Disappointing results - SAL, SAL, SAL?

It's always a jolt when a company issues unexpectedly disappointing results, particularly when there's been no prior warning. That's exactly what Space and People did last week which caught investors unawares.

I took a stake in Space and People (SAL) in a couple of tranches back in December 2016 when the company had been in the doldrums, and the share price was in the low 20s and mid teens. From my research I had anticipated a recovery and was duly pleased that a recovery in fortunes did indeed occur in 2017. The company returned to profit, good cash generation and the restoration of a dividend. In fact the dividend alone meant a nice 7% return on my investment. The shares shot up into the mid thirties and until last week I was sitting on a nice capital return.

However, the interims results disappointed and full year results are anticipated to be below market expectations. With the dividend included, I'm back to a mere 1% paper profit.

The shares retraced around 35% last week. It appears a little harsh to me, and I'm happy to sit tight and see how things pan out for the rest of the year and hope they get back on track again in 2019.

SAL is currently valued at £3.9m. Whilst results for the full year will disappoint, they do expect to report a profit of around £200,000 and they have a solid balance sheet with net cash around £510,000 and no debt. Whilst there was a cash outflow of £1.72m in the first six months, this is a seasonal business and they may still pay a small dividend, although I have assumed this from the following statement, "The group will generate a profit this year and it is the Board's intention to maintain our dividend policy." The all important Christmas period is yet to come so fingers crossed that they deliver on revised expectations.

All eyes on 2019 then where they make the bold statement:-

"We are confident that we can regain sales momentum for next year which combined with the costs savings already identified. Our 2019 forecasts being unchanged despite the lower than anticipated 2018 outturn."

If they do this then the shares will be the bargain that I originally hoped. Meanwhile, at SAL's lowly market cap. and with a solid balance sheet, the shares have little downside and plenty of bad news already priced in.

I do like what SAL offer as a company and I'm sure that in a tough retail environment then companies will need their services short, medium and long term. Here's their website and recent half-year results:-

http://www.spaceandpeople.co.uk/

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/SAL/13808000.html

Finally, George Watt (Non-Exec Chairman) bought around £20,000 of shares immediately following the interim results in a vote of confidence. I also notice that the share price has ticked up marginally today on a 145,000 share purchase (around £30,000) which I'd suspect may be another Director purchase, although this is speculation on my part.

As ever DYOR. I own shares in SAL and don't recommend buying or selling.

twitter: @michae1mouse

 

On the brink of collapse? What makes a company insolvent?

One of the things that brings fear into the hearts of all investors is when a company fails to release it's results until after hours on the last day before it would be suspended from trading.

That's exactly what a company called Premaitha Health did yesterday (Friday 28th September). Their full year results and details of a proposed placing were released at around 6pm. Gulp! Were investors right to be fearful. You bet they were! In short this company needs massive cash injections just to keep the lights on. I'm not an accountant, but I do wonder if the company is even solvent? I'll explain below.

I've mentioned Premaitha before in a blog post last year as "one to avoid at all costs." Even more reason to avoid now since one of two things will happen. Either the company will fall into administration or shareholders will be diluted into oblivion. Neither option is palatable.

Where do we start? Let's start with the balance sheet.

Cash was around £300,000 and borrowings around £12,000,000 at the end of March. Wow!

Total assets were around £14.6m, and total liabilities £17.2m. That's £2.6m of negative asset value.

It gets worse since £8.4m of NIPT's assets are goodwill and intangibles i.e. unquantifiable and worthless in a fire sale. Strip these out and that's a staggering £11m of negative asset value. Blimey!

Losses for the year totalled £9.6m and cash used by operations around £9.5m.

I don't know what makes a company insolvent, but surely those figures do? Absolutely awful.

It's difficult to see any positives at all. They're frantically trying to raise cash, and are hoping for an extra £2.5m at 10p per share following on from a cash call as recently as May this year which raised £3m at 4.5p.

The cash call will barely keep the company going for a month or two given the perilous state of the balance sheet.

NIPT has had litigation to deal with, but even stripping those costs out of recent results, the situation isn't demonstrably much better.

What of NIPT's growth prospects? What's happened in the 6 months since these full year results?

In the trading update it says this:-

"Six month revenues to 30 September 2018 expected to be up approximately 40% to £3.8m (H1 2017: £2.6m)"

However this is not the measure to look at. This is not a seasonal business. What you should be comparing is growth from H2 March 2018 to H1 September 2018. That's far less impressive. In fact growth went from around £3.6m to £3.8m i.e. £200,000 (around 5.5%). Nowhere near enough to survive without a massive injection of further funds.

Unbelievably the company will have a market cap around £50m if they succeed with the proposed £2.5m fund raise. I kid you not!! It takes your breath away.

All in all the situation looks perilous, and that's an understatement. The company admits that the latest fund raise is a stay of execution and they'll need further funds to survive.

