Vianet-zero?

8th Dec '20 by mojomogoz

25 comments 1574 reads

Okay, zero is too much...but I think this stock is a short not a long

Vianet (LON:VNET) is a company I've glanced at in the past but never spent time looking. Today I looked a bit more as its got high recurring revenues, there's a chance of a delayed covid bounce back and it could have both value/recovery and compound growth potential.

My conclusion is to be a bit concerned for it. I feel it may be a company with a good business concept but poor execution and capability. Also, the cash position is weaker than they present and deteriorated much more markedly as a result of covid than their 'resilience' claim.

Some points to back the above:

Over prior two financial years there was a positive £1.6m impact to earnings from 'deferred consideration release' connected to Oct 2017 Vendeman acquisition - £1.1m fy20 and £0.5m fy19. This is negative as it means that Vendeman has not attained targets (pre covid hit). Mgt defend by saying say that the targets were very stretching.
£1.2m capitalised developments spend in hy21 released today (£300k higher than hy20...slightly odd given that times are hard during covid and the cynic in me thinks it could be as that's £300k boost to earnings YoY!). This spend has been running at around £2m pa for several years now. That's added back to earnings too....
...amortisation has picked up at £0.8m during half year reflecting the prior year increases so the net boost to earning only £0.4m (actually 0.35 fixing rounding)....
...that said, at fy20 there was £4.5m net book value of capital development of which £3.2m R&D in progress. Ie this means that the amortisation of that hasn't started. This could be positive in that it does translate into commercial revenues leading to 'good' amortisation in recognition of the investment....but it could be bad and lead to write downs of that (so non cash exceptionals through P&L)...both outcomes look the same on P&L but one implies successful investment and the other not
A combination of Vendeman release and CEO announcing departure today make me think that there's a high chance recent investment program hasn't been as productive as desired
In hy21 today they also showed a large £550k drop in PPE investment (obvs covid response) from £680k to £130k. This likely needs to be caught back up with
CBILS loan of £3.5m explains £3.3m increase in cash, so £0.2m…

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Mojomogoz

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25 comments

illiswilgig

9th Dec '20

A couple more observations on Vianet (LON:VNET)

I am always on the lookout for legacy companies transforming into new markets particularly into software. I've had good fortune with companies like Haynes and Science Systems most recently and am currently looking at D4t4 Solutions (LON:D4T4) and Eleco (LON:ELCO) is one of my larger investments.

A takeover can be an exit for long term builders of such companies once the growth starts to come clear. Even committed visionaries like Mr Dickson.

Somebody seems to be buying this morning? Volume quite high already and the price drifting up rather than down?

cheers

Mark

illiswilgig

9th Dec '20

Mojo - me again! Sorry.

Been looking at the cashflow when I can find a minute.

Yes, I was way off and took their presentation fairly much at face value - reality looks much worse and you make very valid points:

In hy21 today they also showed a large £550k drop in PPE investment(obvs covid response) from £680k to £130k. This likely needs to be caught back up withCBILS loan of £3.5m explains £3.3m increase in cash, so £0.2m cash loss without it. However, subtract £0.4m (net capitalised development), £0.55 PPE reduced spend and £1.4m net positive working capital and that's an extra £2.35m off of run rate cash. So

cash loss for half year is really £2.55m

But Playing Devils Advocate - or perhaps in this case Angel Advocate

FY20 Capex was 730k in total. Seems a bit worst case to assume that the 550k reduction in H121 needs to be reversed rapidly? It's quite normal to reduce capex in a tough year? It can be added back in slowly, if ever?

Not sure I understand your net capitalised development? where is that hidden?

Agree with the £1.4m net positive working capital - Though its a totally sensible reaction - it does hide cash spent.

So thats somewhere around £1.6 - £2m cash burn in H1 - best case?

To be fair they do say that they plan to spend the CBIL on development - so we should expect them to burn through the CBIL - and that gives them 12 months. or until Sept21 to fix the cashflow or finish the development? Or longer if cashburn is not so bad in H2 ?

And to be doubly fair, they have paid back the £1.5m overdraft they used to have, so they could go another 6 months, 18months total, in the worst case - before running out of cash?

