Toumaz: Exploiting First Mover Advantage

Toumaz has had a tumultuous week, to say the very least. Its Annual Results were released and true, it is still very much a loss-making, cash-burning machine at the moment, but for the first time CEO Anthony Sethill has very confidently released the most concrete and explicit guidance since his appointment in May 2012. The two things to take away from this week if nothing else are the following:

• Toumaz is expected to hit cash break-even by H2 2015
• Revenues are expected to rise five fold by 2017

Aside from these very punchy financial forecasts, we have had further promising updates on the Sensium Healthcare front and the commercialisation of the SensiumVitals wireless monitoring plaster IP. All that is required to solidify the progress made in the minds of investors is a couple of major distribution agreements, thus showing that cash really is rolling into the Company in a meaningful way.

Mr Sethill Shows His Cards

What we cannot stress enough about the events of last week is the fact that Mr Sethill is now finally providing guidance to the market. Consider that when he joined the Company it was loss-making, directionless, and stale. He immediately set about ‘kitchen-sinking’ the IP portfolio, streamlined the business, and spear-headed the commercialisation efforts of the SensiumVitals IP. The only guidance he provided during this time was at last year’s annuals, when he stated that Toumaz would not see “significant revenues” until 2015. As one can imagine, the stock only tanked on this news.

Since that time, not a peep has been uttered about what the market should expect, and as a result the stock’s potential direction could only be sideways or downward as investors reasonably got bored and opted to chase a stock which at least sold its story. Toumaz didn’t even do that. With this backdrop, of no guidance and the CEO’s obsession with keeping his cards pasted to his chest, the guidance released this week therefore deserves a hefty weighting. Mr Sethill must clearly be very confident that Toumaz can reach these goals of five-fold revenues by 2017 and positive cash flow next year. Investors should therefore heed his guidance and buy on his signal.

A Forecast

Before we hit the forecast first consider the valuation with respect to book value. At the time of the release of the annual results, the market cap was valued at £53.4m. Against a book value of £67.4m, that resulted in a P/B of 0.79. Let me remind you that this company is a tech company. No tech company with any hint of a future should trade at less than book, and yet Toumaz was being offered at this price. A ludicrous valuation indeed. Further, this book value was 32% covered by net current assets, of which the majority is pure cash. With this backdrop and the future now being painted by management, Toumaz can only be considered as a buy opportunity.

Now, with the information now available one can piece together a rudimentary earnings-based valuation for 2017. Please see below:

 

These figures are of course based on the most recent results. The assumed 50% gross margin is an improvement on the historical margin of around 44%, as management expect this to improve going forward. Arguably, we may have over-estimated the total expenses, which includes things like R&D which is expected to decline going forward.

With this figure for 2017, let us hypothesize about how the market may reflect this in the value of the shares:

 

Note: Forecast share price measured in pence

A hundred different things can happen between now and 2017 and so an unerring reliance on the above forecast would be foolish. However, it does demonstrate the compelling returns that could be on the table today. Taking the lower valuation multiple of 15x earnings we get a three-bagger (and then some) over as many years.

Given that all the hard work has been done behind the scenes at Toumaz, the risk attached to this return is tolerable. The technology space is a world that sees its landscape change as quickly as that of the desert, which is exactly the reason why investors like Warren Buffett avoid the sector altogether. However, Toumaz in our eyes is an outlier thanks to the fact that much of its growth will come from the healthcare space where it enjoys tremendous barriers to entry. This is largely due to the hostile regulatory environment that Toumaz has currently navigated so well.

To conclude, despite the strong 50% re-rating seen throughout the last week, plenty of gains remain on the table for the long term-viewed investor. We re-iterate our buy recommendation.

Goldplat: Value in Scrap

It is often said that value can be had for those willing to get their hands dirty. This is certainly the case for industries such as waste or scrap removal, but it also very much applies to niche recovery opportunities in the mining services sector. Enter: Goldplat (GDP), a micro-cap gold recovery services business with related operations in South Africa, Ghana, and Burkino Faso.

Goldplat’s market is attractive primarily because of its high barriers to entry which derives from: a) the required scale of operations for profitability, and b) the technological know-how and specialist expertise for gold extraction from mine residue and waste. This in itself discourages miners from processing their own waste, leaving an indefinite services opportunity for those with the capability. Goldplat is leading the way in this respect.

Goldplat’s Operations

The niche services company has numerous contracts with various mining entities whereby it purchases mine residues and waste at an agreed price, often linked to the prevailing gold spot price. Thus, in the long run, Goldplat is not adversely affected by a falling gold price as its margin simply moves in line with the market price of gold. Saying that, we should note that the spot price for gold naturally moves far quicker than the company’s contract renewal process. Therefore, a falling gold price will initially impact those contracts agreed at the historically higher gold price, meaning that those contracts’ margins will be squeezed until the contracts are renegotiated to account for the lower gold price environment.

