Small Cap Value Report (29 Jul 2015) - CAP, RSTR, GBO, QED, TWTR
Apologies, but I'm running late today, so please refresh this page every now and then, as I'll be adding sections to this article all afternoon.
Clean Air Power (LON:CAP)
Share price: 0.33p (down 22% today)
No. shares: 257.3m
Market cap: £0.8m
Just a post-script on this one, it's a micro cap which had promising sounding technology, but it just hasn't worked commercially to date. The company was struggling before the plunge in oil price, but with much cheaper oil, one of the key cost advantages of ts technology (to allow trucks to run on a mixture of diesel and natural gas) has gone.
Personally, I threw in the towel at 4p per share last year, when it became clear that things were not going to happen, and my thinking here on Sep 2014, was that the shares were probably worth nothing.
Update - this was issued yesterday, and makes it fairly clear that the existing shares might end up being worth nothing. Once a company gets to the end of the road, and can't raise any more equity from the stock market, then at that stage its only options are usually deals whereby a new financier ends up owning the whole company, or almost all of it - massive dilution since the only alternative would be Administration.
Every now and then I get sucked into a jam tomorrow stock, and it nearly always ends badly. That's why it's so important to avoid them altogether, if you have the willpower, or if not then to avoid forming an emotional attachment to the share/story, and be willing to pull out once it becomes clear that the future is grim,
Even though I lost about a third of my original investment (in at c.6p, out at c.4p), it could have been a lot worse if I'd hung on, hoping for the best, which is what most people do with jam tomorrow stocks.
As ever, cash is king with jam tomorrow stocks. Another test I usually apply before buying, is to be sure that the company has at least two years' of cash on the balance sheet, at the current rate of cash burn. If it doesn't, then you're running a big risk that the company will come back to the market for more cash, and it's a lottery whether, and at what price, fundraisings can be done.
Overall though, I've found it's just far best to avoid blue sky stocks altogether. Better to wait and see if the technology reaches a commercially viable point, and then pay more if need be. At least that approach should avoid the 90%+ losses which are the final outcome on so many blue sky shares.
Rightster (LON:RSTR)
Share price: 15p
No. shares: 223.5m
Market cap: £33.5m
Trading update - this is yet another blue sky stock which has gone disastrously wrong for shareholders. I got into a bit of trouble at Mello Derby last year, as I criticised the company in my report of 7 Nov 2014 (delivered live on stage!) when the shares were 40.5p.
Comments were made that I had undermined the CEO's talk later that day, by pre-warning the audience that the shares were best avoided, so apparently the attendance for his talk was poor. Anyway, my allegiance is to my readers, not to the companies being reported on, so if I helped steer anyone away from a 63% loss that they would by now have suffered on this share, then job done! The CEO who spoke at Mello, is now the former CEO, which is a pity as he seemed a nice chap, but business is business.
The latest update indicates good growth, and deep cost cutting, so perhaps they are turning the corner, although brokers are still forecasting a thumping £7.6m loss this calendar year, and breakeven in 2016. In my experience breakeven forecasts are often based on wishful thinking - i.e. the analyst sometimes has worked backwards from the desired result (breakeven) to the assumptions necessary to achieve that.
(insert quote)
Base70 earn-out - one of Rightster's legacy problems is that its balance sheet is dominated by a large creditor (£22.2m) for deferred consideration relating to previous acquisitions, and put simply Rightster doesn't have the cash to pay this liability (even after another Placing for £5m in May 2015). So it was obviously reckless to have done those deals in the first place, without having the cash available to make those payments.
A solution has been found, in that the recipients have accepted shares instead of cash, as follows;
As reported previously, the deferred element of consideration payable for the acquisition of Base79 is due to be paid in H2 2015. As a result of certain earn-out conditions being satisfied, the Company has agreed to a total consideration of £24.3m. The first portion of this consideration of £20.7m will be settled by way of an issue of new ordinary shares by the Company to the vendors on or around 4 August 2015. The remainder of £3.6m (net of certain required deductions for PAYE income tax and National Insurance Contributions) will be settled in Q4 2014 by a further issue of new ordinary shares by the Company. The price at which new ordinary shares will be issued to satisfy the earn-out will be a price per ordinary share equal to the average closing mid-price for ordinary shares (as shown in the Daily Official List of the London Stock Exchange) for the five trading days prior to the date of payment of the first portion of the earn-out. All former Base79 shareholders who are issued new ordinary shares to satisfy the earn-out will be subject to lock-up agreements pursuant to which they will not be able to sell such shares (subject to customary carve-outs) during the period from the date of issue of such shares until 12 November 2015. Any sale of earn-out ordinary shares between 12 November 2015 and 1 June 2016 will be subject to an orderly market arrangement and may only be made with the consent of Cenkos, the Company's NOMAD (subject to customary carve-outs).