But you are quite right, cash management is crucial, and I can see why you consider a fund raise likely. I think it less likely given the history of the company and chairman, but either way it must be close to the wire?

cheers

Mark

mojomogoz

10th Dec '20

illiswilgig, this was a great comment. You know the company well and have enlightened me somewhat.

The net investment point I made above is (capitalised development)-(amortisation) to get to the net cash impact.

You've edged me a bit more half full than half empty. I'm undecided and that is partly as I do not have a feel for the product and the developments they have undertaken (you make me think it really is a growth plan rather than my cynical defensive or catch-up investing). If they are tech and platform good...but needing a pick up in conditions and a sales CEO...then this can cook.

That said, its hard to see how H2 2021 is anything but a bit tricky:

pubs are closed or operating reduced volumes (after the hiatus idraft could be very interesting but they probably just don't commit right now)
Vianet might be a bit overstaffed in some areas (servicing more rapidly shrinking existing customer base) and understaffed elsewhere (sales people for new capabilities and biz)
they're still investing heavily. I thought they had come towards the end of the heavy investment phase!? My cynical perspective leaves me wondering whether keeping investment high and taking CBILs is a way to keep hold of staff for the future....that could be good or could be risky...certainly create cash stress tho short term

If they run H2 2021 like they did H1 2021 then they are going to eat cash reserves....if they win significant new business then the cash cavalry is coming over the horizon and the squeeze is bearable. However, if they don't win then the cash squeeze continues. My view is somewhat simplistic and shallow (as I do not understand the operationally dynamics of company well) but I tend to think think they will be looking for more external cash...

...the soft way to do that is tie it in with an acquisition/exciting new product. We've seen this game played quite a lot during time of covid. Unfortunately for Vianet it doesn't have a nice growthy narrative that sugars the pill...PIs have been happy to hand over dosh for speculative raises if the stock is fashionable. Its a bit like a constrained IPO madness...same sickness and side effects more generally...

So my hunch is that Vianet raise at decent discount. Plus the market might sniff this out and so push down the share price.

They probably need more/better sales people. This stresses cash too.

I'm going to look some more as this is interesting. I do feel I'll be waiting for an event and/or more evident stress through the balance sheet but I could be wrong.

Thanks for your responses.

illiswilgig

29th Dec '20

At the moment - it looks like the market agrees with you. The likelihood of tier4 extending and a tier5 being introduced has to play on minds - with the perception that a fund raise is more likely. Though with a vaccine rollout the end game has not slipped. yet?

cheers

Mark

HHR

26th Jan '21

In December's 2020/21 interims Vianet (LON:VNET) said recurring revenues for the prior half year were £6.9m (82% of £8.41m).

Quite a bit of that £6.9m doesn't seem to have 'recurred' as hoped, judging by the total revenue figure of £4.07m reported for the current half year!

I appreciate vnet has endured a tough trading environment but I can't see what is to be gained by trying to talk up the situation and hoping no one will notice.

Gromley

26th Jan '21

That is a little harsh.

In all normal circumstances those revenues would be recurring and AFAIK the contracts did recur, but clients were closed down due to pandemic conditions Vianet gave substantial discounts (can't remember off hand how much). They didn't have to do that, but increases the probability that those contracts will recur again next year and hopefully back to full price.

HHR

26th Jan '21

I suppose you are right Gromley but it just annoys me when companies try to confuse investors with PR spin.

And even allowing for the factors you mention it still seems a remarkably high portion of that recurring revenue has not stuck.

But I'm probably stating the obvious and no need to comment on it really.

Gromley

26th Jan '21

I do get the point you are making HHR and in fairness I have regarded some of the past statements from management as being over enthusiastic. However, I do think you are chasing the wrong rabbit on this ocassion.

You've prompted me to go back and look at the figures and the reductions offered.

Recurring revenues in H1 2020 were £6.9m

Recurring revenues in H2 2021 were £3.5m

Near enough a 50% reduction.

H1 covers the period April to September so pubs were closed for at least 50% of H1 (actually slightly more - but it becomes a very complex calculation).

I have checked back, and the reductions offered to closed pubs was a 70% reduction on the "rental fees".