Conversely though, a rising gold price will materially temporarily improve margins, and Goldplat has a unique quality in that it can choose when to sell its recovered gold on the open market. The company can opt to store its gold in inventory until a more attractive gold market presents itself. The limiting factor to this strategy would be liquidity, however.

Recent Developments

• GDP announces that the 6 month period to 31 December 2013 had been “difficult” due to a “lower gold price environment” as well as a number of “temporary factors that have affected parts of the Company’s operations”
• A number of welcome initiatives were introduced to improve efficiencies and therefore profitability, including:
  • the cancellation of low grade contracts which are unprofitable at a low gold spot price
  • the revision of by-product procurement contracts to reflect a lower gold price
• Further business initiatives have been implemented to drive earnings:
  • Cyanide had previously been purchased via intermediaries in solid form. This has been replaced with local suppliers who can offer cyanide in liquid form, making significant cost savings to Goldplat from October 2013
  • The intention to actively stockpile by-product reserves will provide production optionality and further cost savings, as Goldplat will be able to purchase in bulk and enjoy economies of scale benefits
• The company was awarded the Responsible Gold producer certificate. Goldplat is the first secondary gold producer to obtain this status in South Africa. It is expected that this commendable title will have a “significant and positive impact on future contracts, profits and cash flows”

All three of GDP’s profit centres in its recovery operation in Ghana (Gold Recovery Ghana) have experienced various operational challenges over the last year or so but the worst appears to have been resolved, promising for a stronger and more profitable next financial year

Finally, it is worth including here the upbeat and optimistic view offered by management:

“The company is confident that it can expand its business benefiting from the tax free status substantially into the rest of Africa and even further afield, and will work to achieve this during the remainder of 2014”

Shareholder Plight

The story so far has been one of a typical turnaround: a strong business model, protective barriers to entry, and a number of challenges, temporary in nature, which offer an attractive window of opportunity for new investors. However, not all is so rosy, if private investor bullet-in boards are anything to go by. The general market perception appears to be increasingly sceptical regarding the management of the company, and whether they are acting in the best interests of shareholders.

It is quite worrisome that the company has had three CEOs since September 2012, although it is pleasing to see the recent appointment and promotion of Hansie van Vreden to Chief Operating Officer, a position which had not existed prior to. A role dedicated to operations is vital for a business model such as this, and puts the company in better stead going forward.

The current CEO is Ian Visagie, an accountant by profession, who has been with the company since 2000 when he took over management control of Goldplat Recovery with Demetri Manolis. Mr Manolis was CEO until September 2012, when he believed it was “time to step down as the Company reaches the next stage of its genesis”.

The recent turbulence and uncertainty indirection borne from the changing management structure should be at an end, but the market will take time to accept this. This diminishing perception of uncertainty may perhaps be offering a good discount to enter the stock.

Financials

Goldplat’s interims are due out tomorrow and this should shed some light on the explicit effect the challenges of the first half of the year have had on the Company’s financials. Guidance so far has been that “operating profit for FY 2014 [is] to be materially below operating profit for FY 2013”. Operating profit (defined as gross profit before the deduction of expenses) for 2013 came in at £4.57m.

Profit after tax but before exceptional items for FY 2013 was £1.97m, 57% down on FY 2012’s £4.64m. Although revenues increased 10% over the same period from £26.23m to £28.90m, gross margins declined from 23% to 16%. This margin squeeze was the primary driver behind the declining profit and largely due to a falling gold price. See below for a summary of the company’s income performance:

It becomes clear that 2013 and 2014 together will be below-trend but, given that management have proactively sought improvements across operations and growth is still occurring, it is reasonable to expect a return to this impressive and dependable income schedule.

Valuation

Goldplat becomes a compelling investment proposition when we assess its value from a balance sheet perspective. Doing this, we find that the Company currently trades at a slight discount to its net-net working capital (N-NWC) position. The market cap at 5p stands at £8.4m, while the N-NWC position is an attractive £8.9m. The net-net working capital position is calculated by taking all the company’s liquid assets and taking out of this the Company’s entire liabilities (usually just the current assets are included, but a few non-current assets can also be included. Here, we chose to include the £1.96m for the ‘Proceeds from sale of shares in subsidiary’. Note that if we don’t include this then N-NWC < market cap).

