ONE BAGGERS OR MORE FOR 2004?

This looks like a pretty safe double-bagger by March - I originally posted this to Michael Walters website when BLM was at 33p - since then Aquisitor have bought almost another 500,000...

Baltimore Tech is a company that many who traded through the tech boom will remember as a real star and then an inevitable dog. The absolutely astonishing drop is pertly hidden by share consolidations but I make the top value at about £14,000 per share rebased – it is now 35.5p.

Perhaps more amazing is that I now consider it a superb buy. The company is now virtually a cash shell trading at well under cash value.

In the Shareholder Update on 5th Dec, the company lays out what's left, but you need to dig a little deeper to find out the actual figures.



Following the completion of the disposal of Baltimore Technologies' core PKI authentication business on 2 December 2003 the continuing Group's assets consist primarily of cash, the Company's residual hardware and software support businesses and a range of property interests.

Recent History
Broadly speaking Baltimore was a company involved in e-security software (although it seems it was much better at losing money than selling software). In October 2001, Baltimore was incurring average monthly loss before adjustments of £5.9 million, with only £21 million cash in December 2001.

Baltimore lacked the scale to compete profitably and was put up for sale. The sale of the company as a whole was unsuccessful - the company said that although offers for the whole company received, management believed that they were better able to maximise the overall return to shareholders by a controlled sale.

10-Jul-03 Announcement showed:
£14.47 million cash at bank
Expect £8.3 million due for sale of Select Access
Expect £2-3 million in the next 6 months from earlier divestments.
In effect, half-year burn was £3.42m for the first six months of 2003.
Business remains debt free other than a £300k mortgage.

16-Sept-03 Interims:
Managed services related operations to beTRUSTed for approximately £1.1 million. Closed.
OmniRoot sold to beTRUSTed for £2.0million. close within the next eight weeks.
SelectAccess sold to HP for £8.3million in cash. Closed 8 Sept 2003.
Cash Balance of £14.6 million at 30 June 2003 (H1 2002: £23.1 million).
A further £15.9m in gross proceeds is expected from the sales of SelectAccess
(£8.3m), OmniRoot (£2.0m), the managed services operations (approximately
£1.1m) and the settlement with Clearswift (£4.5million).
Headcount has been reduced to 255 as at 30 June 2003 (H1 2002: 422).
Cash outflow of the period was £3.3 million which included an outflow of £3.5 million from operations.
The cash will support core PKI business, which continues to win important and prestigious new contracts.


22-Sep-03 Core PKI sale:
Core PKI business sold to beTRUSTed for £5.0million in cash.
As a result of this transaction, certain PKI employees will transfer to
beTRUSTed. The PKI group will remain principally Ireland-based. Baltimore will
implement a redundancy programme for the majority of its remaining employees.
Sales total £20.9 million since July

05-Dec-03
At EGM shareholders approved the sale of Baltimore's last remaining operating business. Sale was completed on Tuesday, 2 December. Board reduced from 7 to 5 members and Bijan Khezri appointed Executive Chairman. Andrew Hunt joins board – he 'brings a wealth of relevant management experience to this key role and will ensure that shareholders' interests continue to be represented strongly.

To preserve value for shareholders:

•The operating businesses were sold generating £41million cash

•Reduced average monthly operational losses by £5.5 million, as at the end
of June 2003

•Reduced annual operational losses by 76.5%, or £54 million, from 2001 to
2002

Next steps

The Board remains 'committed to maximising value for Shareholders'.

Options available;

•Returning cash to shareholders by liquidating the company

•Investing in another business through acquisition

•Reverse Takeover

In either case, the complex legacy of Baltimore's remaining global legal, tax and property liabilities need to be resolved first. Outstanding legacy issues and realisation of the value of remaining non-cash assets is expected to take until June 2004. The Board is also proactively evaluating business acquisition opportunities. By March 2004 (date of next full year results) expect to make a recommendation to shareholders as to the best option to take.

Today
Cash
£14.6M
£15.9M
£5.0M
---
£35.5M
Subtract from this the cash burn which I estimate as being £400,000 (£5.9M-£5.5M).
£300,000 Mortgage
£300,000 in Clearswift Warrants
(Can't find the evidence but I believe they also have a holding of Clearswift shares and Earthport shares)



Both the Telegraph and Citywire have run reports on Baltimore highlighting the fact that it's a cash shell but I believe they have significantly underestimated the assets.

The only remaining liabilities relate to its offices around the world. Mr Khezri estimated these at between £5 & £7 million if they cannot be sublet. However, most were already being sublet, suggesting that any final settlement is likely to be lower than the sum outlined.

Baltimore expect all liabilities to be dealt with by June 2004 so…

Cash = £35.5M
Cash Burn until June 2004 = 7*400,000 = 2.8M
Mortgage = £300,000
Property Liabilities = £7M

Pessimistic Valuation (Jun 2004) = 25.4M
Shares in Issue = 53,514,288
Pessimistic NAV (June 2004) = 47.5p

So my pessimistic valuation of the remaining assets is a clear 25% discount at the current share price, but that is not taking into account the fact that the property assets are mostly sublet (could add another 13p to the share price) plus the probably substantial tax losses Baltimore have made which could be even more valuable to a purchaser of the cash shell. The cash burn may be lower as the majority of staff will have gone with the sale of the PKI business – I guess we're just paying the board.

Optimistically then we're looking at more like 60p NAV.

One last thing to note is that renowned value hunter Acquisitor has been buying chunks of Baltimore for the last fortnight around the current price.

12-Dec-03 10-Dec-03 Acquisitor Buy 110,000 - now has 4,393,736 (8.18%)
11-Dec-03 09-Dec-03 Acquisitor Buy 275,000 - now has 3,993,736 (7.43%)
05-Dec-03 01-Dec-03 Acquisitor Buy 450,000 - now has 3,293,736 (6.15%)
02-Dec-03 28-Nov-03 Acquisitor Buy 475,000 - now has 2,843,736 (5.29%)
26-Nov-03 20-Nov-03 Acquisitor Buy 781,666 (1.46%) - now has 2,368,736 (4.43%) - Previously 2.97% - just undisclosable

From their website…
Acquisitor Holdings endeavours to achieve a high rate of capital growth for its shareholders by acquiring significant holdings in companies, which the members of its Board of Directors consider to be fundamentally sound but which are valued at a discount to the Directors' estimate of their private market value.

Aquisitor has a very interesting board…


From Business World…(who think BLM have £40M cash)


OnBusiness…



Conclusion
This is a different company – in fact it's not a company at all – it's just a big pile of cash and tax losses that seems well undervalued against it's assets and, unlike some other companies in a similar situation, the board have an announced goal to provide the best return possible to shareholders. I have bought at prices under 36p.

Couple of questions for you all:
Anyone know anything more about Dr. Andrew Hunt who joined the board on 4th Dec and is a 'turnaround specialist':

Anyone find any more details of the Clearswift or Earthport connections?
What have I missed? ;-)