So on balance I don't think there is too much blame that can be focussed on Vnet's management for this drop.

The bulk of the drop will be due to the discounts offered.
A further chunk will come from a number of pubs and pub groups actually folding.
Finally there may well still be some element of volume related charges within the "recurring" number, which even for pubs that re-opened will have been significantly lower.

I'm not totally sure on that last point as it depends how they defined "recurring" - it normally means business that we don't have to go out and win again from scratch, so it is not unusual for this to include some usage based revenues calculated on the basis of average past usage.

I haven't held Vianet shares for some while now (I previously held for an upside that always seemed to be just over the horizon) , but I might be tempted in due course given that having retained much of this business then a reopening from April will see a substantial recovery in (contracted) revenues with a bigger flow through to profits.

illiswilgig

15th Jun '21

Copy of what I've just posted on the SCVR - as a placeholder. I intend to revisit my forecasts and will post my updated figures here once I have a few hours to do the spreadsheet work.

Vianet (LON:VNET)

Thank you Mojo - that is the link I was looking for.

As you rightly say the results - 0.7m operating loss and 1.1m operating cashflow are as foretold in the April trading update so no surprise.

The results do give more detail on revenue and profit in the two divisions which is useful - I need a few hours to try to work that into a forecast if I can.

The price fall this morning looks like an exit by those looking for a quick profit?

My sense is that a return to pre-covid profits will be a stretch for this year FY22, due to the speed (or lack of it) of opening up - but FY23 should see a return to growth - primarily from the unattended retail (vending) division. I've seen nothing in the results to change that view and my existing forecasts are for 6.9p eps this (FY22) year and 10.4p eps in FY23

Accordingly I've added a few this morning at 96p, possibly unwise in advance of revisiting my numbers, we'll see.

cheers

Mark

superrupededupe

15th Jun '21

"Reviewing this has helped me to understand the market growth opportunity, recently expressed as 'unattended retail segment' , and to realise that you are buying into the vision of the long-term chairman and 20% shareholder who has recently spend considerable cash buying more shares. As it turns into a SaaS operation the ability to increase growth without increasing costs also rises - if it works gross margin and operating margin will rise considerably pushing up profits ahead of sales?"

I don't think much has changed from Mark's above summary in December.

Main thing of note for me was the clarity over executive leadership, in case it was ever in doubt:

"As announced on 8 December 2020, Stewart Darling stepped down as CEO and left the Group at the end of March 2021. Having held the role of CEO prior to Stewart, it was a simple transition for me to assume an Executive role again and presented an opportunity to make changes to the operational structure of the Group, and it is pleasing that the management team is now cohesive and fully engaged. The Board will keep the operational and Board structure under regular review but, at the current time, no immediate changes are anticipated."

I'm happy to maintain what for me is a meaningful position (8% of portfolio) but am not minded to add more until there is more clarity on whether they can capitalise on the long touted growth opportunity. Would be surprised and disappointed to see them do a placing.

Thanks

Doop

illiswilgig

18th Jun '21

Vianet (LON:VNET) Again!

For me this has always been about whether Vianet will get through the pandemic in the right shape to finally create some growth. Well we made it this far. So perhaps we can agree that Vianet is worth a tad more than zero? But how much more?

Finally got around to updating my numbers following the FY21 results earlier this week. Here are some extracts from my notes.

Vianet FY21 Results to end of March 2021

Revenue 8.369m (16.262m).

Loss -1.955m (2.431m)

eps -6.75p (8.47p)

but the loss is flattered by a tax credit of 867k, largely related to the R&D spend 2.312m (1.947m)

Loss before Tax -2.772m (2.516m)

Underlying loss -0.687m (4.030m)

which they calculate by adding back the (R&D) amortisation, exceptional items (restructuring and covid costs) and share based payments.

Debt 4.56m (1.334m)

Cash 1.894m(0.381m)

The debt comes from a CBiL loan of 3.5m. Which has funded the R&D - and to be fair the company did say that they would use it to fund the R&D.

Operating cashflow 1.052 (4.216m)

which looks as if it comes primarily from reductions in working capital of 1.2m during H1.

