I've mentioned a company called 7digital before. It's a company I hold shares in. Here's the company website to find out more about what they do:-
http://about.7digital.com/services
A quick look at the share price graph will indicate what a great performer it's been for me so far. Apologies for the sarcasm. It's been a company that has consistently pulled off great defeats from the very jaws of almost certain victory. So why am I still here? Well, it may have lost some short term battles (certainly in terms of share price performance), but I'm still hopeful they'll eventually win the war.
I like their business model and I believe that the services they provide and their vision for the near future could bear fruit.
In April 2017, 7digital acquired a company called 24-7 Entertainment which provided them with considerable scale, and left them as last man standing in Europe in their field. In fact they claim to be the world leader with their PaaS offering.
However, the acquisition has come at a cost in terms of consolidating it with 7digital's existing offering and cash burn has been high. Certainly far higher than I had anticipated. In December of last year (2017) they raised around £8.5m by way of a capital raising and open offer for working capital and consolidation costs. Just over six months later they've burnt through most of this, and have taken a further loan from two existing shareholders to see them through to cash flow positive and profitability.
Not great reading so far, and indeed a delay to publishing full year accounts for the year ending 2017 in the summer months did not help sentiment, although that turned out to be much ado about nothing in the end and results showed good progress.
Back to the question. Why am I still here?
I'm hoping that 7digital are now very close to the end of needing further financing. Indications have been that by the end of this month they should be close to completing the consolidation. Once consolidation is complete, they anticipate annual cost savings of £5m a year. With gross margins around the 70% mark, recurring revenues and huge cost savings, 7digital should easily move into profit and be cash flow positive in 2019 with revenues around £20m+. At a modest market cap. of around £12.5m, and with high operational gearing then it's easy to envisage a massive uplift in the share price.
In my view, the next few weeks will be pivotal in establishing 7digital's long term credibility and I'd expect some investors to wait on the sidelines since it's been less than a smooth ride so far. However, are good things just around the corner?
I hope so, and shall wait to hear of further developments. If 7digital does turn cash positive and profitable in 2019 without the need for much more funding and serious dilution then the shares will multi-bag without question. Of course, it is an IF at the moment.
As ever, the shares are illiquid and can move quickly either way. I'm not a tipping service, these are just my personal thoughts and not advice so DYOR thoroughly.
twitter: @michae1mouse
Saturday, 20 October 2018
Thursday, 11 October 2018
Is this a bear market or a market correction?
Wow it's a bit choppy out there at the moment!
Nasty share price falls across the board today. The big question is are we going through a market correction before the bull chases ahead again? Or is this a bear market? There's a clear distinction.
Market corrections are usually sharp and short. Short term pain is normally short-lived before share prices recover and more often than not move sharply ahead again. Bear markets are more painful, and often endure for between 1-2 years.
So which is it? Nobody knows yet. We'll have to wait and see.
If it's a bear market then I'd suggest that you carefully look at the company shares you own and ask yourself the following questions:-
Does the company make a profit?
Does the company have positive cashflow?
Is the company debt free?
Is the company's P/E ratio a sensible one? (Anything above 25 is quite racy)
Does the company pay a dividend which is well covered?
Is the market cap. no more than three times the TNAV?
If the answer to (let's say) two of those questions is yes then you might want to just see the bear out? Your company is unlikely to go bust because it's got a safety net (a margin of safety). A healthy dividend yield, solid earnings in relation to share price, a strong balance sheet etc. should eventually attract buyers and stop the shares going into freefall.
However, if the answer to all those questions is no then you may want to consider cashing in your profits or losses. You're holding a highly speculative company which carries no safety net, and consequently the share prices will fall more significantly than most. Momentum plays work both ways. Value becomes king! Raising cash in bear markets can be very difficult, and by implication if you've answered no to all the above then your company will very probably need either loans or a fund raise. Banks are not so keen to lend, and institutions want their pound of flesh and will only offer cash at huge discounts to prevailing share prices. Some speculative companies will inevitably go bust.
At this stage nobody can say for sure if this is a correction or a bear market, but it's a good time to assess just how financially secure the companies you've invested in are.
