BLANCCO - "does my but look big in this?"

Tuesday, Mar 14 2017 by
12

Half year results out this morning - RNS is here.


Not easy to disentangle the financial/accounting stuff (not when you are an accounting numpty like me anyway). But looks as if underlying business is doing well albeit with some hiccups around growth, acquisitions and misalignment between sales staff and markets. Long term growth potential is presented as still very viable.


BUT and it's a pretty big BUT - and hence the title of this thread


I did not bother to work very hard at disentangling the numbers because a second RNS  says that the CFO has exited stage left. After only 6 months at the company. That is unlikely to be interpreted as a positive development whatever the underlying story turns out to be.


An interim CFO has been appointed and looks v capable. The website has already been updated and references to the outgoing CFO have been erased (that is an insiders play on words by the way). And indeed the whole board and management team look like the A team.


But until I know what's behind the CFO's untimely and sudden departure I have to adjust my view of the risk/reward balance here.


This was my largest holding at 5% of my portfolio. But acting on the above I have sold my entire holding. I will keep the company on my close watch list with a view to buying back as and when things become clearer. I just do not need to take the risk of something unpleasant emerging.


I would censure the company for being so non-transparent in its lack of any proper explanation. For a CFO to leave after such a short time is not normal. Putting out a minimal statement that he's gone without providing any substantive explanation as to why is just not good enough. Until we know why it has happened we have to be rather concerned.


EDIT - price action since I sold indicates that the market shares my concerns - at time of writing it is down 18%.


Disclaimer:  

The author may hold shares in this company. All opinions are his own. You should check any statements that appear factual and seek independent professional advice before making any investment decision.


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Blancco Technology Group Plc, formerly Regenersis Plc, is a provider of mobile device diagnostics and secure data erasure solutions. The Company's segments include Erasure and Diagnostics. The Erasure segment focuses on development and delivery of solutions, and includes Blancco, which provides erasure software; SafeIT, which is engaged in cloud and networked data erasure business, and Tabernus, which is engaged in providing software erasure products. The Diagnostic segment includes Xcaliber Technologies, a smartphone diagnostics software business. Its secure data erasure solutions include Blancco Management Console, Blancco Cloud, Blancco File, Blancco 5, Blancco Mobile Solutions, Enterprise Erase E800, Enterprise Erase E2400, Enterprise Erase Mobile and Ontrack Eraser Degausser. Its mobile diagnostics solutions include fault diagnostics, repair and program enablement. It serves manufacturers, financial institutions, healthcare providers and government organizations across the world. more »

LSE Price
84p
Change
 
Mkt Cap (£m)
53.8
P/E (fwd)
23.0
Yield (fwd)
n/a



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36 Posts on this Thread show/hide all

paraic84 14th Mar '17 17 of 36
2

FYI there is a webinar with the CEO of Blancco Technology (LON:BLTG) on Thursday - might be a good opportunity to raise some of the issues in this thread: https://attendee.gotowebinar.com/register/4499460347271578881

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janebolacha 14th Mar '17 18 of 36
7

In reply to post #175479

I've put forward this point in advance of the webinar:


"I'd like Mr Clawson to explain to investors the full and exact circumstances of Keith Butcher deciding to resign after only six months in the CFO position, why this decision seems to have been taken abruptly, whether his decision was related to any disagreement over the presentation of the HY financial results or over the accounting and financial practices of Blancco, whether there are liabilities or contingencies or circumstances that Mr Butcher felt ought to have been or to be treated differently in the accounts or mentioned differently or specifically in the results presentation."

That ought to just about cover it!

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Aislabie 14th Mar '17 19 of 36
3

I have registered for the webinar and what I need to understand is how far the results today derive from tidying up legacy issues and how far they represent a clearer view of the company's forecasting visibility.
Both issues seem to be present here, the first does not bother me at all but the forecasting confidence was a surprise as I had not understood how large individual contracts might be.
But overall I think that having a 70% world market share in a growing business will allow them to get past these results fairly quickly. The share price had bounded up in the last couple of months and its appearance on the list of top10 most shorted AIM companies suggested that things had got ahead of reality.
But I think reality will still prove to be pretty good.

