A trading statement from Ten Alps (TAL) brought a football chant to my mind yesterday. I'm not a holder of shares in TAL, never have been and never will be, but all I could think of was "Are you DCD Media in disguise, are you DCD Media in disguise etc."
Doesn't really roll off the tongue very easily perhaps, but regular readers will understand why I'd avoid Ten Alps like the plague following my experiences with DCD Media.
Both companies operate in virtually the same highly precarious sector. Neither company appears capable of making a profit. Both have undergone a name change, DCD Media was formerly Digital Classics and Ten Alps is soon to be Zinc Media. Their respective balance sheets are stuffed full of worthless goodwill and intangibles and they're both full of hot air and bluster when it comes to future predictions. You can rely on both companies to disappoint investors on a regular basis.
Let me illustrate. From the March interims, TAL's outlook statement was short, sharp and straight to the point:-
"The Company remains on track to generate a full year profit for the first time in a number of years and to continue momentum into the medium term."
Wow!! Fill your boots boys and girls. A micro-cap company about to become profitable with momentum behind it. Sounds exciting and also suggests good visibility.
Two months later we have:-
"Whilst the Company does not yet have total visibility on its full year results, the Directors believe that the Company will fall materially behind market expectations for the year ending June 2016."
and
"These continued losses are likely to result in the Group not being profitable for the year as a whole, albeit the Directors do expect some improvement on the losses recorded in FY15."
I do like the phrase "not being profitable" though, so much more palatable than "making losses".
Anyway, enough said. "Are you DCD Media in disguise......."
Thursday, 19 May 2016
Surveillance indicates ex-growth
Regular readers of my blog will remember that I have commented on the IP-CCTV company Indigovision several times. Most recently in 2013. After today's lack lustre trading statement
(http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/IND/12821676.html)
from the company it appears that nothing has changed. Here's a reminder of the blog written back in July 2013:-
http://michae1mouse.blogspot.co.uk/2013/07/indigovision-disappoints-again.html
I don't have much to add really, however over the years I have realised that when you invest in a company in a 'hot' market sector then you must remain vigilant. When warning signs appear that the company you have invested in has lost it's competitive advantage and it's momentum then cash in profits.
At the current share price, and given that Indigovision's current TNAV is above it's market capitalisation then I wouldn't rule out a bid for the company. Will it ever be a multi bagger again though? Very unlikely in my opinion.
(http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/IND/12821676.html)
from the company it appears that nothing has changed. Here's a reminder of the blog written back in July 2013:-
http://michae1mouse.blogspot.co.uk/2013/07/indigovision-disappoints-again.html
I don't have much to add really, however over the years I have realised that when you invest in a company in a 'hot' market sector then you must remain vigilant. When warning signs appear that the company you have invested in has lost it's competitive advantage and it's momentum then cash in profits.
At the current share price, and given that Indigovision's current TNAV is above it's market capitalisation then I wouldn't rule out a bid for the company. Will it ever be a multi bagger again though? Very unlikely in my opinion.
Saturday, 7 May 2016
Well.i.am
I've mentioned 7digital before on my blog since I inadvertently acquired shares in this company through an investment in UBC Media. 7digital reversed into UBC media in 2014. I have carefully watched the progress of 7digital since the reversal, and recently started increasing my holding in the company.
For an overview of what 7digital actually does and for an idea about the size of the opportunity that exists, I'd recommend watching the following interview with CEO Simon Cole:-
https://vimeo.com/152277844
Let's deal with the risks first. 7digital has been loss making to date and is likely to report further losses this year. Cash burn has also been an issue, and this year the company reported a cash outflow from operating activities of £4.7m (2014: outflow £6.3m). Cash on the balance sheet at the end of December was around £1.66m.
Clearly, unless cash burn is reducing significantly then the company will need to raise more cash otherwise they could be in trouble.
Why I have invested then? Several reasons.
I love the business model which seems to be gaining considerable traction and the company is anticipating that it will be generating profits by the end of this year. Monthly recurring revenues are growing strongly, as are gross margins which suggests that cash burn will rapidly reduce. If all goes to plan then in future years 7digital will be highly cash generative and visibility of earnings will be strong. Eventually, it could throw off cash for further investments and hopefully dividends.
Interestingly, the "going concern" statement does not hint at a further cash raise, although in my opinion it can't be discounted. However, either way, if the company can reach cash flow positive without a raise then that would be a superb achievement, but even if a raise is necessary then it's likely to be for a relatively small amount and would be seen as a positive since they have re-iterated their belief that they will start to turn a profit at the end of this year. It's also worth remembering that 7digital is debt free.
