- Convertible loan holders agree to new conversion terms
- Only £34,000 of CLN outstanding
- Estimated net debt of £3.3mn at financial year-end
Sedgefield-based Kromek (KMK:6.65p), a radiation detection technology company, is strengthening its balance sheet by converting almost all its outstanding convertible loan notes (CLNs) into new shares.
Holders of £1.5mn of debt that accrued an interest rate of 8 per cent have converted their loan notes into 23.6mn new shares at an effective conversion price of 6.3p and 7.1p, respectively. The new shares were admitted to trading on 9 February 2024. Two other loan note holders holding £1.2mn of convertible debt have agreed to cancel their loan notes and convert them into 16.5mn new shares at an effective price of 7.5p, subject to shareholders' approval at a general meeting on 4 March 2024.
Although the conversion price is half the level in the August 2022 CLN agreement, it’s still acceptable given that the alternative is that Kromek would need to place a similar number of shares with other investors to fund the CLN redemption. It also means that only £34,000 of CLNs remain outstanding, thus reducing finance charges.
Moreover, Kromek now has a cleaner balance sheet. Group borrowings are largely made up of a £5.5mn term-loan facility with a major shareholder, which matures in March 2025 and has the option of a 12-month extension, and £0.5mn of low-cost US Covid loans maturing in 2050. Analysts at Equity Development forecast closing net debt of £3.3mn on 30 April 2024, or 7 per cent of Kromek's net asset value of £47.3mn.
Importantly, investors are starting to warm to the investment case, as highlighted by the 15 per cent share price appreciation since I covered the interim results (‘Contract momentum builds at Kromek’, 20 January 2024). Tidying up the CLN position should be positive for sentiment, so I would grant the directors authority to issue new shares to the CLN holders at the general meeting. Buy.
■ Special offer. Simon Thompson's books Successful Stock Picking Strategies and Stock Picking for Profit can be purchased online at www.ypdbooks.com at the special discounted price of £5 per book plus UK P&P of £4.95, or £10 for both books plus UK P&P of £5.75, subject to stock availability.
They include case studies of his market beating Bargain Share Portfolio companies outlining the characteristics that made them successful investments. Simon also highlights other investment approaches and stock screens he uses to identify small-cap companies with investment potential. Full details of the books’ content can be viewed on www.ypdbooks.com
