final execution of sale documents to occur in next 8 weeks. If completed as contemplated this sale would result in a significant return above investment earlier than previously contemplated.
· Post-period we topped up our investment in Engage Technology Partners ("Engage") by £50,000 to £1.45m. Recently received Engage update highlights outstanding growth in monthly recurring revenues and billable transactions on the back of the first Self-Serve truly scalable SaaS products.
· WeShop completes Amazon license agreement to pay WeShop for user purchases facilitated by WeShop, and to enable Amazon inventory to be available on the WeShop platform. Instagram integration license: functionality to enable WeShop users to import existing content from Instagram to post on WeShop. Apple iTunes (Apple Services) partner agreement to pay WeShop for user purchases facilitated by WeShop, and to enable iTunes inventory of all music, video, books and other media to be available on the WeShop platform.
· SOA Energy ("SOA") expect drilling and appraisal work on the farm-in with Delek Drilling ("Delek"), one of Israel's largest Oil & Gas companies, to commence at the Ofek and Yahel licences in Q3/Q4, later than previously anticipated.
· Company finishes the quarter debt-free and the Board still foresees no short to medium term need or intention to raise capital.
Update on Investments
It truly was an enlightening quarter for Fresho and what the future may hold for our investment. The Australian Financial Review ("AFR") ran an exclusive interview with Fresho management in which Mr Leigh Jasper, Mr Robert Philpott and Mr Geoffrey Tarrant were revealed as new, significant investors in Fresho. In late 2017 Mr Jasper and Mr Phillpot sold Aconex, a global cloud-based construction software business, to Oracle for US$1.2B. Mr Tarrant is an investment banker and the Chairman of Zuuse Ltd, in which the Company owns A$500,000 in high yielding notes as well as some stock options.
The news in the AFR, as well as numerous follow up press items, for the first time revealed to Primorus shareholders and the broader investment community details about the growth and strategy of Fresho which we were hitherto unable to report due to commercial sensitivities so this was a particularly pleasing moment as Fresho is one of our longest standing investments.
With Fresho pressing the button on a rapid expansion of growth, sales and product development, we took time to meet company executives in London to discuss the future. We introduced Fresho to two large UK food suppliers and sat in on those discussions. We were extremely pleased to hear their feedback from these large suppliers on the Fresho offering and how it may be applicable to the UK market.
This direct intervention may seem a little unorthodox to many large funds however given Primorus's small size we do sometimes take a slightly more hands-on approach to understanding the trajectory of our investments. Clearly it will be very satisfying to see Fresho begin to roll out in the UK and make our investment all the more tangible for our UK shareholder-base.
Following this additional fund-raising, Fresho is now very well-funded and we look forward to reporting back with more news over the rest of the year. We understand that sales at Fresho have jumped dramatically since the national press articles and we expect to see this flow through to the bottom line over the remainder of 2019.
In terms of exiting this position, recent events have significantly raised our expectations on value and as such any secondary exit price would have to be very compelling indeed.
Engage Technology Partners is our largest investment, now with a total of £1.45m invested across three funding rounds. We invested in Engage because we believe it has great potential in the SME market for temporary and also permanent recruitment, agency back office and pay and bill if it is able to develop and release a pure SaaS, mass-market scalable platform.
Following on from last quarter's report the recently received update from Engage makes excellent reading. Key metrics since the beginning of the year including Revenue (+69% for the year), live Corporate Customers (+410% to >250) and importantly Cash Burn (-60%) are all going very much in the right direction.
What is really important, and I am pleased to report we believe Engage are well on the path to delivering, is the transition from software start-up to a pure SaaS platform with significant potential. Selling great business solutions is all well and good however if Engage can truly become a zero-customer-touch, pure SaaS company then we feel our £1.45m investment to date has the potential to become an investment capable of achieving our stated balance sheet growth target on its own.
To achieve this Engage has to continue to execute its business transition strategy that has involved several key tenants; automating the product suite from take on to user support, delivering a SaaS sales model and shrinking the size of the headcount of the business to reflect the SaaS model, thereby driving the business to break-even and profitability on SaaS (>90%) margins.
I am delighted that this journey to a pure SaaS play, sometimes referred to in industry as "The Valley of Death", is well underway and as evidenced by the key data points on revenue, sales and cash burn are, in our view, well past the point of maximum danger and moving towards a break-even position by the end of 2019/2020. This is no mean feat and has in part been achieved by the introduction of several SaaS experts to the company and we welcome the incredible focus and discipline this has injected into what was already great team.
As flagged in our last report Engage recently undertook a modest fund-raising of circa £1m in equity (and debt) at £24 per share. We took a small amount of the equity, £50,000, and may look to take another small amount in the coming months. Engage has estimated that it will not need significant further funding until it hits breakeven which is very pleasing and the £24 per share paid compares well to our previous investments at £15 and £22 respectively.
As investors we want Engage to drive towards breakeven and profitability because upon achieving this, the world of exits available to us will open up substantially. With the IPO market still so soft we do consider a trade sale the likeliest of outcomes or perhaps an early secondary exit should price be compelling.
In the quarter Greatland Gold PLC ("Greatland") and Farm-in partner Newcrest Mining (NCZ.AX) ('Newcrest") announced several excellent drilling results at the Havieron Project in Western Australia. Newcrest has the right to acquire up to a 70% interest in 12 blocks within E45/4701 that cover the Havieron target by spending up to US$65m (circa £50m or AUD$90m) and completing a series of exploration and development milestones in a four-stage Farm-in over six years.