Under the circumstances, with pubs and bars shut for a large part of the year together with office locations (for vending machine) the -0.687m underlying loss and 1.052m operating cashflow have kept the lid on the debt and left them with 1.894m in cash (there was a note in the trading update that a futher 0.45m payment was received post balance sheet year end) and an unused overdraft facility of 1.5m.

Not that I am advocating they burn all this cash - but just to note that the need for a capital raise appears to have lessened somewhat? No doubt opinions will vary on this, but with the covid regulations easing from 12th April and 85% of their smart zone sites now open - it seems that will be generating cash now rather than burning it?

Where do we go from here?

That rather depends upon your view of the company prospects. Some, like myself, discovered Vianet as a cash generative value share paying a chunky dividend and with promises of future growth. Until the pandemic the magic cash machine, in the form of the beer-monitoring division now renamed smart zones, fairly much continued to provide just enough cash to support the chunky dividend and pay for the colossal R&D to provide the growth that never quite happened. But the chunky dividend helped the wait, though leaving the company with rather less cash on the balance sheet than would have been helpful in hindsight.

Probably should have paid a little less dividend or spent a lot less on R&D but that's history. Looking forward - are we going back to chunky dividends and low growth with a worse balance sheet, or is the promised growth now going to emerge phoenix like from the fires of the pandemic as the company speak would have us believe?

Here are my forecasts for FY22 and FY23

FY 22

Revenue 14.6m

Pbt 1.67m*

eps 5.7p

(* I've assumed zero tax based upon available reliefs and credits)

FY23

Revenue 17.9m

Pbt 3.36m

Profit 3.19m*

eps 11p

(* tax rate of 5% assumed based upon tax reliefs and credits - quite possibly an underestimate)

So it looks as if I have drunk the company koolaid? And long heralded growth is about to arrive?

Well, I've just presented my numbers. I've based this on the pre-pandemic FY20 and have reduced my forecast for FY22 eps - based upon the FY21 H2 starting point and the current slowdown in relaxation of covid restrictions. The FY22 forecast results in both revenue and profits below pre-pandemic levels (even accounting for the contingency release boosting profits in FY20) but that gives a good starting point for continued growth in FY23. The numbers can't lie. But they can be and most likely are wrong.

There are some useful pointers in the report that I've used to calibrate my spreadsheet. The figure of 94% smart zone sites still on contract, and 85% reopened as of April 12 - gives a steer on the revenue for smart zone revenue in FY22. For FY23 I've assumed that smart zone revenue only just gets back to pre-pandemic levels. But that operating margin achieves pre-pandemic levels thanks to the continued upgrade of sites. So there is some upside here if they sell more sites, but also downside if we go back into lockdown. You can't have that both ways - so I've modelled it on the basis of covid easing roughly as planned, maybe a little later and with no growth in smart zone sites.

So that means any growth has to come from Smart Machines? And to be fair this is pretty much what the company has been saying for the last couple of year. I've assumed that revenue growth in smart machines is around 10% in FY22 and that revenues and margins recover to pretty much the same as pre-pandemic - but that is increasing through FY22 and results in 15% increase in revenue and slightly rising margins in FY23.

To provide some support for this growth assumption, buried in the report are some useful figures for Smart Machine connections. During the year they added around 5,000 new contactless (payment) connections (vending machines) though because of the pandemic causing some reductions the overall level of connections remained constant at 38,000. Each connection generated £100 in revenue annually - up from £64 - which I think shows the positive impact of the covid restrictions on unattended retail, where those site remained in operation. Although operating profit per connection fell at the same time, largely due to the covid related costs and support. As well as an increase in the sales team. The enlarged sales team has a target for an additional 50,000 connections over FY22 and FY23 - which increases the number of connections being served by 230%. Significantly increasing revenue and profit in the smart machines division.

As it happens the forecasts I've used for revenue and profit from the smart machines division are low than would be achieved if the sales team hit these targets. To put them in the annual report - I am supposing that they must think them achievable? Which means that there is some upside of around £1m in revenue and £300k over my assumed figures if they hit these targets. And more if they go beyond.