This is a conservative and quick liquidation valuation method. It entirely ignores the Company’s property, plant and equipment, arguably the most valuable part to the Company’s business structure. Including all tangible assets, PPE therefore considered, we come to a net tangible asset value (NTAV) to market cap ratio of 0.54. Effectively, every £1 of investment in the company’s stock gives you £2 of hard assets. This is an attractive offering indeed.

Further, the Company’s intangibles are arguably of considerable value as they contain all the company’s mineral resource rights. The most recent (12 December 2012) JORC compliant estimation for Goldplat’s portfolio reported a resource of 931,071 oz AU. Since the strategic review these assets are considered non-core now, and there is the expectation that value will be realised by their eventual sale. This would certainly indicate the idea of a special dividend in the not-too-distant future.

Here is a quick preliminary valuation of the resource: Let’s assume a gold price of $1,200/oz, and an all-in sustaining cost of $1,000/oz. A conservative initial structure on both counts. With this, there is $200/oz net to Goldplat, if it were to mine these resources. Ignoring the time value of money and the significant risks attached to their extraction, this would value the reserve (if we assume that 25% of the resource is bumped up to the higher confidence level of measured and indicated) of around £28m. But, gold in the ground is always sold at a severe discount to its net realisable value, so lets reduce this by a further 75%, which gives us a price tag of £7m.

Although we made some heroic assumptions to come to this rudimentary estimation, remember that it did involve a conservative approach. Considering that this £7m is only a small discount to the entire market cap of the company, these assets are valued by the market at zero. And yet, they do have significant value.

NAV to market cap ratio comes in at 0.35, very much reflecting the value existent here.

Finally, Goldplat was required, in order to become BEE compliant (Black Economic Empowerment, a South African Government initiative) in South Africa, to sell a stake in their SA operation. This gave a read-across valuation of the entire subsidiary of £16m, about twice the current market cap of £8.4m. They certainly received a competitive price for the sale, but regardless, the SA subsidiary is one of three recovery operations Goldplat operates. Note that the SA operation is definitely the largest of the three, but also the one with the least growth opportunities. It is seen as a stable base of the company.

Conclusion

Together, these valuations certainly scream to the savvy investor of a very good deal indeed. Further, management think the same, to the extent that they brought online a share repurchase programme in an effort to drive the market cap value further towards intrinsic value.

It is very rare indeed to see a company trade at such a severe discount to NAV and remain profitable. Of course, tomorrow’s interims may throw this statement into invalidity, but from a long term perspective Goldplat offers probably one of the most attractive investments on AIM. We recommend a BUY for Goldplat Plc.

Gemfields: Poised For a Revolutionary 2014

If 2013 wasn’t enough of a roller-coaster for investors then 2014 will surely deliver. It looks quite likely that 2013 will close at almost exactly the same price as it opened at, 34.75p. This effective year-on-year flat-lining certainly does not reflect the challenges the company has overcome or the achievements made. Gemfields is on the cusp of becoming the go-to miner for coloured gemstones worldwide, and for that it should command a premium valuation going forward. The current price level leaves much upside on the table for investors to enjoy, and 2014 is likely to be the year that much of this value to be realised.

Brief Review of 2013: A Tumultuous Year for Gemfields:

• Integration of Fabergé
• Marketing campaign launched, with Mila Kunis to act as Gemfields’ champion/ambassador
• International emerald auction ban fears incapacitated by Lusaka’s successful auction, delivering record (at the time) per carat revenues of $54/carat
• Surprise emerald auction held in Jaipur, offering gemstones acquired on the open market
• All-time per carat revenue records broken for lower and higher quality gemstones, with the higher standing at $58/carat (95% gain on 2012), and the lower at $3.32/carat (27% on 2012)
• Total revenues of $48m, EBITDA of $1.2m, loss of $22.8m

Expectations for 2014:

• First ruby auction, sourced from the 75%-owned Montepuez Ruby deposit, located in Mozambique
• General increase in coloured gemstone demand, with up-lift from the western world
• Acquisition of first sapphire deposit
• Agreement between the Government of Zambia and Gemfields regarding emerald auction locations
• Promotion from AIM to main market listing

Value Expectations:

The first two bullet points should drive the company’s financial performance far beyond that of 2013 and deliver record profit and EBITDA levels. This is certainly achievable considering that, just half way through this financial year to date, Gemfields has already clocked up revenues of $56.4m, 17% greater than full year revenues for 2013. If the cost base stays relatively constant between 2013 and 2014, then the company should be sitting on EBITDA of around $9.6m.

Rubies are alleged to command a significant premium to emeralds but for the sake of uncertainty, we will treat the ruby auction’s expected performance as very much like the historical emerald auctions held. So, with conservatism on our side, then the ruby auction could deliver around $25m-$30m in revenues. Using the same assumptions above regarding the cost base, that could pump EBITDA to $35m-$40m.