If you're not convinced then read the notes at the bottom of the report. Here's what the auditors say at the very end of the report:-

"Auditor's report: material uncertainty relating to going concern
The Auditor's report includes a material uncertainty relating to going concern.  Extracts from the Auditor's report are reproduced below. In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 1 of the financial statements concerning the group's and parent company's ability to continue as a going concern. The group incurred a loss in the year of £9,482,927 and, at that date, the group had current assets of £4,268,649 and current liabilities of £4,640,943. In their assessment of the group and parent company's ability to continue as a going concern, the directors have focused on the potential for future fundraising, assessing both the expected outcome of the fundraising round in progress at the time of signing the financial statements, and the requirement for a further fundraise in the coming months. The directors have also focused on the rate of growth of revenue in making their assessment. These considerations, in particular the assumed successful outcome of the fundraising currently in progress and the assumed successful outcome of the next fundraising round to be completed within 12 months, along with the other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the group's and parent company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group and parent company were unable to continue as a going concern." Please note well, "indicate the existence of a material uncertainty which may cast significant doubt about the group's and parent company's ability to continue as a going concern." As ever, this is a blog with my thoughts and is not intended for advice. However, I personally wouldn't touch this with a bargepole now or anytime in the future, and if I already held shares I'd be heading for the exit first thing Monday morning. As ever, AIMHO.

Immedia, Concepta and Zinc Media

Let's start with Immedia, a company I've written about very recently in this blog post:-

http://michae1mouse.blogspot.com/2018/09/if-music-be-food-of-love-play-on.html

Immedia released their half-year results today, and I haven't much to add to my recent post. As expected, the results were significantly better than last time.

There was a 9% increase in revenue to just over £2m, EBITDA turned positive at £40,000 against a loss of £104,000 in 2017, and cash on the balance sheet has improved significantly to £149,000. The headline loss is around £91,000 which is again significantly better than 2017. The company remains virtually debt free. Full results are below:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/IME/13806214.html

The only things I will add to the previous report is that they have a great client list including JD Sports and Subway where they say:-

"It is also pleasing to report that recent major contracts with both JD Sports and SUBWAY® are exceeding Board expectations."

and they most recently won a large contract with a major UK high street financial services institution.

The tone of the report reads very positively and they are comfortable with meeting market expectations for the full year. I feel very encouraged by the progress they are making and impressed with the turnaround, particularly the cashflow. I'll be sticking with this one, and as ever, being a minnow with a strong balance sheet, another major contract award could see the share price significantly higher.

Now to Concepta. I've mentioned this company before, it's a "story" stock ("jackanory" comes to mind). What does the company do then? Who cares? It's an absolute mystery to me why PIs bother with these companies, it really is? CPT released it's interims today. How have revenues grown for this wonderful growth stock I wonder? Revenues have gone from zero last year to (wait for it) zero this year. Wow! So what does the report say? Again, who the bloody hell gives a monkey's? Investors just get diluted into oblivion with these companies whilst the jam grows a pair of legs and keeps running further and further away.

Even after today's 21% kicking, CPT has a market cap. near £7m. It'd be overvalued at a market cap of zero in my opinion. When there are companies out there with real revenues, profits and good cashflow at lower market caps then why would you bother with this?

Finally Zinc Media. I hate these types of company. It used to be called Ten Alps and didn't impress in it's previous incarnation either. It sits near it's all time lows today after a 12% drop following (at best) lacklustre results. Actually I have a bit of a jaundiced view of these production/distribution companies following my worst investment ever in a company called DCD Media. Here is a comment I made on the ADVFN bulletin boards which pretty much sums up my aversion to this sector:-

"The reason I wouldn't touch this lot with a barge pole is through a lesson learnt early in my investing days where I built a stake in a production/distribution company called DCD Media. I learnt the following about these types of companies, and personally wouldn't touch any of them in future:-

1) Margins in production are generally p*ss poor. Basically they don't make much money. Distribution is better but even then not great.

2) The only value in a Production company is it's staff. In the case of DCD Media they heavily overpaid for acquisitions. After a very short period of time most key production personnel just upped and left. All the value of the acquisitions is then lost, commissions cease and all value is written off.

3) At the drop of a hat, the tv companies can just decide that they're no longer interested in re-commissioning a series and revenues fall off a cliff.

4) Take a look at the balance sheet. If you strip out goodwill and intangibles then the company has negative asset value. Goodwill and intangible assets almost certainly relate to the acquired production companies (see above). In other words, it has no tangible value.

I could go on and on and on. Good luck if you want to take a punt, but I'd be very careful. Imo these types of companies shouldn't be listed."

I might be being unfair to Zinc Media since it does produce substantial revenues, but I've no real enthusiasm for researching this type of company. So as ever, these are just my thoughts and you must do your own thorough research.

twitter: @michae1mouse