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dscollard 14th Mar '17 20 of 36
1

Graham, your analysis of Blancco Technology (LON:BLTG) is much appreciated. Given my sceptical pre-disposition to this name I am probably somewhat guilty of confirmation bias but I suspect your take on Blancco's whitewashing of numbers is spot-on.
An almost 25% collapse in share price in one day is troubling. The hasty departure of a CFO from a company that makes such use of financial engineering is probably portentous. Time will tell ......

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tournesol 14th Mar '17 21 of 36
2

I see the new chairman has just bought 6000 shares at 250p. It's obviously better than him selling, but the amount (£15k) seems somewhat muted. Now if he'd bought a million shares, it would have been an unequivocal vote of confidence. But £15k worth is very much less than he'll get paid for being chairman so it involves no exposure/risk at all.

Money : Mouth

Mouth : Money

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dscollard 14th Mar '17 22 of 36

In reply to post #175506

I checked short interest recently and there was none quoted by FCA: last significant shorts were in October 2016 by GSA but have since been closed. 

Shortracker also shows no short interest  (as in reportable levels). Are you using a different source like Markit or referring to the historical shorts below? If the latter then it doesn't account for today's price action


http://shorttracker.co.uk/company/GB00B06GNN57/all

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acdoug 14th Mar '17 23 of 36

re Blancco Technology (LON:BLTG), I read an interesting comment recently, that "research shows that the most discussed shares on the internet bulletin boards tend to have the lowest Stock Ranks... on average historically; they are weak, expensive, and deteriorationg."
An earlier report by Investors Champion [not necessarily my favourites though] noted the belief that the company is working for its investment banker [Hanover Investors] not ord shareholders.
I'd love to believe the management hype and buy in, but hope someone will put janebolacha's question to the webinar. Somehow, I don't think we'll get to the truth of it all for some months

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DavidWithers 14th Mar '17 24 of 36

Hanover Investors are not listed as major shareholders. Are you sure they still have an interest?

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acdoug 15th Mar '17 25 of 36
1

You're right David. Matthew Peacock is on Stockopedia and on Reuters as being the chairman "He is the founder partner of Hanover Investors Management LLP which is a significant shareholder of Regenersis". However, RGS [BLTG] is a Hanover Investments case study of a turnaround from 2011-2016, so presumably they exited during 2016; and, announced yesterday, Peacock has resigned with immediate effect and Woodward has taken over as chairman, and Philip Rogerson, chairman of De La Rue plc and Bunzl, has joined the board as a non-exec.
A case of not keeping up with my research! Thank you

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bestace 16th Mar '17 26 of 36
13

Having sat in on the webinar, I thought the CEO rather glossed over the FD resigning. He did confirm there were "no disagreements, no changing accounting policies" which is a bit more than the RNS said, but it still fails to acknowledge the key point which is that the FD was in position for less than 6 months and his departure was rather sudden.

I've spent a bit of time googling Mr Butcher, and it seems this wasn't his first short tenure or sudden departure from a company:

  • His Linkedin profile shows a career of six executive roles dating back to 2000. Four of those roles were for two years or less, the only exceptions being DataCash (6 years) and Paysafe (5 years)
  • According to his Linkedin profile he was at Flomerics from 2008 to 2010 (2 years) before moving onto Paysafe (LON:PAYS) in April 2010. In his appointment RNS at Blancco Technology (LON:BLTG) it was also mentioned that his role prior to Paysafe was at Flomerics
  • However the RNS records for Flomerics, backed up by Companies House records show he ceased to be a director of Flomerics on 7 August 2008, having been appointed on 1 January 2008. That short tenure is explainable by the fact that Flomerics was taken over and delisted from AIM shortly thereafter, but it does leave a gap in Mr Butcher's career history from August 2008 to May 2010, when he joined Paysafe.
  • Another anomaly is that his Facebook profile shows his tenure at Flomerics as being from 2008 to 2009
  • It seems there is at least one role that has been left off Mr Butcher's CV: he was appointed FD to Lombard Risk Management (LON:LRM) in September 2009, becoming their CEO on 15 March 2010 before stepping down on 27 April 2010, just 43 days later, to take up his FD role at Paysafe (LON:PAYS) on 20 May 2010