On top of this, it is very likely we will see another higher and lower quality emerald auction before financial year-end. Let’s say that delivers about $40m in total (Note: this is all speculative and using ball-park figures just to get an idea of the value potential for the next year). These assumptions could give us 2014E EBITDA of around $75m-$80m.

Historically, Gemfields has traded at a very low EV/EBITDA multiple of 4.3x, but regardless, applying this to the expected EBITDA for next year we get an EV figure of $323m (taking EBITDA at $75m). If we shave off net debt to get down to, say $300m, then we arrive at an expected market cap of circa £184m, equal roughly to current levels.

Value & Risk:

It would seem that Gemfields has already much of the next 6 months priced in, assuming that:

• The market continues to value the company as it has done historically. I.e 4.3x EBITDA; and
• My highly conservative state of the world (regarding revenue assumptions) is realized

Much of the discount in the 4.3x historical EBITDA multiple accounts for geopolitical risk as well as historical uncertainty surrounding gemstone supply. This makes the industry a more risky bet because as demand is highly averse to a jittery supply it is susceptable to switching away from coloured gemstones for more easily attainable substitutes.

Additionally, revenues are highly discrete. Unlike a retail chain, revenues come in only a few times a year, meaning that if something goes awry then large chunks of revenue can be at stake. We saw that this year with the Zambian Government’s unwelcome meddling.

Conclusion:

If Gemfields can shed or mitigate these uncertainties the market will begin to allow the company to trade at higher and higher multiples. This will be helped as it diversifies its supply base across multiple deposits and gemstone colours. 2014 should provide a platform where much of this is done, and if a satisfactory resolution is made with the Zambian Government too, then we see no reason why the company won’t pursue a main market listing. As soon as this happens this company will enjoy a phenomenal boost as insitutional asset managers build positions in the stock who have a focus on the mining or luxury sectors. This, as well as the expected developments in 2014, should drive value towards that higher EBITDA multiple of 8x-10x enjoyed by more regular miners.

We recommend buying on weakness ready for multiple positive news developments expected throughout 2014 and beyond. Our initial price target stands at 40p, which is where significant historical support lies for the stock and stands at a slight premium to our basic value estimations laid out in this article.

Gemfields: Getting Expensive?

 

Investors in Gemfields, the world’s leading gemstone miner, have enjoyed a thoroughly good run since bouncing off the 200-week moving average back in July 2013. The shares have since gained 77% over the course of little over 4 months, but is there still alpha in them yet? For the short term, maybe. But for the long term, certainly. This article lays out the technical landscape and highlights what investors should take note of and look out for going forward.

Principally, we must remember that these gains have largely been due to a rebound from a period of strong negative sentiment towards Gemfields. The bad feeling between the company and the market began back in Q4 2012 with the announced acquisition of Fabergé. Many investors had invested in a pure miner and wished it to remain so, while others were simply skeptical of the management’s ambitious plans of using the famous brand to harness the gemstone market and make reality of the De Beers mine-to-market strategy.

This, coupled with the uncertainty borne from Zambia’s government pursuing a potential banning of international auctions, supercharged the bears all the way down to the 20p trough. The over-selling, positive initial results at Fabergé’s exclusive jewelry boutiques, and a softening of Zambia’s ‘play-tough’ attitude has tempted investors to reduce the risk premium attached to Gemfields’ shares. There have been a number of other developments but we shan’t go into details here.

With the above in mind, the recent journey does make sense, and considering the growth that can be realized from 2014 onwards there is reason for a higher valuation. The stock is at a cross-roads currently, however. See the above weekly chart. The candlesticks have just broken out of the Ichimoku Cloud and this week saw the break held with yet further gains. Said gains also overcame the horizontal resistance at 35p, but only tentatively.

This strong appreciation has caused the Relative Strength Indicator (RSI – second chart) to run out of room. This week the weekly RSI stepped just over the 70 line, which suggests that the stock is currently overbought. I.e investors have gotten a little over-excited and have pushed the price up through their excessive buying to a level that may be higher than it should be.

So, should we therefore see some steam released by some profit-taking? Our view is that once the stock reaches this RSI level and beyond we tend to do just that. But, if we take a look at what the stock has done historically when it has moved over the 70 line on the RSI, we would see that there could well be some extra gains yet. Take a look below:

 

We can see that when we have a period of optimism – as circled – the stock moves aggressively into overbought territory. Therefore, if this current period can be described as one of optimism, then it would be reasonable indeed to expect some further gains from here onwards in the short term.

