Thalassa Holdings Ltd: Interim Results (30 June 2023)

Thalassa Holdings Limited

Thalassa Holdings Ltd

(Reuters: THAL.L, Bloomberg: THAL:LN)

("Thalassa", "THAL" or the "Company")

Interim Results for the period ended 30 June 2023

The Company is pleased to announce its results for the six months ended 30 June 2023. The interim results have been submitted to the FCA and will shortly be available on the Company’s website: www.thalassaholdingsltd.com

Highlights for the 6 months ended 30 June 2023

GROUP RESULTS 1H 2023 versus 1H 2022, unless otherwise stated (Unaudited)

2023 Observations

• Short Term US Interest rates have climbed from just above 0% and now stand at 5.28% for one month T-Bills and 5.42% for three-month T-Bills…

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_bill_rates&field_tdr_date_value=2023

• Through 7 September 2023, the tech-heavy NASDAQ Composite (CCMP) has risen ~32% whilst the NASDAQ 100 (NDX) has risen ~39% led by AAPL, NVDA, TSLA et al., which have accounted for 60% of this year’s performance.

• As an example of the madness of crowds, we have chosen TSLA. TSLA, and the ~51 Wall Street Analysts (on Bloomberg) who cover TSLA, would, apparently, like investors to believe that TSLA is a tech company, not a car company; in the end analysis, if logic prevails, it doesn’t actually make any difference because if TSLA is a tech company, then so are all the other new EV car manufacturers. Logically, therefore, as with every industry, it will come down to who survives and how much money they make…the answer, in our view is that margins will shrink as competition intensifies, and many will go bust before there is a clear winner. Ultimately, however, the transportation industry has never yielded above average long term returns…and we don’t think this time is any different…even if Mr Musk and his groupies believe we are no longer driving cars but tech-platforms on wheels…call them what you want, but at some point it will invariably come down to ‘Free Cash Flow’, not a new paradigm to describe an old industry.

• For those who don’t agree, they may want to cast an eye over the graphic and price chart below which highlights the insanity of TSLA’s recent $777 billion market value.

The left-hand column shows the Market Cap of 12 international ‘car’ manufacturers vs. TSLA, whilst the right-hand column shows the combined number of cars sold by the twelve vs. TSLA. Go figure?!

TSLA 5 Year Share Price Chart

Chairman’s Statement

Macro

H1 2023 was all about Big Tech, the magnificent seven as they are now referred to, META, GOOG(L), MSFT, AMZN, NVDA, AAPL, TSLA, which now represent more than 40% of US Large Cap Active Managers’ Assets, compared with 12% last year. (Source: Bank of America).

There is always a problem in the making when stock market leadership narrows to the point of stupidity…just as with the timeless children’s game of musical chairs…at some point there will be nowhere to sit, and when investors decide that NVDA may not be worth 41x Revenues or that Apple, Amazon Meta, Alphabet and Microsoft are in fact mature companies, valuations will compress and the price of these shares will fall dramatically (read plummet).

For those die-hard believers that the above ‘Famous Five’ are still growth stock, the chart below courtesy of StoneX Financial graphically shows what Momentum and Quant investors simply ignore, namely the fact that Revenues of the above 5 companies barely keep up with US nominal gross domestic product and their collective net income fell to $263 billion in the past four quarters, down 9% from $289 billion the year before.

As Vincent Deluard of StoneX points out “If stock prices are the net present value of their future cash flows, higher rates should penalize growth stocks, (or perceived growth stocks), which derive most of their profits from distant profits.”

These ‘mega’ companies should clearly weather an economic slowdown or recession better than more cyclical companies…but they are not immune!

Where next?

The US Govt. is famous (in old Westerns!) for speaking with a forked tongue…on the one hand the FED is raising interest rates, and reversing quantative easing, whilst on the other, the Federal Government continues to spend, like money grows on trees, which if you oversee the printing press, it clearly does. Exactly one year ago, President Biden signed the Inflation Reduction Act, meant in large part to deliver on the administration’s climate goals. The law provides for $369 billion in new spending to help accelerate renewable energy projects in the US, increase EV auto manufacturing and spur electric everything adoption. This latest ‘give away’ follows the $1.9 trillion January 2021 Economic Rescue Plan, which augmented the $3 trillion coronavirus relief bill from March 2020, and the $900 billion legislation from December 2020, which was scaled back to garner support from Senate Republicans.