Therefore, this is going to create a battle royale for the share price over the next few days! Existing shareholders would obviously like to see the share price as high as possible, to minimise their dilution.
Whereas recipients of the earn-out shares will want to see the share price as low as possible, so they get a greater share of the business.
My opinion - there could be significant volatility in the share price over the next few days, as a massive amount of new shares are going to be priced on the average price.
However, I feel the likely direction of travel is downwards, as a large number of new shares is about to be issued - the number of shares in issue is going to rise by almost 73%. Whilst there is a formal lock-in, these are easy to get round - people can open short positions in the share through CFD or Spread Bets, to lock in a sale at the current price. Then settle the short position using the newly issued shares once the lock-in expires. So for that reason a lock-in should be seen as a porous, temporary barrier to selling only.
On the upside, the company mentions some interesting contract wins & big name clients, such as Spotify, GlaxoSmithKlein, Heineken, etc. Although whether any of those deals are going to result in profits is another matter - looking again at the 2014 results, the company has a mountain to climb to get anywhere near breakeven, and has only limited cash remaining.
Overall it's potentially interesting, but looks much too high risk to me. The way I look at things, the company has not as yet demonstrated that it has a commercially viable business model. An interesting one to watch though, but with a very large overhang of shares having been created, and the cash position remaining tight, so another Placing probably necessary, it seems to me these shares could easily halve again from the current level, into single digits of pence.
Note that the Stockopedia computers have thrown a bucket of cold water over me, as my finger hovered (fleetingly!) over the buy button, as it has a very low StockRank of only 6. Remember that low StockRank shares are proven to collectively badly under-perform.
Globo (LON:GBO)
Share price: 40.5p (up 5.9% today)
No. shares: 373.7m
Market cap: £151.3m
(for the avoidance of doubt, I am neither long nor short of this share)
Statement re share price movement - we have yet another clarification statement from Globo, which in itself is another red flag - clearly the market thinks there is something wrong, if the company has to repeatedly issue statements intended to calm the market.
As regulars will know, I've been a long term bear of this share, as there are numerous red flags with the accounts, changes of auditor, taking out large new borrowings when it supposedly already holds substantial net cash, aggressively capitalising intangibles to create (IMO artificial) profits, debtors piling up on the balance sheet, the inexplicable disposal of 51% of a subsidiary in order to get its figures off the balance sheet, never having paid divis, repeated fundraisings despite claiming to be cashflow positive, the list just goes on and on with this company.
I set out in more detail the specifics here in Apr 2015.
It should be emphasised that red flags are not necessarily a sign that things are definitely wrong, but an alert that something might be wrong, hence more research is needed, or in my case I've already seen enough to make me walk away. One of the worst things you can do is go to the company and ask for reassurances - as you will always get them!
Where you have multiple red flags, as with Globo, the probability that something is wrong increases, compared with a company that has only one red flag.
It will be very interesting to see how Globo eventually pans out, as I'm firmly in the something is badly wrong camp, whereas others, and the Stockopedia system, like it - the StockRank is currently very high, at 92.
To my mind, risk:reward is such that I will happily run the risk of missing out on a profit by not buying this share. There are plenty of other profitable trades/investments out there, and walking away from something that might be dangerous is a sensible thing to do.
The latest thing to rattle the market, is that Globo is apparently seeking to raise more debt (despite having large net cash), from a junk bond, with interest at 10%, which the company says is "mainly" for acquisitions totaling $150m+ over the next two years. So it doesn't sound as if the money is immediately required - therefore why on earth would they be happy to raise fresh debt on a 10% coupon, unless it was going to be used immediately, especially as they claim to already hold net cash.
The way it looks to me, this company is behaving as if it is financially stressed, and not like a company which has net cash in the bank at all. Which makes you wonder if it really does actually have net cash? We've seen with Chinese companies that the huge cash piles were fictitious, so there is a precedent here. Cash only ever goes into Globo, it never comes out.