My conclusion

Having had some successes with small companies overhauling their businesses and transitioning to digital - Haynes, Science Systems, Eleco and the like I've been looking for more under the radar digital transitioners. With a long term executive chairman, James Dickson, holding 20% and buying more at 90p during the pandemic, I think Vianet ticks those boxes. I think that my eps forecasts of 5.7p FY22 and 11p FY23 are achievable. My assumptions for FY22 are pessimistic but possibly not pessimistic enough - because of the uncertainty of relaxations, and that Vianet has some history here with things taking a bit longer.

There is upside beyond this if either the smart zones or smart machines division sell more connections. It's taken some years and burnt through a lot of R&D funding but under the covers the company has changed a lot. With over 90% of its revenues recurring (assuming covid restrictions easing) and most of that via its cloud based data-analytics and contactless payment software-as-a-service solution for which it appears the development has been completed and the product rolled out with good timing for opening up from the pandemic.

There are a lot of areas of the economy where an effect of the pandemic has been to force an increase in the pace of change - primarily through digitisation. Contactless payment being a prime example. The revenue figures from contactless payment smart machine connections seem to bear this out. In addition I think the growth of unattended retailing has only just started. The concept has a lot of potential, not least in busy transport hubs where personal contact is likely to be less desired in future as well as the applications of refuelling (EV's?) and contract kitchens - trials for which are mentioned in the recent report.

The smart zones division has held up better than might have been expected pre-pandemic. New installations use a common platform with the smart machines installations. With a change under way from simple beer-monitoring in a pub to installations where a hub connects multiple devices providing data analytics for flow-monitoring, linkage to tills, contactless payment, resource management and unattended retailing - probably more suited to bars and city centre venues than a traditional boozer. The US installation of around 300 sites, primarily in AMC theatres is an interesting example? On this basis - with the pandemic forcing the pace of change - there may also be a basis for future growth within the smart zone division? Which is not in my current assumptions

There is execution risk. They have developed the product but despite the signs it may not sell as well as I've assumed. Or margins may not be achieved. It doesn't help that the company has taken so long to reach this point and quite understandably views will differ on whether they will now succeed!

I have to admit I am not that certain of my own figures yet. The H1 results will do a lot to show how far adrift I am, and I think the short term risk is probably to the downside despite my pessimistic assumptions, but by H2 I think that reverses and the risk moves to the upside. It might pay to wait the H1 results and see? But then again..........

Accordingly I've nibbled a few more at around 94p and VNET is now my 9th largest holding with about 4% of my portfolio. I'll add more if the price weakens significantly.

If you've read this far - my commisserations and apologies for taking up your time with my waffle,

cheers

Mark

mojomogoz

18th Jun '21

Thanks. I'll get round to looking more again. I'd like it cheaper to de-risk more IMO...I probably wont get that

illiswilgig

18th Jun '21

Thanks Mojo. It's not for everyone. Just happens to tick my boxes. Most of them. You are right about wanting it cheaper. A bit of patience and that may happen. Since I bought a few around 60p its not so committing to top up with a few.

cheers

illiswilgig

13th Jul '21

Vianet (LON:VNET) AGM update this morning.

Nice waffly update with no figures. So I feel justified in waffling with no figures. But ooops - my forecast for H1 is 2p eps. And 5.8p for the FY. Couldn't resist some figures.

On the basis of this update that's looking conservative, but without more information I can't justify upping it yet - but risk is now firmly to the upside in my view. Why?

the Group's performance in the first three months of the financial year has been very encouraging, with profits higher than anticipated with both divisions expected to return to more normal trading during H2 2022.

Which is great but we don't know managements anticipations and there are no broker forecasts to help.

Our Smart Zones division is recovering in line with the UK pub market with almost 90% of pubs having re-opened by the end of June with a corresponding return to full billing

That is ahead of my H1 estimate. I estimated 94% of connections still in the network and 85% average return to full billing in H1.

The re-opening of pubs has resulted in increased demand for our draught beer market and retail data insight services as the industry seeks to understand its new 'normal' trading in the post restriction era.

My assumption that lost connections are not replaced with new sales looks to have been too cautious, with a potential silver lining from lockdowns, in that management companies need data analytics to improve trading insight - Smart Zones continues to impress. I had seen it as the cashcow in gradual decline but the addition of data analytics, contactless payment and unattended retail may just be a winner in the new normal for pubs and bars?

