Good morning, it's Paul here.
Estimated completion time - today's report has to be finished by lunchtime, as I'm off into London for a meeting in the afternoon.
EDIT at 12:20: today's report is now finished.
Market hours
The Telegraph reports that consultations have recently started, to consider shortening equity market hours in London. This is designed to promote diversity, and more flexible working practices, so that e.g. working parents can have more childcare friendly working hours.
Revised market hours of 9 am to 3:30 pm (instead of 8 am to 4:30 pm currently) is one proposal.
I wonder if investors are going to be consulted on what we want? Personally I would love to have a later 9 am start to market hours, providing the RNS were still to start at 7 am, thus doubling the amount of time we have to digest company announcements before deciding whether or not we want to place any buy or sell orders.
An earlier finish at 3:30 pm (or even 3 pm) would also open up the opportunity for some companies to release results & trading updates after hours, as they do in America. Thus giving everyone plenty of time overnight, to pore over the detail of results, if they wish.
The counter-argument, for keeping existing hours, is so that London is open at the same time as Far Eastern markets in the morning, and USA in the afternoon.
If anyone spots a consultation aimed at private investors, let me know, and I'll publish the link here, so everyone can have their say. The existing trading day seems far too long, with long periods of inactivity from late morning, through to mid-afternoon in many small caps. Shortening the day seems very sensible to me, from a small caps perspective.
Avanti Communications (LON:AVN)
This satellite operator was an obvious basket case, for years, due to massively excessive debt, and trading losses. Shareholders were diluted by over 90% when the bonds were converted into equity. Given that the bondholders own the bulk of the company's equity now, there's little free float, hence no point in maintaining its listing.
Therefore it has decided to delist, becoming a private company. Therefore investors who cannot hold shares in a private company, will need to sell up for whatever they can get in the market, before the shares delist.
The last day for trading in the market is expected to be 17 Sept. That's one less rubbish company for me to report on, so I'll be glad to see the back of it. Talking of which...
MySale (LON:MYSL)
Share price: 2.6p (down 47% today, at 08:44)
No. shares: 154.3m + 500m (minimum) new shares + 100m (est.) open offer = c.754m
Market cap: £4.0m before fundraising, c.£19.6m after
This struggling Australian discount eCommerce company is trying to raise £10m through a placing at 2p, a deep discount of 58% to last night's 4.75p close. This is to bail out the bank, paying off bank debt. It sounds as if the bank might be taking a haircut, but it's not clear from the RNS.
Current trading is poor. Costs are being cut deeply.
The company seems to be changing its business model, and unwinding its own buy inventories.
New options scheme - this is taking the p#*$ in my view, given that existing management have run the company into the ground;
The Board believes that following Admission, the success of the Group will depend to a significant degree on the future of the Directors and senior management team, as well as recognising the importance of ensuring that employees are well motivated and identify closely with the success of the Group.
Accordingly, the Board expects that following Admission, it will introduce a new share incentive scheme to replace any existing share incentive arrangements. It is envisaged that share options and incentives will be granted over a maximum of 10 per cent. of the enlarged issued share capital.
My opinion - management screwed up the first time around, so why would it work the second time around, with an amended business model?
On the positive side, this deal (if it completes) would get rid of the bank debt, thus removing the biggest threat to solvency (of bank pulling the plug). The alternative to this refinancing would be the company going bust, or being taken private by management.
For punters only at this stage, I think. Also, I'm stumped as to why the share price is currently at 2.6p, when there is massive dilution coming at 2.0p. The new share count will be almost 5 times the existing share count. Therefore anyone buying in the market at 2.6p now, is over-paying.
I learned two things from this share;
1) If a company issues a positive trading update, but the share price only briefly blips upwards & then relentlessly continues falling, then something is wrong and has not been disclosed. That's exactly what happened here in autumn 2018. Then, several months later, there was a bombshell profit warning (Dec 2018). I learned this lesson the hard way, as I was buying on the way down, after the positive trading update. The sellers must have known that the positive trading update was untrue, and they basically stole my money, the way I look at it.
2) A change in Australian VAT rules had a big impact on MySale's gross margins. As a UK investor, I've got no idea what Australian VAT rules are, and hadn't even thought about it as a potential risk. This has reinforced my usual aversion to investing in overseas companies - where I am at an informational disadvantage.
It's not so bad losing money on something, if you learn some useful lessons from it.
Tracsis (LON:TRCS)
Share price: 630p (up 6% today, at 09:57)
No. shares: 28.75m
Market cap: £181.1m
Tracsis, a leading provider of software, hardware and services for the rail, traffic data and wider transport industries, is pleased to provide the following trading update for the year ended 31 July 2019.
Overall this sounds good, but note it's only in line with expectations -
Group trading for the year has again been strong, with the second half performance being particularly pleasing. Revenue, EBITDA and Adjusted EBIT for the year are expected to be in line with market expectations1 and ahead of the previous year2 with a good mix of organic and acquisitive growth across the Group. The Board is pleased with the growth and performance in the year.