As ever, I don't give sell or buy recommendations. Please do your own research carefully.
twitter: @michae1mouse
Nasty share price falls across the board today. The big question is are we going through a market correction before the bull chases ahead again? Or is this a bear market? There's a clear distinction.
Market corrections are usually sharp and short. Short term pain is normally short-lived before share prices recover and more often than not move sharply ahead again. Bear markets are more painful, and often endure for between 1-2 years.
So which is it? Nobody knows yet. We'll have to wait and see.
If it's a bear market then I'd suggest that you carefully look at the company shares you own and ask yourself the following questions:-
Does the company make a profit?
Does the company have positive cashflow?
Is the company debt free?
Is the company's P/E ratio a sensible one? (Anything above 25 is quite racy)
Does the company pay a dividend which is well covered?
Is the market cap. no more than three times the TNAV?
If the answer to (let's say) two of those questions is yes then you might want to just see the bear out? Your company is unlikely to go bust because it's got a safety net (a margin of safety). A healthy dividend yield, solid earnings in relation to share price, a strong balance sheet etc. should eventually attract buyers and stop the shares going into freefall.
However, if the answer to all those questions is no then you may want to consider cashing in your profits or losses. You're holding a highly speculative company which carries no safety net, and consequently the share prices will fall more significantly than most. Momentum plays work both ways. Value becomes king! Raising cash in bear markets can be very difficult, and by implication if you've answered no to all the above then your company will very probably need either loans or a fund raise. Banks are not so keen to lend, and institutions want their pound of flesh and will only offer cash at huge discounts to prevailing share prices. Some speculative companies will inevitably go bust.
At this stage nobody can say for sure if this is a correction or a bear market, but it's a good time to assess just how financially secure the companies you've invested in are.
As ever, I don't give sell or buy recommendations. Please do your own research carefully.
twitter: @michae1mouse
Tuesday, 9 October 2018
There's no nonsense like bulletin board nonsense!
Don't you just love the total tripe that is often posted on bulletin boards. It's very entertaining, but should generally be disregarded apart from sensible financial commentary or the odd useful link.
If you read my blog on a regular basis then you'll know I'm not a fan of "story" stocks that have climbed to multi-million dollar valuations on the back of vast riches to come next year or perhaps the year after that or is it the year after that? Jam tomorrow companies. Let me say at this point I've occasionally invested in one or two in the past, but they rarely, if ever, turn out well. Why? Mainly because the figures just don't add up. Even if a company was the best thing since sliced bread, it doesn't make it a great investment if you pay too much for it. Let the financials be your guide to how much you should expect to pay. Read some books by the great investors such as Graham, Buffett, Lynch etc if you haven't already.
One story stock I'm not a fan of is OptiBiotix which I've written blog posts about before. Here's why I think it's a poor investment at it's current lofty market cap. My blog is written in response to an bulletin board avatar who said the following:-
https://uk.advfn.com/cmn/fbb/thread.php3?id=35291865
"Has it really gone up on hot air or numerous agreements across the world which will go straight to the bottom line. Strong fundamentals. Last time you spouted your saviour rubbish we didn’t have this pharma deal in place and the price shot up to £1.30. They’ll be injecting up to $50m. Pretty big investment for hot air don’t you think?.
Great opportunity to buy many stocks during this time of volatility."
My response:-
Your post is factually incorrect. Firstly, you have no evidence that these agreements will generate significant revenues which will go straight to the bottom line. Last reported interim revenues were £80,000 about the same as the previous year. Yet when you look through the RNS statements there were "agreements" between May 2017 and May 2018 into the double digits. If these were significant revenue generators then at least three or four should have ramped up revenues for the six months ending May 2018? Even just one would surely have improved revenues?
Something doesn't stack up does it? As I said this morning these agreements should be RNS Reach since they clearly mean diddly squat in terms of generating revenues. If the six months ending November 2018 still shows poor results then you'll know for sure that nothing significant is coming anytime soon.
