agm & share purchase plan
Two very interesting announcements yesterday from Solar Energy Systems (SES). The chairman's address with corresponding graphics and the announcement of a Share Purchase Plan for existing shareholders.
As I posted earlier this month I had some sceptism with regards to the outlook for this company, especially in regards to the options. The explanations set out in the chairman's address regarding their prospects this year has made me relook at that very thing.
It looks like they are taking a different approach from just selling their products. It looks like they will set up some of their own products in areas like the Maldives and sell the water themselves for a profit. Thus saving those communities the up-front cost of buying the solar water purefiers and reduced cost of bottled water for those communities. Given the business model SES is working on their investments would aim to be profitable within 2 to 2.5 years.
SES are currently running at a loss and have a negative cash flow. If the cash burn rate for 2002/03 continued they would run out of cash around July 2005.
The proposed Share Purchase Plan for existing shareholders benefits existing shareholders by allowing them to buy up to $5,000 worth of shares at a 10% discount to yesterday's closing price of $0.205 and free of brokerage. Any shortfall will be offered to large investors. This roughly doubles their existing cash reserves that they can use as working capital. If this business plan works then I gather they hope that the Dec 2004 options will be in the money before their exercise date thus giving them additional working capital from the exercise of some, if not all, of these options.
Mooremoney, do these two announcements ease your mind on your concern of earlier this month?
Mooremoney stated: "My main concern is that they will go off and chase the water bottling market and plow all their remaining cash into establishing the systems in exchange for a steady revenue stream which would take a while to repay the initial investment. - Sounds good on paper, but I think the impact on the cash reserves would put them in a very dangerous position."
Having read these announcements and re-read their annual report I am starting to come around to their business plans and see some scope for future profits in what they are planning on doing. Unfortunately with companies like this one only time can truly tell whether their business plan is good, bad or mediocre.
Ironically I had concerns with another shareholding of mine some years back and that investment has rewarded me very handsomely with fantastic capital growth. That other shareholding was in Select Harvests (SHV) that ploughed money from a rights issue into expanding their almond plantations only to change tack and start growing almonds on behalf of third parties about a year later. The rights issue in SHV's case was set at $0.75 per share in April 1997, the closing price of SHV yesterday was $5.55, nice little profit.
As you may gather from that example I am a long term investor. I shouldn't really be ramping this stock as I was beginning to think again about trying to buy some options on market to compliment my existing share holding.
