BLANCCO - "does my but look big in this?"
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%.
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36 comments
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…….
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
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"
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.
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.
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 .
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.
Bestace
impressive detective work
well done
T
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:
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.
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.
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.
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
Hanover Investors are not listed as major shareholders. Are you sure they still have an interest?
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
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
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 ......
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.
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
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
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!
Was on my watch-list but as well a big red flag in the RNS, the charts now have a big red candle with volume that shows some conviction. Price action like this typically takes a good while to recover as this is indicative of a sentiment change. Some support around 240p but I'd favour a retrace to find support at the 200 DMA around 230p. If that gives then it would be indicative of instis bailing as well.
Meanwhile a clarifying RNS is in order if only to address the price action and assuage the fears that there is something dark at Blancco
Interesting developments
FWIW I think Tournesol has made the right decision by selling on the news of CFO departure. I don't know Blancco very well but I understand it is in the midst of a number of big acquisitions to change the focus of its business. For me this was not really investable anyway due to the uncertainty that is inherent in such a transformation (I note the load of exceptional costs in its half-year accounts) though others may understand the business in much more detail and be prepared to take the risks. However, for the CFO to leave in such an abrupt manner at such a critical stage is surely a huge red flag for anyone. It might just be personal friction but there is likely to be disagreement about the business behind it. The lack of any sort of explanation is troubling. The likelihood of further bad news and price falls seems very high to me. There are surely better places to put your money...
A couple of other comments:
- Between the previous update to the market and today's comments brokers had INCREASED their forecasts for FY17 so it would now be wrong for the company to say it will still beat them because I assume brokers updated their expectations based on briefings from the company. We're nearly at year end don't forget.
- If a CFO is leaving after 6 months that sounds like he's jumped before he pushed. In such circumstances it's normal for companies to agree not to say anything publicly. So I am not reading anything into this. The same happened at Revolution Bars (LON:RBG) recently. I doubt there will ever be clarity.
- I was more concerned by "In erasure, Blancco grew its sales at a rate of 10% on an underlying constant currency basis, which is a performance below the long term trend." Is the excuse they give valid? I don't know - I need to have a thorough read.
Seems quite different to what happened at Revolution Bars (LON:RBG) from what I can see in the RNSs- there the CFO left to pursue 'other interests' and they didn't announce this on results day. Here the CFO leaves for no reason on the day the results are published. It is the timing that causes particular concern - is it just a coincidence that the CFO left instead of putting his name to the results? Maybe, but...
Jane
This is a very interesting situation indeed. There is a possibility of very significant growth which, if realised, would lead to a rerating to a multiple of the current share price. But that possibility depends on expectations which are far from proven to be achievable. Remember Baltimore Technology? There is also a question of transparency raised by the opacity of the accounting treatment of the figures reported today. And a second transparency question over Butcher's departure and the reluctance of the board to explain it properly.
All this makes it difficult to value the business which makes it likely that it will be mis-priced which will create opportunities.
To borrow a phrase from Churchill, "...It is a riddle wrapped in a mystery inside an enigma…" I prefer however not to follow the great man's advice that the thing to do is "keep buggering on"
I will wait for more clarity before thinking of re-entering.
tournesol/ Jane
There is something at the back of my mind about a study done by someone on this BB to the effect that when a SP falls substantially due to any one of, profit warnings, management c*ck-ups, etc, etc then it generally takes months (if ever) for the share price to come back to the level before the bad news. Falling knives study by Ed C, maybe?
That's for profit warnings. This isn't a profit warning.
You are correct that it was just about profit warnings I think. The research was fairly unequivocal that one should always sell immediately following profit warnings as the share price tends to underreact in the immediate aftermath. This is a bit different to a profit warning in that there is much more uncertainty about the implication of the news - it could at one extreme be entirely benign and at the other extremely bad. I'd expect that the reasons for selling immediately following a profit warning would also hold here but this is just a guess.
Hi Jane - There are lots of 'ifs' attached to your argument..
Of course with lots of new contracts, currency tailwinds and brilliant management execution, they could well 'substantially' exceed all expectations, make us rich.
On the other hand today's results which by management's own admission are less bullish than the January update, should be cause for concern.
So too many 'ifs' for my liking. Of course, your optimism may well trump my more cautious approach.
Regards, Ram
Jane
"ought I to be particularly verklempt?"
With respect that's the wrong question.
The right question is "how will the market react to this?"
I asked myself the second question this morning and concluded that there was a significant chance that the market would be spooked.
In addition I found the figures reported today not easy to understand/decipher. There was an overlay of adjustments and explanations and special cases which was difficult to penetrate. Now all of that might be nothing to worry about. And a strong/clear explanation by the CFO might have soothed any concerns. But the unceremonious ejection of the CFO does not resonate well with the difficulty in decoding the numbers. It is thus not at all surprising that the market is spooked. And I think it will stay spooked until clarity is provided or until the wind blows the clouds away.