Bulls in the stock just ignore all the above, and concentrate on the bullish updates being put out by the company, claiming ever-increasing user numbers for its software. I would definitely like to see some watertight, detailed, third party proof that their software really is growing profitably, as the company suggests. It seems to have left a very light, almost non-existent impression on the internet so far, which is another cause for concern.
The valuation scores on Stockopedia look good, amazing even. Too good! This was how Quindell and the Chinese AIM stocks looked a while ago too:
(see StockRank page for Globo - I had to delete picture, as it corrupted the article)
When the valuation scores look too good to be true, that in itself is a red flag - because the market is saying that it doesn't believe the accounts/forecasts!
Quintain Estates And Development (LON:QED)
Recommended bid - at 131p in cash, from Lone Star Real Estate Fund IV.
A post-script here as well, as we will probably be waving a tearful goodbye to Quintain, with a proposed takeover deal to take it private at 131p per share. The buyer is a huge property investment firm.
I once had the pleasure of attending a Quintain AGM, as David Stredder's sidekick, where I played a minor supporting role in his demolition of the (large) Board of Directors, over unsatisfactory corporate governance issues such as excessive remuneration, bonuses, failure to change auditors for many years, etc.
I don't think the QED Board had been challenged so directly on these issues before, and after the initial horror, and body language which was clearly saying "who the hell do these upstarts think they are?!", the Board gradually became more conciliatory as it became increasingly clear that David had done his homework well, and was raising valid concerns.
Anyway, after that AGM, and drilling into detail into their numbers, it became obvious to me that Quintain was a company which mainly exists for the benefit of its staff and Directors, so I sold my shares.
Anyway, the booming property market in London, combined with a takeover bid, mean that shareholders are now being offered an attractive exit, which I expect they will grab with both hands.
4imprint (LON:FOUR)
Share price: 1175p (up 2.4% today)
No. shares: 28.0m
Market cap: £329.0m
Interims to 27 Jun 2015 - smashing figures from this company are out today, as usual, it really is a class act.
Underlying profit before tax is up 25% to $12.19m - remember the company now reports in US dollars, as it is basically an American business, doing 96% of its turnover there. Underlying basic EPS is up a smaller amount, 17%, to 31.25 cents.
I like the way the company has been honest in its presentation of the results - by flagging up underlying profit, even though it's lower than reported profit. Often companies only headline the underlying figures if they are better than normal, but hide them if they are worse! So top marks here for clarity, and giving investors an honest evaluation on the numbers.
Outlook - comments are non-specific, but talk about a good outcome for the year. Broker consensus is for 24.5% EPS growth this full year, which is in line with the profit growth, but is more than the EPS growth in H1. This note in today's accounts is worth bearing in mind;
Underlying basic earnings per share was 31.25c, (H1 2014: 26.69c), an increase of 17%. This reflects an increase of 22% in underlying profit after tax offset by an increased undiluted weighted average number of shares in issue resulting principally from shares issued to satisfy options exercised under the PSP in May 2014.
So it sounds as if a material amount of new shares have been issued under share option schemes, which would need checking out, as that could cause the company to fall short of full year EPS forecasts perhaps? (EDIT: please see updated comments below at the end of this section, clarifying this point)
Also investors would need to decide whether share options are excessive or not? I've checked the 2014 Annual Report, and it seems that 1.43m shares (about 5% of the whole company!) were exercised under share option schemes last year, and nearly all of these were nil priced options - something I'm very much against. Share options should be given at the current share price, so that Directors and employees only gain from the additional value they create from today.
However, at the end of 2014 there were only about 343k remaining share options outstanding, so this looks to have been a one-off splurge of options being exercised.
My opinion - this is a smashing company, that consistently performs well. However it's also cyclical, so to be prepared to pay a PER of 21 times forecast earnings, you have to be very sure that there's not going to be a recession in the US any time soon.
The share count rising by 5% last year from share options is also a little worrying, although shareholders have done so well here that they probably don't begrudge giving away 5% of the company to Directors/employees. Although note how it has clipped EPS in H1 this year noticeably.
Given the additional shares in issue, the full year EPS target might be more of a stretch than the company is used to? Overall it's one of my favourite companies, but the price looks fully up with events for now.
EDIT: I've had three broker notes emailed to me today, all of which are upbeat on performance, and include small upgrades to 2015 forecast EPS. So it looks as if my concern above, about the EPS growth rate in 2015, is nothing to worry about.