There is no suggestion of impropriety that I can see, other than some confusion/errors over dates and the omission of the Lombard roles from the CV, but it is enough to make me wonder that if there is a 'problem' it may lie with the outgoing FD rather than with anything going on at Blancco Technology (LON:BLTG). As paraic alludes to above, it is also likely there is some form of NDA in place that prevents the company discussing the circumstances more fully.

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tournesol 16th Mar '17 27 of 36
1

Bestace

impressive detective work

well done

T

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dustyie 17th Mar '17 28 of 36

Re: Blancco
I see it before when senior managment change (in this case the chairman ) , he will begin his own team of managers with him , and some of the existing management will sense their time is up , some leave , some will move into other roles . After all the buck stop with chairman and ceo of the company .

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bestace 17th Mar '17 29 of 36
1

In reply to post #176067

The new chairman has already been a NED for 4 years though, so he already knows the management team and they know him. He may want to bring in his own people, but I think it is less likely than if he was a complete outsider.

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ridavies 18th Mar '17 30 of 36

Any more information from those who went into the webinair? I signed up for it but unforeseen circumstances prevented me from reaching it. Very frustrating. I have sent a request to the PR guy setting it up to see if there is access to it elsewhere later but he has not responded.

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ridavies 18th Mar '17 31 of 36

In reply to post #176052

Thanks for all that. Anything more from the webinair? Support information for future plans and likelihood of success - in YHO as much as what he said! Thanks in advance.

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bestace 18th Mar '17 32 of 36
3

In reply to post #176301

It was mostly rehashing what was said in the RNS. I'll add a few comments below but I'll try and refrain from also echoing the RNS.

I took a few screenshots of the presentation slides but only got the idea to do so half way through. As I'm not sure how readable they will appear if posted on here, I'll hold off from doing so unless they aren't posted on the Blancco or Equity Development websites in the next few days.

If anyone hasn't seen it yet, Equity Development published a 17-page note the day after the interims came out, which is worth a read.

  • The attendees from Blancco were the CEO and the Financial Controller. I think the FC's name was Chris Hunter
  • The CEO re-affirmed consensus expectations of £32m revenue for this financial year
  • The sales team is now at full headcount and they expect to see returns from this in H2 (17 new sales people recruited into the direct sales teams and 5 into the indirect sales team)
  • They are expecting no further growth in headcount overall other than a handful of vacancies, none of which are in sales
  • the CEO reiterated Blancco is a high gross margin business; gross margins increased in the period (89% to 97%) due to the prior period including cost of goods sold associated with a diagnostics product which has now been discontinued. The sales mix has moved away from professional services towards license sales
  • Cash conversion will be in the range 80-90% going forwards due to greater use of indirect sales channels and selling more to larger enterprise customers who operate on longer payment terms (typically 60 days). The LATAM customer mentioned in the RNS that depressed cash conversion in this period was the Mexican government (via IBM)
  • This half period was mostly about continued investment, which is partly why cashflow has been poor. This included buying out their minority interest partners which creates no immediate benefits to revenue or profits as they are already fully consolidated into the group results, but they see the benefits as being able to better manage the sales force in those territories, driving up growth rates to levels seen in the rest of the group
  • They expect no further costs from the discontinued operations (the repair services business)
  • Capex is mostly capitalised R&D costs; they invested £1.1m in their development hubs in India and Finland. They will continue to invest in those hubs but growth in R&D spend won't be as big as top line/revenue growth in future (Equity Development are forecasting R&D spend of £3.5m in the full year of which £2m will be capitalised)
  • In diagnostics, new customers included Swisscom in Europe and Amazon India (these were the unnamed 'European mobile carrier' and 'global online retailer' mentioned in the RNS) 
  • They are in discussions with a potential strategic partner ("another marquee"). These strategic partnership deals represent the most valuable part of the indirect sales channels with great growth prospects
  • In relation to future product development, they "won't chase every shiny object", but the CEO did speak about the potential of the automotive industry for Blancco erasure products, e.g. the ability for someone hiring a car or selling their car second hand to press a button to wipe their personal data where they had synched their phone to the car's systems. He mentioned how a rental car crossing an international border would be in breach of the new GDPR regulations if the car held several people's synched phone data without their knowledge. They are working on a prototype product this year to address this opportunity, with the hope of taking this to market next year
  • Net debt should be improved by year end (it can't really get much worse given they are using £9.2m of their £11.5m facility!) It sounds like they may be at the lowest point in the cash cycle and ED are forecasting net debt reducing to £4.6m by year end, then £0.3m by the end of FY18.