Meanwhilst over in Smart Machines....

we are benefitting from a material increase in the use of contactless payments and demand for remote connection to unattended retail assets, which has resulted in new contracts

I had assumed 10% growth in revenue and recovering margin based upon new connection numbers similar to H2 and below those targeted by management with the new sales team over the next 2 years. I had not assumed that ARR per connection would continue rising - conservative I know - so that looks as if my figures are too low as well.

For the moment I am happy to keep my figures where they are - whether H1 turns out to be 2p or 2.5p eps is not going to make the difference, but whether growth in connections is 10% or 20% will make a big difference in the longterm as will increased revenue per connection.

.....data capture from remote assets and contactless payment is generating significant interest, with field trials underway in the fuel forecourt and franchise kitchen sectors in the UK and internationally

The fuel forecourt business looks intriguing, particularly with the switch towards EV charging, more of a car-park with charging connections, contactless payment, 24 hour unattended retailing and a dark kitchen? I had to look up franchise kitchen sector - and that didn't help much, as all I got was outfits selling new or kitchen makeovers. But more than likely it's referring to franchise operations for chains rolling out and particularly dark kitchens. Again, unattended retailing and contactless payment and quite possibly resource management (from smart zones) as well? If any of this pays off then scalability should be good here, as it all uses the same cloud software, data and contactless payment units?

I find that quite encouraging? I also think there is scope for unattended retailing in 24hour pharmacies and other essential retail businesses. All I need them to do now is engineer in Zytronic (LON:ZYT) contactless multi-touch screens and I get to kill two birds?

My view? You'll have guessed its positive. I like unattended retailing and contactless payment as a future sector. This appears to be moving as I had hoped. Lockdowns are likely giving Vianet a tailwind with higher growth, based upon continued development, more sales resource and growing demand for contactless payment services, remote data analytics and unattended retailing. Based upon Vianet's history of slower than planned rollout and sales growth - the market is understandably sceptical and likely underestimates the growth rate coming out of lockdown. But then again I could easily be wrong and the market right!

My current forecast is for zero revenue growth in Smart Zones over the next 2+ years and 15% annual revenue growth in Smart Machines delivering

14p eps in the year to march 24,

260p shareprice.

- that is starting to look conservative with more risk on the upside as downside risk is receding?

cheers ( I'm still drinking the Kool-aid from the vending machine)

Mark

illiswilgig

27th Oct '21

Vianet (LON:VNET) H1 Trading update this morning.

Waffly as usual with few figures but we get

6.3m Revenue up 55%

Smart Zones now effectively fully back to normal trading

Smart Machines added 12.9% connections during H1

Subject to their being no further restrictions on hospitality and no restriction in the supply of semi-conductors they expect to reinstate a dividend for the full year.

What can I divine from the tea leaves?

Smart machines seems to be selling new connections at the rate I'd expected - maybe just a tad better. Looks like smart zones took a little longer to open up than my original esimates - and looking back I overlooked the extent of restrictions still in place in during Q1 - so my optimism needed tempering a little.

I am now forecasting 1.1p eps for H1 based upon the 6.3m revenue and 5.1p for the Full year.

It seems a positive update - with sales in smart machines on track - and for the future this should become the engine of growth whilst smart zones now trading normally through h2 continues to impress as the cash cow.

The unattended retail, contactless payment and data analytics markets look set to grow strongly coming out of the pandemic and with labour shortages so I like the market and the business. I've been adding to my holding since the shares dipped below 100p and may continue to add if they remain below 100p after this update,

cheers

Mark

mojomogoz

27th Oct '21

VG...vianet-zero was very much a catchy headline than a prediction. I haven't kept up with company. I felt I couldn't appreciate the growth outlook. At 18x current its pricey-ish...but what do you guessestimate as following year eps and growth trajectory?

illiswilgig

27th Oct '21

Hi Mojo,

Yes I got it was a catchy headline. I took it that way. No probs - it's good for me to be challenged. Less group think in the echo chamber.