7digital is currently valued at around £8.5m which could be a price anomaly caused be two recent events. IMG were a major share holder in 7digital. IMG's woes meant that they decided to offload their entire shareholding. This was followed closely by the departure of Ben Drury (founder of 7digital) who resigned to pursue other non-competitive opportunities. Drury was another large share holder. He also decided to offload his shareholding. Both these events caused a slump in the share price. The good news is that the shares have been taken up by Henderson and Miton Group.
Returning to the market opportunity for 7digital, it's worth noting that they are operating in an area where barriers to entry are high. From the annual report:-
"Our unmatched combination of market leading technology, broad music rights and deep industry relationships can create significant barriers to entry for others in the sector."
This week, news that one of their main competitors, Omnifone, has gone into administration gives 7digital a further fillip since it provides a real opportunity for them to become the dominant force in this exciting and growing market place.
Again from the finals:-
"Our pipeline is strong, with a healthy number of current customers looking to expand their activities and, as of the year end, discussions were underway with over 60 new prospects across a range of services and geographies."
Since then the recent trading statement has indicated that six of these have been converted already with a total value of £3.9m. On Thursday they also released details of a contract win with musical.ly and a further strengthening of their relationship with i.am+.
Finally, referring back to Simon Cole's interview, if they can capture even 30% of their market, estimated to be £0.25 billion in the next three years, with gross margins already approaching 70%, strong recurring revenues and a reasonably tight grip on expenditure then some simple mathematics will tell you just how massive the company could be. Of course you should always bear in mind that this is a new space that they are expanding into, and hence estimating the market opportunity is quite difficult. As ever, do your own research. Are you going to invest? Well.i.am.
For an overview of what 7digital actually does and for an idea about the size of the opportunity that exists, I'd recommend watching the following interview with CEO Simon Cole:-
https://vimeo.com/152277844
Let's deal with the risks first. 7digital has been loss making to date and is likely to report further losses this year. Cash burn has also been an issue, and this year the company reported a cash outflow from operating activities of £4.7m (2014: outflow £6.3m). Cash on the balance sheet at the end of December was around £1.66m.
Clearly, unless cash burn is reducing significantly then the company will need to raise more cash otherwise they could be in trouble.
Why I have invested then? Several reasons.
I love the business model which seems to be gaining considerable traction and the company is anticipating that it will be generating profits by the end of this year. Monthly recurring revenues are growing strongly, as are gross margins which suggests that cash burn will rapidly reduce. If all goes to plan then in future years 7digital will be highly cash generative and visibility of earnings will be strong. Eventually, it could throw off cash for further investments and hopefully dividends.
Interestingly, the "going concern" statement does not hint at a further cash raise, although in my opinion it can't be discounted. However, either way, if the company can reach cash flow positive without a raise then that would be a superb achievement, but even if a raise is necessary then it's likely to be for a relatively small amount and would be seen as a positive since they have re-iterated their belief that they will start to turn a profit at the end of this year. It's also worth remembering that 7digital is debt free.
7digital is currently valued at around £8.5m which could be a price anomaly caused be two recent events. IMG were a major share holder in 7digital. IMG's woes meant that they decided to offload their entire shareholding. This was followed closely by the departure of Ben Drury (founder of 7digital) who resigned to pursue other non-competitive opportunities. Drury was another large share holder. He also decided to offload his shareholding. Both these events caused a slump in the share price. The good news is that the shares have been taken up by Henderson and Miton Group.
Returning to the market opportunity for 7digital, it's worth noting that they are operating in an area where barriers to entry are high. From the annual report:-
"Our unmatched combination of market leading technology, broad music rights and deep industry relationships can create significant barriers to entry for others in the sector."
This week, news that one of their main competitors, Omnifone, has gone into administration gives 7digital a further fillip since it provides a real opportunity for them to become the dominant force in this exciting and growing market place.
Again from the finals:-
"Our pipeline is strong, with a healthy number of current customers looking to expand their activities and, as of the year end, discussions were underway with over 60 new prospects across a range of services and geographies."
Since then the recent trading statement has indicated that six of these have been converted already with a total value of £3.9m. On Thursday they also released details of a contract win with musical.ly and a further strengthening of their relationship with i.am+.
Finally, referring back to Simon Cole's interview, if they can capture even 30% of their market, estimated to be £0.25 billion in the next three years, with gross margins already approaching 70%, strong recurring revenues and a reasonably tight grip on expenditure then some simple mathematics will tell you just how massive the company could be. Of course you should always bear in mind that this is a new space that they are expanding into, and hence estimating the market opportunity is quite difficult. As ever, do your own research. Are you going to invest? Well.i.am.
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