Having reflected over the last week, as a long term investor, I am happier with my investment in FBR now than I have been during my entire shareholding.
As a long term speculative investor, I was concerned about 3 elements of risk in relation to my investment, namely:
· The technical risk (whether the machine could do what is was designed to);
· The R & D funding risk (whether the company would have sufficient capital to be able to deliver a fully functional machine) and
· The commercial risk (whether the market would use the technology to generate sufficient profits to the company to allow it to survive and grow).
Technical Risk
FBR has been able to demonstrate it has a machine that proves the DST. I don’t think anyone can question this point.
In addition, putting aside Hokey’s all too frequent dig that “ …in 15 years they haven’t blah blah blah…”, the FBT team continue to debunk the naysayers. Even this group must admit that what the team have achieved between the announcement of the first indoor build in Nov 18 to third video presentation about a week or so ago is impressive.
There continues to be speculation amongst posters whether specific technical issues have been addressed, however just as new questions continue to be raised, it cannot also be said that the “big questions” have not been answered.
I think the technical risk associated with the Hadrian X will be eliminated in the coming months.
R&D Funding Risk
On 18 January, I submitted my first post onto HC where I expressed my support of the company and the Board and indicated my only real concern was with the cash burn. More specifically, I was concerned whether the company would have sufficient capital to finalise the outdoor build as well as continue to operate the company whilst a carefully planned commercial roll out strategy could be implemented.
Ideally, this would have occurred without the need to raise the $17m, however, the $17m injection now allows the company to move into the commercial phase in a well executed manner. As expressed in other posts, $17m is not sufficient to allow the company to trade and become self funding and I expect a Capital Raising of at least $35m will occur later on this year.
In response to contributors who believe the likes of BKW and Weineberger (“WB”) will be subscribe for shares in FBR as part of their commitment to the JV’s expected to be executed, I believe this is highly unlikely.
BKW and WB are not interested in FBR (recall FBR is not just about bricklaying machine), they are interested in a specific application being the Hadrian X. To that end I’d expect parties to largely fund a newly created entity which is owned 50/50 between FBR and the JV partner (so in Oz this would be 50/50 between FBR and BKW).
In this way they would have much more control over their investment than compared to holding a minor interest in FBR. As an FBR investor this is more attractive to me as I gain comfort that the Brick partner will be keen as hell to push the commercialisation of the solution as they have direct vested interest in the commercial success (ie. they get to sell their product and hopefully win market share from their competitors. Another minor benefit it that it also means my shares aren’t being diluted.
Commercial Risk
This is really the only unknown at this stage. In order to eliminate commercial risk there must be a perceived advantage to the buyer. FBR will be pushing speed, reliability, safety and cost savings.
Speed and cost savings will spark the interest of buyers. With the likes of WB and BKW on board as JV partners, they will be heavily assisting with our Business Development, as ultimately they get to sell more of their product. This is in essence will be the beginning of a true Symbiotic relationship.
No other ASX spec stocks come to mind of similar relationships. Typically, when a spec stock moves to the commercialisation phase (which is quite rare), they typically start without any support (from alliances) and the transition to successful commercialisation is extensive and often fails.
So overall, I think the commercial risk is quite low, although I’m still keen to see the final signed JV.
Final Comments
As a long term investor, the current share price is a nonsense to me. Yes it’s a reflection of what the “market” perceives to be the value of FBR, however the current price has no impact on my decision to continue to hold the shares.
Previously any slight good new sent the price up significantly, however the market has been largely unimpressed with positive announcements over the last 12 months or so.
By way of example, and setting aside dilutions associated with the allotment of performance shares (and a couple of other capital raisings, here is a recent history of the FBR price around key announcement dates
· July 2017 - $.105 to $0.145 (MOU with Caterpillar) – but no Hadrian X outdoor build
· August 2017 - $0.175 to $0.30 (MOU with KSA) – but no Hadrian X outdoor build
· June 2018 - $0.17 - $0.185 (GP Vivienda Collaboration Agreement) – but no Hadrian X outdoor build
· September 2018 $0.16 (Global Partnership Agreement Weineberger) – but not Hadrian X outdoor build
· November 2018 $0.16 - $0.21 (Announcement completion of Indoor Build) – prior to Hadrian X Outdoor Build.
· December 2018 $0.165 - $0115 (Cat Walk away) – prior to Hadrian X outdoor build.
· February 2019 $0.13 (Announcement- 1st Outdoor Build).
I can only deduce the market is no longer impressed with what the machine does, but instead is waiting for the commercialisation phase to kick in.
At the moment I am happy to hold onto the shares I have, and won’t be buying more on market unless we get another opportunity to buy when panic set in dropping the prices to levels we saw in early January.
However, as I wrote in another post I expect a Rights Issue will be offered later on in the year (following a signed JV with WB and BKW, as well as the machines being commercial ready). Its my current intention to take up my full entitlement.
(20min delay)