There should be a condition on this expectation, however. Namely, Gemfields held a lower quality auction in Lusaka, Zambia over the course of the last week (11th – 15th November). The market should be informed tomorrow on how it fared. If the result confirms the solid market characteristics which we have been seeing over the last few auctions and a solid per carat price is realized then this good news should catalyze the stock into heavily overbought territory. We think there should be a cap on these gains at around 43p (the all time high at weekly close). Therefore, if the auction is a strong one then there may be 20% gains on the table still.

If the auction shows a softening in the market through a slightly weaker realized per carat price then it may be reason enough for a pull back. 30p should provide sufficient support if this becomes the case.

We have our expectations firmly weighted towards the positive outcome. This is not blind optimism, but simple rationality based on the historically strong auctions, even those held in Zambia. There is little to suggest that the auction should not be a good one.

Tomorrow should be music to investors’ ears, for the short term at least. Long term, the story only gets stronger and more exciting. We remain very bullish on Gemfields Plc.

Gemfields: A De Beers Story in the Making?

Shares in the pioneering gemstone miner dropped 5% upon open on Thursday after the Group released their final results for the year ending 30 June 2013. Operationally, the miner has excelled, driving down costs on all fronts and significantly building up inventories. Financially, however, the Group struggled to monetize its high value products due to the disruptions in their auction programme. It caused one fewer auctions to be held and thus lead to a 42% fall in revenues.

Zambian Government Auction Talks

Discussions between Gemfields and the Zambian Government are said to be ongoing and the Group remain’s hopeful of a favourable and mutually beneficial outcome, perhaps before calendar year-end. While this uncertainty hangs over the company the stock price is unlikely to travel very far. However, we do not find the situation too worrisome, considering the recent auction results held within the country. Gemfields has stated that communications with the government have been “better than they have ever been” before.

We believe that a likely outcome could be an agreed minimum of, say, one auction, to be held in Lusaka, Zambia per annum, while other auctions can be held internationally. This should help put Zambia on the map as a an established go-to source for ethically-sourced gemstones and will unconstrain Gemfields financially.

‘Big Three’ Gemstone Offering

Gemfields is making some exciting progress towards building out its product offering to give purchasers the choice of emerald, ruby and sapphire gemstones.

The company is already the world’s largest producer of emeralds and this alone can deliver exceptional financial results (assuming free reign on auctions). But consider the potential of the company if it were able to offer rubies and sapphires alongside them. Emeralds, strikingly, command the lowest per carat price out of the three. That’s a lot of blue sky potential.

Production of rubies from Gemfields’ Montepuez asset – the world’s largest ruby deposit – has progressed tremendously throughout the year, with 1.8m carats extracted in the period already. This is expected to ramp up over the coming year to 2.5m carats per month.

The maiden ruby auction is expected to take place in the first quarter of 2014. The demand for rubies is “insatiable”, says CEO Ian Harebottle, and we look forward to seeing this confirmed next year.

On the sapphire front, Mr Harebottle says that Gemfields is “closer than we have ever been to acquiring a great sapphire deposit”. The asset is said to be located in India and the company has entered into an initial memorandum of understanding, with due diligence ongoing.

Fabergé

Fabergé is a key piece to the Gemfields strategy and we are wholeheartedly behind the acquisition. The idea is that it will be able to harness its heritage and brand to champion the coloured gemstone market and catalyze demand around the world. It also opens up the ‘Mine to Market’ strategy so elegantly employed by De Beers throughout the 20th century.

The most lucrative two areas of the gemstone market is in gemstone production and in jewelry retail sales. Gemfields now has exposure to both, and therefore two bites of the same apple. It’s a brilliant strategy and there is no reason why it shouldn’t work like it did so effectively for De Beers.

Outlook

On an adjusted basis, Gemfields is trading at a conservative 6.5x EBITDA (assuming 3 auctions per annum). We see this as a ‘business-as-usual’ valuation, with little or no growth priced in. When one considers that next year the Group will see the following value-enhansive events:

• One or more ruby auctions contributing to the bottom line, a gemstone which commands considerably greater per carat prices than emeralds
• Continued emerald auctions fetching ever greater per carat prices
• An expected doubling of revenues from the Kariba amethyst mine
• Fabergé’s development towards becoming the go-to coloured gemstone jeweler as well as further financial progress

All this considered, Gemfields is a growth story at a bargain price. The excellent management team have a dedication to under-promising and over-delivering, so expect positive surprises on top of the above. Here we have a growing market, rising prices, and Gemfields trail-blazing the way ahead. This could well be the beginning of a once-in-a-decade growth story, and one we certainly intend to be a part of.