By the way where did you get the 18x - the only figures I can see are for 300k profit 0.6p eps?

My estimate for the current year is 4.8p which does put it on 19x - but I've not seen any other figures around that???

This is one that I've watched for years and had a small holding in prior to the pandemic more as a value play originally. But the more I researched the unattended retail and the switch to service led data analytics I can see big market drivers for future growth.

I used the lows to add to my holding - and now thanks to that and the 50% gain its one of my larger holdings - but its about the future growth otherwise I'd be selling.

what do you guessestimate as following year eps and growth trajectory?

Well. Ask a simple question.

I guesstimate FY23 to March 23
revenue 18.6m
eps 11.7m
(underlying eps 17.7p)

That may prove to be hopelessly optimistic. But the depreciation and amortisation charge provides some gearing to the growth in eps in future years. Revenue trajectory is between 15-20% a year but earnings growth improves as operating margins improve more like 20-30%.

My confidence in these guesstimates. Medium. At least until I've seen the H1 breakdowns and margins. Maybe a bit higher, but...

Downside risk is much lower now that they have turned the corner. Still plenty of execution risk here even though they are on the pathway. They've built what I think is a very attractive product and service. They can still fail to win the business. Trouble is Vianet have form. It's either under the radar or investors remember it as beer flow monitoring. The big growth has been just around the corner for many years. It's always just around the next corner...........but then again......

This is a niche leader in a niche market that might..... just... become mainstream with the drivers of labour shortage and the pandemic to push unattended retail. Robo-barrista anyone? Unless you think there is a future there - probably better growth opportunities that will let you sleep sounder at night elsewhere, Vianet is unlikely to re-rate significantly until its proven the growth but when (if) it does I can see double or triple in a couple of years.

cheers

Mark

mojomogoz

28th Oct '21

blank

mojomogoz

28th Oct '21

Thanks Mark. The multiple was using your numbers quoted further above. I don't have a strong view as need to revisit to reassess. You've proven correct. The business has some attractions for sure.

illiswilgig

11th Jan '22

Vianet cropped up in todays SCVR as a result of a contract win RNS-reach announcement - I posted this overlong and waffly-ing response to Paul Scott's question

I cannot see why anyone would buy this share, when there are so many other, better companies out there? It's not even cheap.'

So the discussion seems to have moved onwards from danger of capital raise to what's the opportunity? Is there even an opportunity?

and am crossposting it here so that it adds to the VNET thread.

I topped up just before Xmas when the price fell to below 80p - and now have more than enough shares - with the rise to around 100p it's suddenly one of my largest holdings. So I'll be holding from here to see where it takes us!

Vianet (LON:VNET) (I hold)

Mcap £28m, EV £30.5m Revenue £8.4m

Now this is getting more interesting.

'Overall, VNET is an OK business - the Brulines business is mature/ in structural decline, but a cash cow. The vending operations seem very small, and despite positive newsflow over the years, haven't really moved the dial much.'

Thank you Paul - that's a fair summary of the past.

As you say, the company has some form on this - false dawns and slow starts over the years. Now the pandemic on top of that. Which doesn't mean that it won't come good in the end - but it certainly makes us more sceptical.

Is it a fair prediction of the future?

Well that all depends. It's certainly not without execution risk, but I think there is clear evidence that this is not the same company it was a decade ago - and similarly the prospects have changed.

'I cannot see why anyone would buy this share, when there are so many other, better companies out there? It's not even cheap.'

Well you did ask - so here goes. And it's ok I won't take that personally :-)

That's because I see it as a turnaround with growth prospects rather than the value share it used to be. At least that's the way that I look at it - and these are shares I like to find - having had some success with the likes Haynes, Eleco and similar. Both near 10 baggers for me, being apparently moribund businesses whilst transforming themselves into software and service companies. But they are not easy to find in the UK market and almost always come with some form of history and risk - otherwise they would not be overlooked?

So what's changed under the covers for Vianet? This is the opportunity and the bit I always struggle with expressing. So apologies if this is overlong and waffly-ing.