Although my point about 5% of the company having been given to employees/Directors, thus meaning EPS will rise more slowly than profits this year, is valid. Brokers also point out that the H2 2014 comparatives are tough, so the business will have to keep firing on all cylinders if momentum is to be maintained.
Looking at the forecast EPS growth rates, they are slowing down considerably - e.g. one broker has adjusted EPS growth of 15.7% this year, falling to 11.8% in 2016, and 9.8% in 2017, so I think the company really needs to significantly beat those forecasts to justify remaining on a PER of over 20.
Overall then, a smashing company, but the price is looking a bit stretched to me. There again, it has looked expensive for ages, but keeps beating broker forecasts, so if that pattern repeats, then who knows, we could be looking back in a few years' time and saying that it was cheap!
Twitter Inc (NYQ:TWTR)
How not to do a conference call - yes I know it's not a small cap, but I am a big fan of Twitter as a service, and think they have created something unique, but haven't yet worked out how to make the most of it.
So I took a fairly large long position in the stock, with stop losses in case of bad news, ahead of the Q2 results. Anyway, I was delighted with the numbers, announced at about 9pm last night, as it was a beat against expectations on both revenue and profit. The shares shot up after hours (having been strong all day yesterday as people piled in ahead of the numbers), and peaked at $40 per share, before settling at $38 per share. Great, I was nicely in profit, as I bought in around $33 a few days ago.
Then the conference call began. I can't include the chart, as the graphics are playing up today, but literally from the moment Directors began talking, the shares (which continue trading after hours remember) started to fall, and fall, until one of the Directors explained how there were lots of things they needed to fix, and it was going to take a very long time!
By this stage, I was screaming at my PC, "Just STOP talking!" (that's the clean version).
It was the most inept conference call I've ever heard. Dull uninspiring, and focusing on the negatives, despite the fact that they had just beaten expectations! By the time the dreary (and mumbling) presentation had ended, the shares had plummeted almost 25% from the peak less than an hour earlier!
All I can say is that Twitter needs to find itself a CEO asap, and hopefully he or she will clear out the halfwits who did last night's presentation, as their first remedial action.
Isn't it sad when you see a great company, but run by idiots?
The worst thing of all, is that IG's dealing platform was playing up last night, so I couldn't put through any sell trades quickly enough, so I'd lost a packet by the time I could react.
It's not really relevant to today's report, but I just wanted to have a moan about it.
Right, I'll sign off now, before readers lose the will to live! (sorry it's all been rather negative today).
Tomorrow's report should be earlier, by the way.
Regards, Paul.
(of the companies mentioned today, Paul has no long or short positions. A fund management company with which Paul is associated may hold positions in companies mentioned.
NB. These reports are just Paul's personal opinions, and are never recommendations, nor financial advice. Please DYOR).
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38 comments
Hi all,
Re GBO, interesting to see how it stacks up compared to QPP, for which Paul listed the flwg indicators of legitimate concern :
(1) Too many costs being capitalised into intangibles
(2)Ballooning debtors & work-in-progress - nearly always a can of worms
(3)Far too many acquisitions, being done too rapidly
(4)Repeated fundraisings, and little to no dividends
(5)Amazingly low PER on exponential growth forecasts
(6)Suddenly switching the focus into new business areas
(7)Management with a poor track record - the amazing thing with Quindell is that it was almost a carbon copy of Rob Terry's disastrous reign at Innovation (LON:TIG)
(8)A business model that is too complex to explain - which means it's actually being obscured deliberately because there's something wrong
(9)Financial engineering of any kind - where you're left scratching your head as to why deals have been done in a particular way
(10)Rampy-sounding narrative to the results statements, e.g underlining or bolding growth figures & comments
(11)Gobbledegook management-speak in announcements, all designed to sound impressive, but with very little meaning
(12)Repeated clarification statements, or unscheduled trading updates when the share price is falling
(13)Sending solicitor warning letters to outspoken bears/bloggers/journalists, but then failing to take further action when they refuse to back down
I reckon you could reasonably apply 5 or 6 of the above to GBO, don't know enough about the industry to comment re (8) and (11).
ATB
Paul re Globo, maybe the buyers could not afford to pay for 100% of the business. But it certainly enabled Globo to achieve the prime objective. Which was to look less like a Greek company with major business operations in Greece. The way one views this depends on your view of the honesty of the directors. You seem to always assume the most dubious motives for everything in the case of Globo. Me I prefer to consider folks not guilty until proven otherwise. As it was sold to the management it might have been at a favourable price as is often the case but without knowing the operating position and detail finances of the subsidiary it is wrong to assume that it was completely dubious. Most investors seemed to welcome the deal at the time.