Significant Development at Toumaz

Toumaz Group, the pioneer of low cost, high efficiency wireless communication technologies, has made impressive developments across two of its three key markets, DAB radio and Connected Audio. Since its acquisition of Frontier Silicon in August 2012, the technology firm has clarified its strategy and is now delivering on it. A new wave of chips are due to enter the market in the coming months and support of Spotify’s leading music service as well as Imagination’s challenger FowAudio has been announced. Each of these has the capacity to materially bolster Toumaz’ top line and stem cash burn.

Much of the exciting developments are coming out of Frontier Silicon, the firm which Toumaz acquired in August 2012. With Frontier ex-CEO, Anthony Sethill, taking the helm of Toumaz shortly thereafter and Toumaz’s founder, Chris Toumazou, taking a back seat as an NED recently, it appears that the change of control is now entirely with the new CEO and we can see it is getting results, and fast.

Toumaz always could produce compelling solutions to real-world problems, but taking the concept and commercialising it was where it always failed. With pedigree such as Sethill as CEO I believe we will begin to see this company’s unique technology finally realise value for shareholders.

Frontier supports leading music streaming services

Devices enabled with Frontier Silicon’s new 3rd generation Venice 6.5 chip can now support Spotify’s leading music streaming service. Wireless speakers, internet radios and any other enabled audio device can connect with smart devices (e.g phones, tablets) to effortlessly stream and control music output.

FlowAudio, Imagination Technologies’ liscensable cloud-based music and radio service, is also supported by Frontier’s new Venice 6.5 chip. The service allows users to stream audio from the internet as well as their own content. It is a wholesale product and can therefore lead to a far wider and quicker spread of demand for devices which are enabled to support the service, such as Toumaz’s Venice 6.5 chip.

Jim Nicolas, VP marketing at Frontier Silicon said:

“The consumer audio market is set to be transformed by the combination of wireless speakers and new ways of delivering content. Frontier and Imagination are at the forefront of that”

The Venice 6.5 chip certainly appears likely to become a strong cash generator for the Toumaz Group. The financial benefits should start to be seen as the enabled devices hit to market over the coming months.

Launch of AUTODAB 2.0

AUTODAB 2.0 is a low cost solution to meet the added challenges of automotive digital radio listening. Traditional vehicular-based DAB/DAB+ solutions operate on a dual tuner system to counteract instances of radio signal loss. If one tuner loses signal, the second tuner can immediately step in with an alternative signal source, thus providing the listener with a seamless listening experience.

Frontier’s new chip can provide the same seamless service but with the use of only one DAB tuner, a significant cost advantage over other market offerings.

Business Development Manager Graham Johnson of Connects2,  leading manufacturer of car audio accessories, said:

““AUTODAB 2.0 is impressive. To enable a single tuner radio to provide such an integrated automotive experience is a major feat of engineering”

The result: A meaningful technology advantage over Toumaz’s competitors and an added incentive for auto-producers to install digital tuners over analogue. Its development will catalyze market size growth and therefore increase Toumaz’s market share and dominance.

Roma, the world’s lowest latency multi-room wireless solution

Latency is audio-maker jargon for the sound delay between multiple speakers of a wireless connected system. A high latency can lead to a poor listening experience. Roma is Frontier’s solution to such a problem. The new chip offers the lowest latency wireless multi-room audio solution for a range of connected audio devices. Roma-enabled wireless speaker systems can now truly perform as effectively as wired speaker systems, with latency coming in at less than 50 microseconds, or 0.00005 seconds.

These technology developments from Frontier Silicon have the clout to maintain and strengthen Toumaz’s leading position in the fast-growing DAB Radio and Connected Audio markets. This should propel Toumaz and its rejuvenated product offering rapidly towards financial sustainability.

It’s certainly an exciting time to be a shareholder. We see a sound strategy built on growing markets and solid competitive advantages which has the potential to deliver significant profit growth going forward. We feel the market does not fully appreciate much of this, and thus, at these prices, Toumaz offers an attractive asymmetric risk-return profile.

All this and there is still blue-sky potential for the SensiumVitals wireless body monitoring solution. Guidance from the company suggested that we should see a second pilot in Europe/UK towards the end of the year, but for this to occur, certain EU regulatory requirements must be met surrounding the wireless platform used by the system. When this is announced the market can expect to see further progress for this prodigious product.

Gemfields: A Technical Inflection Point

 

Shares of Gemfields have been enjoying a good run these past few weeks, with prices quickly gaining over 45% to peak at 27.875p. The underlying fundamental catalyst was the announcement of the highly favourable revenues banked from the most recent ‘higher quality’ gemstone auction. Despite being hosted in the controversial Lusaka, Zambia it was a stunning (and personally surprising) success and ranked as the second-most lucrative in the gemstone miner’s short history. The company amassed a total of $31.5m over the three day event with all lots being sold.