The business has always been about the data. It still is but the old telemetry box (which monitored beer flow or counted mars bars) is now an internet hub capable of connecting one machine or many machines in a zone with virtually limitless sensors and actuators as well as software - and the icing on the cake - contactless payment services ( they bought the payment services company over a decade ago - but its only just coming into its own).

But Vianet don't make the hub anymore - they've outsourced it. They've spent the last few years building a cloud based real time data analytics and management platform sold on a Software as a Service basis. Which has the effect of depressing revenues whilst annual recurring revenue grows. This has particularly been the case in the smart machines (currently mainly vending) division where the change from capital box sales has masked the growth in annual recurring revenue. The revenue is still about the same - though its hard to tell with the pandemic effects - but where it used to be 80% capital sales and 20% recurring - now its 80% recurring and 20% capital sales. At the same time old sites and machines (offices for example) have been shaken out by the lockdowns – and replaced by new smart-machine connections. A far better base to move forwards from?

Talking of depressing revenues - there is also the pandemic to consider.

I've also been of the popular view that the old beer monitoring is a business in gently decline. Indeed I've been pleasantly surprised by how resilient its been as pubs shut. Largely that's because the old brulines equipment has been 'upgraded' to the smart-zone system with data analytics and reconciliation to the epos system available to the customer via the cloud platform in real-time across their whole estate. Contactless payment and vending connections being options in the zone. It turns out - that with lockdowns and rolling restrictions - the old stable business of bar sales has changed abruptly. Sales are much more volatile than they used to be and real-time data is much more valuable. As a result of the pandemic - smart zones could well be a growth division. But not in wet-led pubs that were the core of brulines. The future is more like the 300 site AMC theatre installation they have in the US?

In the smart machines division - the opportunity for real-time data analytics and management has been transformed even more and also more quickly by the pandemic. Vending services are now referred to as 'unattended retailing' and have the advantage of being much more resilient in the face of a lockdown as well as removing the cost of labour. Though I have to say I am not at all a convert to the idea of doing my shopping from a machine - let alone drinking in a pub with no annoying bar staff! But I can see the opportunities?

Even more ironic - is that Vianet sold their forecourt fuel flow monitoring division for a good profit a few years ago and reinvested the proceeds into the development of their software service. Now it appears that the future of fuel flow will be transformed over the next decade or two - and its all unattended retailing - with flow monitoring of energy and contactless payment - already in trials for Vianet's new platform. But that's classic Vianet jam tomorrow?

Back to the present. I agree that this mornings release is just newsflow. Though the number of connections is something we can hang a figure on - the last AR clarified the revenue per connection for the smart machines division at something just over £100 annually if I remember correctly. Which would put the annual recurring revenue from the 3000 initial connections at around £300k plus the installation/connection costs for the box. Virtually zero reveue in this year to end of March.

All that does is confirm that - on its own - its not signficant. Though if more of the estate of 10,000 machines comes on board then it starts to look better.

But I don't think that’s the point of this rns. The division has a sales target of 50,000 connections over the 2 year period ending in march2023 - though personally I'd give them a little longer to achieve this -which helps to put this contract into some context? And based upon the same £100 per connection would be an annual recurring revenue increase of £5m.

Anyway this has turned out to be a lot longer - and more descriptive note than I'd prefer.

I fully appreciate that this opportunity will not be too many investors taste. Not yet anyway – indeed I’ve been counting on it. I’d much prefer that the shareprice reflects actual progress – rather than become another overhyped tech transition.

Hopefully I've given a flavour of the reasons why I see this as a company in transition from a moribund beerflow and marsbar vending machine outfit to a cloud data analytics and management plaform making realtime data available to customers based upon hospitality venues and vending in the present but with a much wider range of applications in the future.

FWIW the eps this year (to end of March) will likely be just above zero - say between 0.3 and 0.5p - but that does reflect an H1 with partial lockdown and many restrictions. The pile of goodwill and intangible assets hides the underlying profitability. I forecast 6p. 11p and then 19p eps for the years end march23 - end march25. But that's my glass-half-full view. I’ll need to revisit those figures when I get to see the H2 underlying earnings - and there are a lot more customers for them to win before these figures become a reality - though the technology is now in place and today's win helps to show that they are actually on the runway .

Cheers

Mark

Vianet-zero?

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