Morning folks,

I'm on the road, writing to you from a restaurant in rural Ireland. On the menu today we have:

Tungsten (LON:TUNG)

  • Share price: 52p (-5%)
  • No. of shares: 126 million
  • Market cap: £66 million

Trading Update

A trading update for the year ending April 2018:

  • "Achieved monthly EBITDA2 breakeven during H2-FY18"
  • "Operated profitably over January to April 2018 period"
  • "FY18 EBITDA loss narrowed to £4.6 million from £11.8 million in FY17"

The language used is a bit unfortunate - "monthly EBITDA breakeven" is not a thing.

Let's assume it means that the company was at EBITDA breakeven during some months, but not during others.

The next achievement: "operated profitably over January to April 2018 period" - again, this is awkward. Profitable businesses should have positive net income, not positive EBITDA. And focusing on the last four months of the financial year reduces the value of the claim.

Don't get me wrong - this is the best the company has achieved so far. But one short period of positive EBITDA does not a viable business make.

The company admits it has no idea when it will be positive on an EBITDA basis, from month to month:

The sales pipeline is well developed, although the nature of Tungsten's business is such that the level of conversion and the timing of sales on a monthly basis is unpredictable. While FY19 operating expenses are unlikely to exceed the levels of FY18, the ability to generate positive EBITDA in any month over FY19 will continue to depend on the quantum and timing of sales conversions as well as discretionary investment decisions in areas such as developing new products.

How about cash?

The EBITDA loss of £4.6 million plus capex resulted in a cash outflow of £11.1 million during FY 2018, leaving it with net cash at the end of the financial year of £6.4 million.

The Board considers that the Company has adequate working capital. In any event, Tungsten is able to flex discretionary spending should the expected level or timing of conversion of the sales pipeline into actual sales be behind management's expectations.

In other words - if sales don't materialise as…

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