Roger,
Sorry, but this doesn't make sense:
Paul re Globo, maybe the buyers could not afford to pay for 100% of the business.
Given that Globo gave away the 51%, with a cash payment out, not in, in return for deferred consideration, then it would have been even easier for the "buyer" to buy 100% rather than 51%.
However, on this we can agree:
The way one views this depends on your view of the honesty of the directors. You seem to always assume the most dubious motives for everything in the case of Globo.
There's a reason why I don't trust the Directors at Globo - because the accounts are riddled with red flags. That puts me on guard.
Anyway, let's see how it all pans out. I will happily apologise to you & congratulate you, if you turn out to be correct on Globo in the long run.
Regards, Paul.
Simon Thompson of the Investors Chronicle published a bullish article on Globo on 5th August on the online version of the magazine. He believes what Globo's management is saying.
However, Simon also believed last year what the management of Naibu were saying, and look how that turned out!
Hi pka,
Well put. Simon Thompson is an excellent analyst, and I always read his articles, as he flags up some very interesting companies. However, his Achilles Heel is that he's incredibly gullible - so he just uncritically laps up whatever management tell him, never questioning whether it passes the common sense, or smell test.
As you say, he had (has?) a total blindspot on Chinese companies, and seems incapable of understanding that they are not what they appear to be. So not being able to see the glaringly obvious flaws in Globo is very much in the same vein, although perhaps not quite as extreme.
His latest article in IC where he basically teams up with Globo's CEO in an open attempt to cause a short squeeze, was in my view disgraceful. Should a magazine really be trying to participate in share price manipulation of this kind? Very much not, in my opinion. It's fine for him to give an opinion on a company, but to be a sycophantic mouthpiece for management of questionable track record, is I think very unwise.
The company management's threats to short sellers in Thompson's article is yet another red flag. Remember how Rob Terry buttered up a Shares magazine journalist to write gushing things about him & the company when he was really under pressure not long ago? It's a sure sign of desperation because things are going wrong.
Why would a company with significant net cash embark on a junk bond issue, at c.10% coupon? It's complete madness, and the explanations given by Globo are absurd. If they are worried about bank covenants, then why did they take out the bank debt in the first place, when they didn't need to borrow at all, given their large cash pile?!
Also, if the bank covenants scare them, they should just repay the bank debt in full, and still have a substantial cash pile to start making some acquisitions. Once they have proven that they can make good, cash generative acquisitions, then they could raise fresh funding at a far cheaper rate.
Doing everything the opposite way around, as Globo is trying to do, is bound to raise huge question marks. The only reason people borrow at a very high coupon is because they are desperate for money. Why would a cash-rich company be desperate to borrow at punitive rates? You tell me, I've never come across a situation like this before.
There are only 3 possible explanations that I can think of;
1) That the CEO is a lunatic,
2) That the cash has been stolen or otherwise disappeared, or
3) That there is bad news in the pipeline, so the company wants to get a Junk Bond issue away asap, on a now or never basis.
I am absolutely convinced that Globo is going to end very badly.
However, it's too small & risky for me to short, so am remaining neutral on it.
Regards, Paul.
I am prepared to concede you may be right about Globo , the lunacy of it's CEO, the theft of it's cash and the absurd explanations for wanting to borrow money at ~10% coupon.
You have no nagging doubts:
"I am absolutely convinced that Globo is going to end very badly.
Well maybe justafew:
"However, it's too small & risky for me to short, so am remaining neutral on it."
Regards,
Bonitabeach
Disclosure: Long: GBO
Hi Bonitabeach,
Well neither of us can be absolutely certain that Globo (LON:GBO) is either good or bad, because we have imperfect information. The only people who really know everything about any company are usually just its CEO and FD, in my experience. Everyone else is to some extent in the dark, and private investors rank fairly low down the list of people in terms of overall knowledge of any company, since nearly all our information on the company is coming from the company itself. There's virtually nothing on the internet about Globo that backs up management claims about the business.
So I don't think we can really verify anything much about the company, other than that it exists, and does have a software business. Whether the real figures are anything like the reported figures, who knows? Quindell (LON:QPP) and many other failures have shown that audits aren't worth the paper they are written on. Clearly previous auditors at Globo have probably balked at signing off the accounts, hence the change of auditor, twice. I don't believe the reasons the company gave to explain the change of auditors, having worked in the audit field myself.