These recent gains have brought about an interesting technical pattern which I shall now discuss further. Please see the below chart:

 

As you can see the stock is currently playing out a modest pull-back from the 27.875p high made a couple of weeks ago. Investors and traders would have been looking for an opportunity to take some profits off the table and I believe this is what we are currently seeing now. Note the RSI (bottom chart) sustained a level of heavy over-buying throughout the latter part of the upward burst. Traders take this signal as a sign to de-risk their holding.

We are now, however, at a point which could potentially bottom and rebound upward once more. This is circled on the chart and is the all-important inflection point, or trough. The stock has found multiple levels of support at this price. One derives horizontally from lows made back in pre-March which we can see hampered attempted reversals all the way through the summer. The second – which is of slightly lesser strength because it has not been tested multiple times like the former trend line – is a Speed Resistance line which derives from the multi-year high of 43.6p made back in Q4 2012 (off-chart here). The third is a relatively new upward Speed Resistance line anchored at the more recent 19p low. Finally, the fourth support is the slower simple moving average. These four levels of support act as a cradle for the candlestick and should provide significant downside protection. If it is strong enough it should allow the stock to make further gains, and soon.

 

From a weekly perspective (above), Gemfields is also becoming more attractive. The candlesticks have breached and held the first Fibo level, with the pull-back described earlier falling neatly atop of it. This upward movement and bullish sentiment is also closing the spread of the weekly TSI ( bottom chart) which, upon crossover, should officially set the stock in up-trend mode.

The next important target investors should be eyeing is the second Fibo level at 28.5p, some 12% above current trading levels. Such a move should have the momentum to force the TSI cross-over which is a signal I especially look for to give reassurance that the recent bullishness has the intention of remaining for a reasonably amount of time going forward.

I am comfortable with the movement so far and I look forward to the confirmation of the weekly upward trend. Given this occurs, we should see the stock close on fair value.

Investors should also keep an eye on new projects out in South America. Gemfields has been advertising for positions out there on their site for a while now and could lead to an exciting new side-journey surprise. Also on the back-burner is the promotion out of AIM, something which should significantly benefit the stock price.

In aggregate, Gemfields as an investment presents a great deal of blue sky upside and very little downside. I look forward to what the coming months may bring for this exciting and ambitious little African miner.

Gemfields Breaks Out of Bear Trend

 

It has been a tremendously expensive ride for shareholders of Gemfields this year. Since the 44p peak back in October 2012 the stock has tumbled to a recent low of 19p, more than halving in value. This was initially due to the Fabergé acquisition, whereby some investors felt it was too richly priced and others felt that the stock no longer fitted their investment mandate as it would cease to offer a pure gemstone mining play. The subsequent announcement of the possible banning of external auctions was the primary driver however, and caused a sharp sell-off in recent weeks.

Sentiment finally appears to be returning now though. This week saw the release of an up-beat quarterly market update, of which I shall highlight the important details below:

• Annual gemstone production up 44% for the year, from 21m to 30m carats
• Per carat production costs for the quarter fell 13% to $0.50/carat ($0.57/carat Q2 2012)
• Fabergé achieved record sales for the year, although details are not provided
• Gemfields’ first Ruby auction shall take place Q1 2014

Discussions with the Zambian Government regarding the possible ban are still ongoing but it seems that the risk of it coming into action is somewhat mitigated now. Given that both auctions held in Lusaka, the country’s capital, generated revenues far higher than expected, the thought of this becoming a requirement is less negative. The argument is, however, that the prices attained elsewhere could generate even greater returns. The new Minister of Mines, Energy & Water Development, Christopher Yaluma seems far more amenable and open to a compromise being reached that doe not mitigate the ultimate profitability of Gemfields and so I am confident that the company will see a favourable outcome arise eventually.

The Technicals:

As we can see from the weekly chart above the stock has broken out of the long term bearish trend after having found support on the 38.2% Fibo level. This important move, if held, will mark the beginning of a new upward trend.

 

Notice that the break through the third Speed line was followed by a period of consolidation – this was a perfect opportunity for traders to take their positions for the ensuing push north, and we can see that this did indeed occur. Now that the upper bound of the descending price channel is breached investors will be looking closely at the subsequent pull-back. I would imagine that this is due soon because, on a daily basis, the stock is highly overbought. Some selling would put this right though and if it can be achieved without the stock retreating back through the 50% Fibo level and the descending trend line then we should see this upward trajectory continue.

