Small Cap Value Report (8 Apr 2015) - BLNX, STAR, GHH, HCL

8th Apr '15 by Paul Scott

8 comments 12260 reads

Good morning/afternoon. I added two more companies to yesterday's report in the evening, reporting on the Open Offer result from Synety (LON:SNTY), and a trading update from Adept Telecom (LON:ADT). Please click here for yesterday's completed report.

Blinkx (LON:BLNX)

Share price: 28.1p
No. shares: 402.3m
Market Cap: £113.0m

Trading update - the company reports on the year ended 31 Mar 2015. Three key points are made;

Looking back at the last interims, it did $106.0m turnover, and had an adjusted EBITDA of $1.0m in H1. Therefore H2 looks to be about $104.0m+, and adjusted EBITDA of $2.0m+, and note that H2 adj EBITDA is at least double that of H1, so some sign of improvement there.

Although I also note from the interims that the adj EBITDA of $1.0m turns into an adjusted loss before tax of $3.4m. So this seems another example of how EBITDA is such a misleading measure of (usually illusory) profitability, especially at technology companies. Share based payments appear significant here too. The full H1 loss before tax was $9.7m, a lousy performance.

Therefore it is clear H2 will also be loss-making, but maybe not quite as bad as H1.

Cash - the company reports "above $90m" cash at 31 Mar 2015. Note that it paid $15m for an acquisition (Adkarma) in Dec 2014. That explains some of the drop in cash from $114.6m at 30 Sep 2014, so that seems to leave a cash burn of about $9.6m in H2, unless there were other payments made for acquisitions? ($3.2m shows on the H1 cashflow statement for acquisitions, which I presume is for Lyfe Mobile?).

Therefore as things stand at the moment, the company appears to be burning cash, hence I'd be wary of placing too much reliance on the cash on the balance sheet when valuing the company, although clearly $90m is highly material to the valuatin, as it's about £60.2m at the current exchange rate, or 15.0p per share - just over half the entire market cap. So providing cash burn doesn't spiral out of control, then the shares do have some underpinning from 15p of net cash.

Valuation - other than the 15p per share cash, I have no idea how you value the rest of this…

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Ramridge

8th Apr '15

Hi Paul
For those who need reminding, Blinkx (LON:BLNX) was pole-axed by Gotham City Research in Jan 2014. They were trading around the 200p mark before their report and they crashed by more than 50% soon after. Going by the current price of 28p, it looks as if they never recovered from the blow. Apart from a perceived dubious business model, there were big concerns about the validity of their sales and reported profits at that time. As far as I know the people in charge are the same, so this company makes it in my book uninvestable.

AlanJenkins2

You'll want to cover ZZZ :-].......

MichaelFBS

Can somebody explain to me why EBITDA is in any way relevant? Surely the interest has to be paid out of profits/cashflow, tax has to be paid out of profits/cashflow and assets will have to be replaced out of profits/cashflow.

I know Warren Buffett holds no truck with it and uses owner earnings

Profit + Depn/Amort - Capex = owner profit.

Isn't EBITDA just obsfucation?

Michael

Gostevie

I see that good old Tom Winnifrith is on great form today regarding Blinkx (LON:BLNX).

http://www.shareprophets.com/views/11498/blinkx-trading-statement-is-dire-and-worse-is-to-come-on-april-18

Steve

Fangorn

Worse to come April 18th - that wouldnt be the date of his Investor day would it?

What a self promoting alarmist charlatan Winnifrith is.

I note that, despite being the so called Sheriff , only interested in the TRUTH and pointing out AIM scams Mr Winnifrith has yet to say a single word, let alone negative ones, about his buddy Andrew Bell who must hold the record for the most number of placings,rights issues and destruction of value at his numerous mining minnows RGM,RRR amongst others....

So it's "seek the truth" unless it happens to be inconvenient and involves one of his buddies...

Results dire, as expected. Much of business in this sector is done of basis of trust/integrity,and the coordinate broadside of Gotham, that rather nasty Harvard professor (if his dealings with the Chinese restaurant are anything to go by) and TW has shot sentiment and trust to pieces. Will take a while to recoup that...

sealeyd

Some thoughts on the final results for 2014 from Snoozebox Holdings (LON:ZZZ) (which I'm currently long on):

Chief Exec's sentiment reads:

"Snoozebox has made progress during 2014 and is reporting results for the year in line with expectations"

My reading of previous expectations was that the reported trading is marginally worse than expected. A negative EPS of -3.09 rather than the expected -2.35 (based on Stockopedia's data).

There was the further disappointment of them not providing the G8 accommodation. This leads to a rather cumbersome looking set of like-for-like figures.

On the plus side they're showing the ability to reduce losses and create a viable business out of a very good idea. I like the fact that to do this they're not just chopping away at costs, but building new improved products and developing new market propositions.

It's also nice to see £17m in cash on the balance sheet too.

Overall I'm confident to still be holding the stock and am confident in management's ability to deliver on the promised turnaround.

Of course DYOR as I'm not very good at reading financial statements and am a sucker for a turnaround story.

Be good to hear Paul's thoughts on this one but appreciate all the work he already does on this blog.

ls2g08

9th Apr '15

Michael - EBITDA is used as a proxy for cash by some investors (which is quite lazy in my view). It it seen as a less volatile figure than earnings. It is also harder for management to manipulate than earnings (note harder, not impossible). If you have some suspicions regarding some of the accounting methods by the company - i.e. suspect depreciation policies it might tell you more about the economic reality at the company. Also it can be useful when comparing companies across borders, as less adjustments need to be made to make the figures comparable. (translating US GAAP figures into IFRS)

is2go8. Thank you. Very enlightening. Thank you.

Small Cap Value Report (8 Apr 2015) - BLNX, STAR, GHH, HCL

Blinkx (LON:BLNX)

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Paul Scott

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