I'll only change my mind on Globo when the figures & the way the company behaves, start to make sense - in particular its financing arrangements. Any rational FD would bang the table and insist that the bank debt was paid off immediately using surplus cash, thus saving something like E4m p.a. in superfluous interest charges instantly. I would also want to see debtors reduce to a sensible level (under 90 days, nearer 60 days preferably).
If and when it can put its accounts in order, then and only then will I stop banging on about the red flags in its accounts!
Regards, Paul.
He also believe Camkids and Polo and look at them now. Unfortunately some readers take his word as gospel until they get their fingers burnt. If ST cut out foreign companies and energy he would do a lot better.
Paul,
Nice article on twitter in alphaville
http://ftalphaville.ft.com/2015/07/29/2135745/twitters-active-user-problem/
Hi Roger.
You said:
Paul, re Globo your speculations are interesting but you do need to get the facts right. You say "inexplicable disposal of 51% of a subsidiary in order to get its figures off the balance sheet". The reason was very clear at the time - namely that they did not want to appear to be a Greek business for obvious reasons because of the financial crises in Greece which are still on-going, and disposing of the legacy stuff in Greece at a good price made very good sense. In any case the legacy stuff was irrelevant to their future market focus which is/was to sell Go Enterprise to the corporate IT sector and become a US focused software business. It made a great deal of sense to make that disposal so it is hardly inexplicable.
That's not the way I see it. You're taking the facts literally, and uncritically.
Why on earth would any group decide to sell 51% of a subsidiary? It doesn't make sense. If, as you claim, the intention was to dispose of the non-core, Greek (tainted) business at a good price, then the logical thing would have been to sell 100% of it. Indeed, I would agree with your points above, if Globo had sold 100% of their Greek business.
But they didn't do that. They sold 51% of it. Why on earth would anyone do that? There is only one credible explanation in my view - that they wanted to reclassify it as an associate, rather than a subsidiary for accounting purposes. It's so transparent as to be laughable, and I'm amazed that you can't see this (owning shares in a company can make one blinkered, I know).
Furthermore, you are factually incorrect in saying that Globo disposed of the Greek business "at a good price". This is simply not true. They actually <b>gave the business away</b>, with a large cash dowry, in return for deferred repayments spread over several years.
As with any sale on credit, it is a gift until paid for! So far so good on the payments, but I wonder if all the scheduled payments will be met? Often deferred payment deals like this result in at least a partial write-off later on.
Regards, Paul.
Some claim that Globo is a super growth stock
Others just think that this is a crock
Actions suggest that the cash has all gone
They report lots and Paul thinks there's none
Some investors will believe every excuse
That Globo give for balance sheet abuse
Always the promise of jam tomorrow
And fanciful reasons for needing to borrow
A 10% bond seems like a begging letter
Yet another prayer that things will get better
Is Globo a blackhole or is it a star?
My suggestion to you is DYOR
As usual. Very informative. Would Paul or anyone care to share their views of Nostra terra. Is this a stock I've just become too emotionally attached to. Thinking that some day it's going to rocket. Opinions please
Paul, re Globo your speculations are interesting but you do need to get the facts right. You say "inexplicable disposal of 51% of a subsidiary in order to get its figures off the balance sheet". The reason was very clear at the time - namely that they did not want to appear to be a Greek business for obvious reasons because of the financial crises in Greece which are still on-going, and disposing of the legacy stuff in Greece at a good price made very good sense. In any case the legacy stuff was irrelevant to their future market focus which is/was to sell Go Enterprise to the corporate IT sector and become a US focused software business. It made a great deal of sense to make that disposal so it is hardly inexplicable.
As a new issue - Clipper Logistics is doing pretty well.
I have never forgiven myself for bailing out of 4imprint at £2.71 and then £3.36 in 2010 and 2012 having more than trebled my money. I keep on thinking I should buy back in but the current price of close to £12 (a prospective p/e of 23 and yield of less than 2%) seems too steep for what seems a pretty tacky business - selling promotional pens, mugs etc. Clearly, I badly underestimated the potential of this company unlike Ken Minton, the former chairman who remains a big shareholder, and GVO/Strategic Equity Capital, the investment trust, which was increasing its stake during the dog days when its valuation was depressed by concerns about its large pension fund deficit, loss-making UK operations, and lack of obvious management talent. As a small cap investor without privileged access to corporate information I pay close attention to where Strategic Equity Capital is investing its money given its superior investment record. I note, for instance, that it has recently been building up a stake in Tribal, the education administration software company, which shares some of the same turnaround potential that 4imprint did five years ago.