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tournesol 19th Mar '17 33 of 36
3

I agree that the upside potential is very promising. But I remain concerned about several issues:

1) the abrupt departure of the CFO - which has not been explained and which appears to have been a surprise to him

2) the unclear presentation of the accounts - I like accounts which are unvarnished and unmassaged and Blancco seems to have quite a lot of adjustments which are difficult for an accounting klutz like me to properly comprehend

3) the future growth of demand for the erasure product is very difficult to get a clear view of

4) the barriers to entry for a large player such as Microsoft are difficult to assess. I think the basic technology of erasure is relatively trivial so no real barriers at all. The bullet proof audit trail that ensures that erasure has been done is, IMHO, actually much more difficult to provide than the erasure itself

I am reminded of two previous instructive cases.

First, Baltimore Technology which was supposed to have a world beating encryption/security product which was going to establish a huge market with banks and others. As I remember it, the potential turned out to be a mirage and It soared like a rocket but then crashed and burned.

Second, internet browsers - remember the likes of Netscape which had a dominant position? Microsoft brushed it out of the way with Internet Explorer and it's subsequently turned out that the technical issues involved in developing a browser are actually rather trivial. I don't think that anyone has ever made significant money out of monetising a browser.

As it happens I made a large amount of money out of Baltimore. I bought at £7 and sold half at £120 and the rest at around £70 on the way down. So just because a business does not do well for ever it does not follow that investors should avoid it. It does though mean that one needs to be careful, especially about timing. These are not companies to buy whenever you feel like it and then hold for ever. One needs to ride a wave which might reverse or dissipate at any time. I am not sure that I want to re-enter Blancco just yet, so I remain in active watching mode.

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bestace 20th Mar '17 34 of 36
1

Blancco Technology (LON:BLTG) have put a webinar up here:

http://www.blancco.com/investors/videos/half-year-results-december-2016/

This is different to the Equity Development webinar and the slides also appear to be a bit more extended.

I haven't sat through the whole thing yet, but on the CFO departure the CEO says "best wishes to Keith, it sometimes becomes apparent that there isn't a cultural fit so we move on"

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dscollard 25th Apr '17 35 of 36

Had kept this on my watchlist....the price action has been ominous over the past few weeks so today's trading announcement and cashflow statement was portended  by the continued sell-off (and arguably the CFO ejection)

Gapped down through the rising trendline from the 2015 low : might well be overdone and a buying opportunity

 I'd look for support at 140p 


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tournesol 25th Apr '17 36 of 36
1

I know that schadenfreude is an unattractive characteristic, but one of the best feelings you ever get as an investor is when you decide to get off the ship early and then watch from the shore as it steers straight onto the rocks…….

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