 

In the chart above I have overlayed a likely trajectory for the pull-pack and subsequent gains upon successful rebuttal at the Cloud lining and the upper bound of the price channel. In addition, I have drawn in the likely resistance levels, of which the level at 26p is already inflicting some restriction. These, coupled with the Speed and Fibo lines should document the resistance profile well. 30p is the next viable technical target and I look forward to seeing it happen.

Toumaz Group: Reinvented & Redefined

If anyone has surfed over to Toumaz’s website one will find an entirely revamped corporate face. It looks inviting, exciting and professional. It’s certainly a far cry from its predecessor. Formerly, it projected the image of a company no longer in existence where there still remained links to articles that were no longer available or were many years out of date. This, pleasingly, is no more.

Many underplay actions taken like this and discard it as an unnecessary expenditure. For sure this is an arguable case when the coffers are looking low. However, if the site does not look appealing and fails to communicate the company’s mandate and objectives in a meaningful way then investors won’t even try to understand the story behind the face. The new brand and corporate image is sharp and modern, reflecting the new Toumaz Group. It neatly marks all the changes that have inevitably been occurring behind the scenes, what with the Frontier Silicon merger, strengthened management, and focused strategy.

The new, streamlined mandate is to become the global leader in wireless solutions for the healthcare, digital radio, and ‘Internet of Things’ markets. All these changes can be attributed to the single decision made in May 2012 when Andrew Sethill was appointed as CEO of the Group. It has been a blessing for the former R&D-focused company. This was the major gripe for the prospects of the business, that it did not seem capable of utilizing its impressive IP (Intellectual Property) and monetizing them. The talent was there, but the commercial links were not. The Frontier Silicon acquisition, I believe, opened this door for Toumaz.

It’s an exciting time to be a shareholder of the Toumaz Group and we should see growth escalate dramatically going forward. We could be seeing the beginnings of a story which investors could really buy into. After all, this is what makes the market move, and being here before the herd will ensure some decent money-making.

The Technicals:

The above chart displays the candlesticks making some movement towards the underside of the Ichimoku cloud. Today’s movement has lead to the wick apparently upholding the thinnest area of the cloud, with the close kissing its underside. We had a good push today with the stock gaining 5%, with no sells throughout trading.

The more interesting technical development is less about the shorter term movements, but about the overall trend and this could be about to turn green. See the weekly chart below, and specifically the True Strength Indicator (lower chart):

We finally have the crossing over of the TSI lines, an important long-term indicator which is a strong suggestion of an impending up-trend. It one had solely gone on this indicator’s say-so on its last bullish cross-over the capital gain would have been well over 50%. On top of this we have the longest sustained period of trading above the 15 period SMA (Simple Moving Average).

These indicators’ suggestions are yet more reasons to hold this stock.

Gemfields De-Railed By Zambian Government. Again.

Gemfields, the leading gemstone producer that was formerly a prime candidate for the title of ‘Darling of The Market’ has been further hampered by one of its major shareholders, the Zambian Government (Kagem emerald mine is 25% owned by the Zambian Government). The latest news released this morning told us of further disappointment. The higher quality rough emerald and beryl auction which was to be held in Singapore this June is to be put on hold as the company is awaiting further clarification from the Zambian Government regarding whether or not Gemfields is permitted to accrue revenue from the sale of gemstones outside of Zambian borders.

We first learned of the proposed policy that gemstones were to be sold only within Zambia on 8th April 2013. The market has reflected this severe uncertainty in the value of the company since then, with shares trading at around a 20% discount since the fateful news. However, it was previously the case that the Singaporean auction was to go ahead, but this has now been thrown into doubt. For shareholders this is yet another knock to their investment here. I was briefly a shareholder but my investment was ill-timed, unfortunately. I had only been holding for a number of days when the policy was announced, forcing me to sell up upon the market’s opening.

As the government is a major shareholder it is in their best interests to ensure that Gemfields can continue its operations and deliver profits going forward. It has been mentioned, however, that Gemfields was not informed of their intentions prior to the announcement, and neither were they considered to be instrumental in the overall policy-making process. It all appears to have been poorly executed by the government, and a rational response can only point towards an outcome where Gemfields can sell their goods outside the country, as this is how the highest prices can be attained.

I do believe that Zambia should see some of the rewards from their gemstone sales, but a policy which results in the miners being unprofitable will cease all benefits entirely. It will take time for this to be resolved, but I can only see there being one sensible outcome and it should be one where Gemfields can continue to do what they do best. Of course, African governments have not always succeeded in policy-making, so I remain sceptical.

As soon as this ugly chapter concludes I will be the first to consider becoming a Gemfields shareholder once more, as the company itself has unique vision and supremely talented management. Such attributes should be enough, but geopolitical risk has a habit of overshadowing such things. Let us hope that the government sees sense and a fair and reasonable decision is made, and soon.