Paul,
I really can't see how bitter and shelter rhyme!!
Sorry to repeat a question as suggests it may be something you don't have anything to say on, but I have followed your thoughts on French Connection and having done my own research like it. I bought in 52p and averaged down (something I don't often do) after the poor numbers. I note the share price has been quite weak in the last few days and there have been some sellers. My concern is that information leaks in these markets and on the whole I would always have been better to cut my losses, however as I said I like the story, I like Stephen Marks approach, I can see why the wholesale business works and why the retail doesn't. It all adds up except..........any thoughts welcome.
Hi Camtab,
There's not been any news from FCCN, other than the FD leaving (which is normally negative news), and I wrote up my thoughts on it most recently about 3 weeks ago here: http://www.stockopedia.com/content/small-cap-value...
The company is in a lot better shape now than it was a couple of years ago, but I wish they would accelerate the disposal of the loss-making shops, as that is what's holding back a decently profitable wholesale & licensing business.
It's dragging on though, so inevitably there will be a trickly of sellers, who may, or may not know anything. Maybe there is another profit warning on the cards? They last warned on 24 Apr 2015.
My view is the same - that as it stands, it's a lousy business. However, the reason for the losses are poorly performing shops. With the leases on average now only having 4 years left to run, there is an end in sight to those losses. So we should see a profitable business in 4 years' time, when hopefully most of the problem leases will have expired.
At the moment it's trading at only 2/3 of tang book value, which is very unusual, especially as most of that book value is working capital.
Personally, I'm in for the duration on this one, so we'll see where we've got to in 4 years' time.
The brand clearly has value, otherwise other companies wouldn't pay FCCN £millions each year to put the company's logo on their products, and consumers continue buying those products. So that reinforces my view that there is considerable value here, just currently submerged under the loss-making retail units.
Regards, Paul.
Paul, here's the transcript of the conference call:
http://seekingalpha.com/article/3367125-twitters-twtr-ceo-jack-dorsey-on-q2-2015-results-earnings-call-transcript?part=single
Great, thanks Jane. I will have a read of that tonight. I wonder if it will sound as negative written down, as it did live?
I've written a short poem on the subject, just to amuse myself;
Good figures were issued by Twitter,
But the conference call left me bitter.
Directors were speaking,
As share price was leaking,
Then went straight down the sh@#ter!
P.
Excellent!!
Thanks Paul.
It looks like the Stockopedia numbers for FOUR are wrong. Looking at the notes in their results, last year's underlying basic EPS were 73.48c, not the 65c on stockopedia. So full year growth to meet forecasts is 9%, and they've done 17% in H1 so have a good chance of beating. Of course, they're Q4 weighted (Christmas) but orders+21% is a good sign IMHO.
Hi Brothersinarms,
Thanks for that. Discrepancies can arise, depending on how Thomson Reuters (who supply the data) work it out - ie. they may be using unadjusted figures when we're using adjusted figures, etc.
I've got a new broker note for £FOUR in my email box, so will update the article now with figures from that.
Regards, Paul.
junk bonds are named so aptly......
if they were "credit worthy" on non junk status they could borrow at a lower rate....
regards
RE GBO I have read that the banks will not extend their loans. They did say this bond is to pay off debts and for aquistions. A 10% bond does look a bit desparate. There are doubts that they will raise the money.
Interesting, thanks Herbie.
This is pure speculation on my part, but the signs are (to me anyway) pointing towards £GBO's cash pile possibly having been stolen. Why else would they be taking out apparently unnecessary bank loans in the first place, and then trying to raise a junk bond issue to apparently repay the bank debt?
None of it makes sense. Or rather it would make sense if the cash pile had disappeared.
This has happened before with AIM listed overseas companies. I have no specific evidence for this, it's just a possibility, based on the bizarre behaviour of Globo in raising fresh loans whilst claiming to have a large net cash balance.
We know it did originally have net cash, because it was raised from shareholders of course, a couple of years ago. Where that cash is now though?.... who knows?
Regards, Paul.
Hello Paul,
The comments about the (alleged) cash pile of €82.8m having been stolen, disappeared, or current whereabouts unknown; all in only three paragraphs, smack of desperation. There are quite enough issues to be raised about Globo without wild speculation.