Secondly, Opti doesn't have strong fundamentals. If you strip out intangibles and it's SBTX investment (which incidentally is pretty worthless since nobody would make an offer at it's current market cap. ) then tangible net asset value is about £2m and that's after a £1.5m fund raise at 62p at the end of May. Full year revenues last year were short of £200,000 and interims this year were £80,000. Needless to say that Opti is loss making and burning cash. Opti is valued at around £70m. It's laughable. Those fundamentals might support a £4m market cap at best.
The share price movements are immaterial unless you're a trader. If you're a LTBH investor then it's the end game you're looking at. Opti's share price is now below 80p again, so what's your £1.30 point?
A pharma "injecting up to $50m". Really? Point me to the RNS please. Besides even if this were true (please provide evidence) then it could fail the first hurdle. In fact, if it fails any hurdle then that's going to have a huge detrimental effect on the validity of Opti's claims for this Science. Everything they have tried to promote may then be regarded as "quackery"? I bet the bulls haven't even considered that eventuality. Pharma is a dangerous route to tread.
"Great opportunity to buy many stocks during this time of volatility."
On that we can agree, sadly Opti isn't one of them.
As ever dyor, these are just my thoughts and views and do not constitute buy or sell advice.
twitter: @michae1mouse
If you read my blog on a regular basis then you'll know I'm not a fan of "story" stocks that have climbed to multi-million dollar valuations on the back of vast riches to come next year or perhaps the year after that or is it the year after that? Jam tomorrow companies. Let me say at this point I've occasionally invested in one or two in the past, but they rarely, if ever, turn out well. Why? Mainly because the figures just don't add up. Even if a company was the best thing since sliced bread, it doesn't make it a great investment if you pay too much for it. Let the financials be your guide to how much you should expect to pay. Read some books by the great investors such as Graham, Buffett, Lynch etc if you haven't already.
One story stock I'm not a fan of is OptiBiotix which I've written blog posts about before. Here's why I think it's a poor investment at it's current lofty market cap. My blog is written in response to an bulletin board avatar who said the following:-
https://uk.advfn.com/cmn/fbb/thread.php3?id=35291865
"Has it really gone up on hot air or numerous agreements across the world which will go straight to the bottom line. Strong fundamentals. Last time you spouted your saviour rubbish we didn’t have this pharma deal in place and the price shot up to £1.30. They’ll be injecting up to $50m. Pretty big investment for hot air don’t you think?.
Great opportunity to buy many stocks during this time of volatility."
My response:-
Your post is factually incorrect. Firstly, you have no evidence that these agreements will generate significant revenues which will go straight to the bottom line. Last reported interim revenues were £80,000 about the same as the previous year. Yet when you look through the RNS statements there were "agreements" between May 2017 and May 2018 into the double digits. If these were significant revenue generators then at least three or four should have ramped up revenues for the six months ending May 2018? Even just one would surely have improved revenues?
Something doesn't stack up does it? As I said this morning these agreements should be RNS Reach since they clearly mean diddly squat in terms of generating revenues. If the six months ending November 2018 still shows poor results then you'll know for sure that nothing significant is coming anytime soon.
Secondly, Opti doesn't have strong fundamentals. If you strip out intangibles and it's SBTX investment (which incidentally is pretty worthless since nobody would make an offer at it's current market cap. ) then tangible net asset value is about £2m and that's after a £1.5m fund raise at 62p at the end of May. Full year revenues last year were short of £200,000 and interims this year were £80,000. Needless to say that Opti is loss making and burning cash. Opti is valued at around £70m. It's laughable. Those fundamentals might support a £4m market cap at best.
The share price movements are immaterial unless you're a trader. If you're a LTBH investor then it's the end game you're looking at. Opti's share price is now below 80p again, so what's your £1.30 point?
A pharma "injecting up to $50m". Really? Point me to the RNS please. Besides even if this were true (please provide evidence) then it could fail the first hurdle. In fact, if it fails any hurdle then that's going to have a huge detrimental effect on the validity of Opti's claims for this Science. Everything they have tried to promote may then be regarded as "quackery"? I bet the bulls haven't even considered that eventuality. Pharma is a dangerous route to tread.
"Great opportunity to buy many stocks during this time of volatility."
On that we can agree, sadly Opti isn't one of them.
As ever dyor, these are just my thoughts and views and do not constitute buy or sell advice.
twitter: @michae1mouse
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