With the release of the first joint venture drilling at Havieron that yielded outstanding results and exploration results due imminently across several other high-alpha gold projects, our investment in Greatland is beginning what we believe will be a very interesting phase.
Reiterating what we said last quarter, we believe recent share price softness in Greatland was simply a function of market impatience and short-sightedness. Whilst at the time of writing we are ahead on our investment, we consider the current share price to not be in any way a reflection of the value we see in the company. With the recent appointment of Numis Securities as joint broker we are hopeful the company may reach a more patient, institutional investor class.
We spoke to the CEO of SOA Energy recently as he prepares his company to commence activities with their farm-in partner Delek towards the end of 2019. This will comprise the Ofek re-entry/appraisal well drilling programme and associated test works. This is probably running a little behind our earlier estimates in terms of timing however this is relatively unimportant in the scheme of things. Upon successful conclusion this will then allow long-held plans to list the company in London to commence.
Zuuse is an international construction payments and lifecycle software vendor with significant operations in the UK, United States and Australia.
We hold A$500,000 in loan notes due December 2019 at an attractive rolled up coupon of 12% as well as some options. Post-period we have been approached by a credible investor to purchase these notes of us for face value plus rolled up interest. We have also been asked to consider selling the 1m options we hold however the Board are still considering this approach.
We have agreed pricing on both scenarios and have begun documentation of the proposed deal on agreed terms. Whilst there is no guarantee any deal will be completed, we are confident that this proposal will represent the next, profitable investment exit for Primorus.
In the quarter under review StreamTV bolstered its board with the appointment of two new directors to assist with the financial and capital management side of the business. Whilst chip manufacture and product commercialisation activities are moving ahead and many millions of dollars of investment have been secured over the quarter, the large cornerstone investor it has been seeking has still not closed. Clearly it is in the interests of all shareholders for this matter to be finalised so we eagerly await news on this front.
WeShop had a very significant update to all shareholders during the quarter. Primorus has invested a total of £875,000 in WeShop representing approximately 3.5 per cent. of the issued share capital of WeShop.
WeShop gained considerable momentum in finalising the product and proposition for user acquisition later this summer. Some significant commercial and product agreements, and integration, have also been achieved. These included:
1. the Amazon license agreement to pay WeShop for user purchases facilitated by WeShop, and to enable Amazon inventory to be available on the WeShop platform.
2. An Instagram integration license: functionality to enable WeShop users to import existing content from Instagram to post on WeShop.
3. Apple iTunes (Apple Services) partner agreement to pay WeShop for user purchases facilitated by WeShop, and to enable iTunes inventory of all music, video, books and other media to be available on the WeShop platform.
Additionally, WeShop has completed the implementation of functionality that strengthens its user proposition through an enhanced product and merchant inventory. This is a key milestone in delivering the best possible experience and proposition to its users. The commercial agreement with Apple Services ensures that users can share and recommend products and media across the full range of their interests and lifediv, and not just fashion, like most social commerce platforms. WeShop will look to expand its product offering even further with hotel and travel inventory later this year.
Elsewhere in the portfolio we had little material news from TruSpine where a commercial funding route is in train however not yet complete as far as we are aware.
We are awaiting the sign off of Sport:80's financial performance before we make further comment save to say that the business is growing nicely and we are happy for now to let the company get on with business and not be distracted by external matters such as an IPO in a very unreceptive market.
NOMAD and its partner VITOL are still in discussions finalising the commercialisation of its gas assets in the Ivory Coast and we await the outcome of those discussions.
Share price aside, we are pleased with the Quarter as demonstrating solid growth within the portfolio whilst embarking upon our next potential investment exit. As evidenced at Fresho and WeShop, Primorus shareholders can now, in many cases, read about our investee companies from a range of external media sources and shareholder groups. I am hopeful that in reading other peoples' opinions of our investee companies, shareholders might conclude that the Primorus actually takes a relatively conservative approach to assessing progress and valuing its investments. It has always been the aim of Primorus to be judged on its ability to invest wisely and successfully exit for cash or other tradable instruments. We see terminal value recognition as the arbiter of business progress and believe, over time, this goes hand in glove with shareholder wealth creation.
We would reiterate that estimating timings for exists can be tricky and in the current global macro environment probably even more so. The guidance we give changes often and is usually a reflection of many factors, many or all of which are outside our direct influence. Indeed, the purpose of these Quarterly Reports is to provide a running commentary of our views on the investee companies and what the route to exit is at any given time. These can change as the facts change.
That being said we believe that many of our core investments have matured to where, in the absence of IPO demand, secondary market sales are very possible outcomes. We thank our shareholders once again for their support and look forward to the second half of 2019 with some optimism.
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
Forward Looking Statements
This announcement contains forward-looking statements relating to expected or anticipated future events and anticipated results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, competition for qualified staff, the regulatory process and actions, technical issues, new legislation, uncertainties resulting from potential delays or changes in plans, uncertainties resulting from working in a new political jurisdiction, uncertainties regarding the results of exploration, uncertainties regarding the timing and granting of prospecting rights, uncertainties regarding the Company's ability to execute and implement future plans, and the occurrence of unexpected events. Actual results achieved may vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors.
For further information, please contact:
Primorus Investments plc:
+44 (0) 20 7440 0640
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+44 (0) 20 7213 0880
Cairn Financial Advisers LLP
James Caithie / Sandy Jamieson
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+44 (0) 20 3621 4120
Turner Pope Investments
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