Clearly, some (read a lot) of this money has flowed into the stock market and consequently ramped-up prices.

Stock markets are driven by sentiment, by a feeling of well-being and, lest we forget, by greed.

For the past nine months, experienced commentators, including Jeremy Grantham, founder of GMO, have warned of the dangers of a 3 Sigma Bubble and the devastating impact that a massive correction in stocks, bonds and real estate will have on personal and corporate wealth. Few, very few have listened and the ‘smart money’ managers that shared Jeremy’s point of view and took on large short positions have been flattened by the magnitude of the increase in share prices in 2023…led by the Magnificent 7.

Like it or not, the Board of THAL believe that sentiment and by consequence, money flows, have already changed direction and the combination of higher interest rates, spiking energy prices and Apple’s Black Swan(?) moment following the Chinese Govt. ban on the use of Apple’s I-Phones has finally forced even the most ardent believers of ‘to infinity and beyond’ valuations, to the need for earnings and free cash flow.

We believe that the S&P 500 (SPX), the NASDAQ Composite (CCMP) and the NASDAQ 100 (NDX) have already begun a correction which coupled with declining economic activity and reduced earnings could evolve into a perfect storm which could in turn result in a decline in the S&P well below fair value (estimated at about -20% below current levels) as a correction overshoots. To this end, a small portion of the Company’s assets have again been invested in various SPX, QQQ,VIX and TSLA hedges.

Holdings -

• There was little or no movement in our positions in H1 2023.

Real Estate  -

• The Real Estate owned by the Chairman, but pledged to the Company, is currently let until September 2024. Planning permission has and is being sought for certain developments, which it is hoped will increase the value of the property. It is anticipated that the sales process will begin in Q4 2023.and that a sale can be completed in Q4 2023/Q1 2024.

Janzz  - https://janzz.technology/

• Janzz recently closed a strategic investment by subsidiary of major Japanese industry market-leader

ALNA - https://www.alina-holdings.com/

• Please refer to Alina website

AMOI - https://anemoi-international.com/

• Please refer to Anemoi website

NWT - https://newmarksecurity.com/

• Share price performance of NWT continued to recover slowly through H1 2023. We still believe that, given the age of its chairman and the fact that he has three children, two of whom are not involved in the company, that NWT will, in due course, be sold. We are patient investors and will continue to hold our position.

Conclusion

We anticipate a further correction to US and European Stock Markets, and remain cautious on the macro-economic outlook, which we believe could deteriorate significantly this winter.

Duncan Soukup

Chairman

Thalassa Holdings Ltd

28 September 2023

Responsibility Statement

We confirm that to the best of our knowledge:

1. the condensed set of financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole as required by DTR 4.2.4 R;

2. the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

3. the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein).

Cautionary statement

This Interim Management Report (IMR) has been prepared solely to provide additional information to shareholders to assess the Company’s strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

Duncan Soukup

Chairman

Thalassa Holdings Ltd

28 September 2023

Financial Review

Continuing Operations

Total revenue from operations for the period to 30 June 2023 was £0.1m (1H22: £0.1m).

Net financial loss from investment operations was £0.04m (1H22: income £0.56m),

Cost of Sales was of £0.007m (1H22: nil) comprising development costs (net of capitalised costs) at ARL, resulting in a Gross Profit of £0.07m (1H22: gross profit £0.68m).

Administration expenses were £0.43m (1H22: £0.33m).  Depreciation costs were £0.16m (1H22: £0.15m).

Operating Loss was therefore £0.36m (1H22 Profit: £0.35m).

Loss before tax was £0.5m (1H22 profit: £0.2m).

Net assets at 30 June 2023 amounted to £9.6m (1H22: £11.9m).

Net cash (being cash balances less borrowings) was £0.6m as at 30 June 2023 (1H22: £0.8m).

Net cash outflow from operating activities amounted to £0.1m compared to an inflow of £0.18m in 1H22.

Net cash inflow from investing activities amounted to £0.39m, compared to 1H22 outflow of £0.26m.

Net cash outflow from financing activities amounted to £0.14m (1H22: outflow £3.89m).

Interim Condensed Consolidated Statement of Income

For the six months ended 30 June 2023