However,you are not the only one being totally negative about Globo plc GBO.
See:A Shorter's Meat & Drink
(You will note this is the only article "Market Mirage" has ever posted on this website.)
Globo is a small company and many of the more blatant frauds have taken place in very big companies like Enron/Olympus/Toshiba - there are fewer places to hide things in a small company.
Only two views seem to exist about Globo: total fraud (falsified debtors/cash/invoicing, ergo profits) or stockmarket rocket awaitng lift-off
I hold Globo (does this make me a "ramper"?) but Standard Life dumping shares is a big negative. Plenty of other well-equipped professionals must have had a hard look at Globo but nobody has owned up to buying yet.
In the 3 years ending 31 December 2014 MobileIron Inc. has raised €235.4m in debt/equity finance, Globo €79.1m. Now I wonder what they have done with all that money?
Interesting times.
Bonitabeach
Hi Bonitabeach,
I'm not going to get drawn into a slanging match on Globo (LON:GBO), I just report things as I seem them.
Feel free to disagree, that's what makes a market.
I am not saying that the cash has been stolen at Globo. I am simply making the point that the company's actions are consistent with a company which is financially distressed, not a company which has a large net cash pile.
The only logical explanation I can come up with, for the company's actions, is that the cash pile may not be intact. Time will tell if that supposition is right or wrong.
Regards, Paul.
Hi Paul,
Keep moaning if your dealing platform is playing up. These things need to WORK properly.
That's the number 1 priority & as far as I can see, some of these brokers spend too much time messing around with the website layout when they should be focussing on making it work reliably.
Perhaps the way forward is to follow the Singapore model where stocks are apparently held electronically & you can buy with one broker and sell with another. Seems like a damn good idea to me. If I cannot sell my holding via broker X, I can use broker Y.
Disclosure: IG shareholder, however b****** self interest, they need to provide a reliable platform.
I use Halifax, TD Direct & AJ Bell. Halifax seem to be the most reliable.
Jeff
Hi Jonesjeff,
In fairness to IG, I find their dealing platform is normally superb. It only occasionally goes wrong, and usually not for long. It was just a pity that it failed right at the crucial point I was rapidly gaining (and then losing!) a 5-figure sum on Twitter shares. Grrrrrr. Never mind, it's just one of those things. If it keeps happening, then I would move my business elsewhere, but 99.9%+ of the time their system works really well.
I don't think I'd ever buy shares in a SB co though, as all such companies are only potentially minutes away from going bust at any time, if their systems go haywire & start dealing at the wrong prices, and/or if their hedging fails, and/or if they are massively the wrong way exposed to some unforeseen aberration like the Swiss Franc decoupling from the Euro.
Regards, Paul.
"my allegiance is to my readers, not to the companies being reported on "
Thanks Paul. There is so much less conflict of interest when you have "skin in the game" rather than being a corporate broker, with a conflict of interest to both corporate and shareholders. Sadly the regulatory system doesn't recognise this.
Keep going.
Hi Paul, thought I'd get in early for tomorrow's report! If you get a chance to look at Victoria Carpets I'd really appreciate it. They should have an update tomorrow. Its been an amazing run, but starting to look stretched on value now.
Thanks
James
There once was a growth stock named Quindell,
Who's prospects the directors did kindle,
When the stock reached a high,
Rampers urged all to buy,
Which turned out to be a big swindle.
Why if RSTR just announced a 2/3rds stock dilution yesterday are the shares trading flat? There is no reported volume traded today on L1, there was not much yesterday either following the RNS. Makes no sense to me. Can someone answer this puzzle?
Paul, poems don't have to rhyme!
Anyway, your column is worth a sonnet, at the very least.
I'll work on that.
Best wishes,
Jane.
Poems you say?
Story stocks near always bring pain
Though once in a while they come right
Mostly its just your brass down the drain
Forever whisked far out of sight
Please yourselves ..
Paul, yes, better to avoid both story stocks and most IPO's.
Once in a blue moon they may come right.
Most of the time they are money down the drain.
They are the surest way of destroying decent returns.
Hi Jane,
Absolutely, I completely agree. My articles here bemoaning the performance of blue sky and IPO stocks are partly "memos to self", to reinforce in my own, as well as others' minds, that we have to be wary of these serially under-performing sections of the market.
As an aside, I thought you had written a poem above, so was very disappointed when it didn't rhyme! ;-)
Regards, Paul.