One of the few advantages that we have as small investors is that we can be nimble. We can buy and sell at the drop of a hat.
This morning we saw the proverbial bowler hit the deck, the fedora impact on the sidewalk, the easter bonnet succumb to gravity. It's not about waiting for proof beyond reasonable doubt, but it is about dodging bullets and taking evasive action when you hear the sounds of gun shots rather than waiting until you get hit.
That's probably enough mixed metaphors for now.
Ram, why do you say that Blancco Technology (LON:BLTG) will "struggle to meet broker expectations"?
H1/17 revenues at £14.2m were 43% up on H1/16. Applying this same percentage increase to the FY/16 revenues of £22.4m would give FY/17 revenues of £32m, modestly ahead of market expectations. Given the large number of contract wins and strong currency tailwinds, is there a reason to see them missing on this?
Similarly, with adjusted EPS for H1/16 of 3.9p, a stronger second half and currency tailwinds, is there a reason to see them missing the consensus forecast of 8.94p for the full year?
The departure of Keith Butcher is disconcerting and has obviously spooked the market. This seems to have happened virtually overnight since he was lined up for a conference call on these results. Why is he leaving? No idea. A boardroom bust-up? Denied ambitions? Another opportunity? No idea at all. I had actually been very surprised at his last move, when he stepped down at Paysafe where he had done well and where there was still lots to do, to go to Moo.com, where he then stayed for less than 18 months. So no idea why he is moving on once more.
The wording of the RNS seems to suggest a board bust-up but it was very brusque and that was very, very silly, imo.
However, in the absence of more information, ought I to be particularly verklempt at there being a change of CFO? Maybe, maybe I'm wrong but my assessment is that the market reaction is out of proportion.
I would be wary of using that 43% figure as there are currency effects included that are unlikely to be replicated to the same extent.
I think a better figure to use is either the one shown under the operating highlights section, where they state: "Organic sales growth in constant currencies of 21%, comprising 11% growth in erasure and 200% growth in diagnostics (on a proforma basis)" or possibly the figure quoted in the chairman's statement: "underlying constant currency growth remained strong at 28%"
Then again, we know that erasure growth was below trend in H1 due to the sales force issues, so if they can push this back up to the 35% experienced in the previous year who knows where they might end up, but I suspect 43% may be optimistic.
Two days ago you were considering buying more shares in Blancco Technology (LON:BLTG). Are you now even more bullish given today's price action?
The currency translation uplift is likely to be at least as strong in H2, given continued sterling depreciation. Tbh, I have few concerns with the revenues projections in the broker forecasts I have seen. Panmure Gordon this morning forecast £17.7m for H2, that would make £31.9m for the full year, actually modestly ahead of market expectations.
I am not buying more until there's some clarity on the Keith Butcher resignation, although I do find the present price tempting. I am not selling at these prices.
Edit: Panmure have also actually increased their EPS forecast for FY17 to 12.3p.
Ram
to be fair the chairman's departure was announced some time ago in a very straight forward fashion
see RNS of 29/11/16
"…...The Company also announces that, after six years in the role, Matthew Peacock has advised the Board of his intention to step down as Chairman and from the Board upon the appointment of his successor.
The process of appointing a new Chairman is well advanced and is being managed by the senior independent director. The new appointment is expected in the first quarter of calendar year 2017…."
So I don't think there is anything untoward in the Chairman's departure.
But the CFO was only appointed last September. I attended an investor presentation he gave a month or two ago at which he expressed great enthusiasm for the company and its potential. Then in January he bought £50 thousand pounds worth of shares.
Today he's gone and we have no explanation of why. There could be many perfectly understandable reasons behind his departure. It is the lack of any explanation that is so grating. How can intelligent people think that the way to manage communication about an important issueis by saying nothing. It is a very silly approach. And it never works.
Hi tournesol -
Good note and I think you are wise to stay out and watch from the sidelines for now.
The management has some explaining to do:
- On 18 Jan they issued a trading update saying results will be " ... ahead of consensus market expectations"
- today less than 8 weeks later. the story changes to "... will deliver market expectations"
if you look at the HY performance as reported today and compare it with full year broker forecasts on StockReport, my sense is that they will struggle to meet broker expectations. Just my view.
The departure of the Chairman and CFO may be necessary blood letting, but leaves us in doubt about what is really going on.
Regards, Ram
I wouldn't necessarily see the market expectations thing as a contradiction. The market expectations they refer to today may be the increased expectations following the January upgrade.
It certainly needs clarifying though, and the failure to do this in the RNS is further evidence of poor comms, to go along with the poor comms around the FD's departure.