1 2019 market expectations: Revenue £46.7m, EBITDA £10.4m, Adjusted EBIT £9.6m.
I absolutely love it when companies provide a footnote, giving the figures for market expectations. Why can't all companies do this?! It saves everyone time, and prevents misunderstandings. Although it would have been helpful if they had also included the adjusted EPS forecast.
Cash - there's lots of it, £24m (and no debt). That's equivalent to 83p per share, or just over 13% of the market cap. Very healthy indeed, and this provides a war chest for further acquisitions. The group has been successful at making good acquisitions in the past. Therefore, this justifies a premium PER rating for this share, in my view.
New CEO is now bedded in. It's good to hear that the popular & very successful outgoing CEO, John McArthur, is still involved in M&A here -
John continues to work with Tracsis in a part-time advisory capacity primarily supporting our M&A activities. The pipeline of prospects remains as strong as ever.
Valuation - Stockopedia shows it on a PER of about 22 times FY 07/2019 EPS, dropping to 19.6 times in FY 07/2020. When you take into account the cash pile, that looks perfectly reasonable to me.
Broker update - there's an update from the house broker, available on Research Tree. Just to double-check my figures above, it shows 27.2p EPS for FY 07/2019. That comes out at a PER of 23.2 times. The slight discrepancy from my figure of 22 times above, is down to the share price being up 6% today. So that's all fine.
FY 07/2020 forecast is 32.1p EPS, for a PER of 19.6 in what is now the current year.
For companies with significant net cash, I like to recalculate the PER, stripping out the cash. In this case, the 630p share price would drop to 547p by taking out the 83p per share cash pile. Divide that by 32.1p forecast EPS for this new year, and the ex-cash PER is 17 times.
My opinion - this gets a firm thumbs up from me.
There's more detail in the RNS, but you can read it yourself if interested. I've only covered the key points.
I like Tracsis - it's a collection of interesting niche businesses, well put together by John McArthur over the last c.8 years, delivering superb shareholder value - about a 12-bagger. Nobody can complain at that!
Is it worth buying now? Who knows, I can't predict the future. But based on its excellent track record of generally meeting or beating expectations, and reasonable rating, plus the cash pile, I think this looks quite an attractive place to park some long-term money.
Another consideration is that it shouldn't be affected by Brexit uncertainty or disruption, since it's main operations are software, not physical goods, and is mainly UK. The rail franchise contracts, and multi-year rail infrastructure spending plans seem to be the main drivers, which can occasionally cause a temporary wobble.
Stockopedia is positive about Tracsis - a "High Flyer" classification, and a decent StockRank
Tribal (LON:TRB)
Share price: 65.5p (down 9% today, at 11:43)
No. shares: 199.2m
Market cap: £130.5m
This group provides software & services for education management.
H1 being reported today is the 6 months to 30 June 2019.
Adjusted operating profit is flat at £6.3m for H1
Full year earnings expected to be in line with the Board's expectations, subject to winning the Middle East inspections work in H2 - so there's some risk of a profit warning presumably if that work is not won.
Balance sheet - not great, with NTAV of minus £6.5m. Like a lot of software companies, it's funded by customers paying cash up-front. Therefore a weakish balance sheet is not necessarily a problem.
Cashflow statement - note that it capitalised £3.0m into intangible assets in H1, thus rendering EBITDA meaningless.
My opinion - at a quick glance, I can't see anything in these figures that makes me want to dig any deeper.
Looking at the trend of profitability, it seems to be recovering quite well from previous mishaps.
Legal matters - I almost forgot about this. Tribal has a substantial, disputed legal claim against it for a software platform vendor. There's also been a recent data breach. All of which makes me nervous, introducing potentially significant financial uncertainty. If the legal stuff goes badly for Tribal, then I think it would need to do an equity raise, which would probably have to be at a lower share price (maybe much lower). Why take the risk?
I've run out of time for today, but a couple of very quick comments;
Kin and Carta (LON:KCT) - this is the new name for St Ives Group. It says that performance for FT 07/2019 is likely to be "marginally lower than market expectations".
I'm not keen on the management speak about pillars, and digital transformation, etc.
I had balance sheet concerns about this company in the past. Don't have time to check it out now, but just wanted to flag possible issues so subscribers are aware.
Persimmon (LON:PSN) - another large housebuilder reporting that things are healthy, and it sounds optimistic about the prospects for H2. Completely at odds with all the press commentary about Brexit worries, and households deferring big ticket items. They're clearly not deferring buying new houses though, which doesn't fit the widespread gloomy narrative. It seems that very attractive mortgage deals, and Help to Buy, are propping things up nicely.
I have to leave it there, and managed to cover everything I wanted to, in the limited time available today. As always, thanks for your comments below, which I nearly always read, and often find very interesting.
Best wishes, Paul.
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