Member Info for 1GW_

sorry - I meant to say unless they write-down (or accelerate) the amortisation, not goodwill, if they want to reduce the ongoing hefty amortisation charge.

2 points of detail, in case it's not clear:

Cash outflow is down to a big increase in working capital. They have previously talked about this seasonality and if it unwinds again they should generate a lot of cash in 2H - and they do say "As the Company enters its strongest cash generating period".

The loss is largely a result of the amortisation, which they can't do much about unless they write down the goodwill. With $20m adjusted EBITDA, D&A accounts for $16m so there is not much left over for other stuff. And actually I was pleasantly surprised that exceptional restructuring costs were kept to $2m.

Surprised at the initial reaction on this board. I think the results are as good as I could have reasonably hoped for. This is the summary I've put on the other board, based on a quick initial read.

I suspect he [stt1] might draw attention to the decrease in net cash!

But apart from that as good as could have been expected I think. At first read I note:

Guidance - continuing to trade in-line with "consensus forecast" revenue and ebitda;
A small loss, pretty much in line with (my) expectations;
An actual profit before exceptionals (a big step up from adj ebitda profit);
A big increase in working capital, which accounts for the cash outflow;
Operating expenses at (just?) $80m;
Restructuring costs very modest ($2m);

and...

... a share buyback.

What more could we (even STT[1]) have asked for?

If you look at the FT tearsheet for Findel, they have Credit Suisse (Market Maker) holding 1.5% as of 5th December, so they seem to have decided that the shares in the most recent holdings notice are held in a Market Maker capacity. That raises the question of the additional 10% voting rights held through derivatives (cash-settled swaps).

The FT also show some sub-3% shareholders as of September (Norges Bank, Hargreave Hale and M&G).

We seem to be over 100% of the voting rights "spoken for" by adding up holdings notices (even without the smaller holders identified in the FT list), so there must be some double-counting in my list. Logic might suggest that Sports Direct and/or Toscafund would be the most obvious candidates to be the other side of the Credit Suisse swaps, but to what end? And taking a 10% short-term (February expiration) position seems a lot of risk for a market-maker, so presumably it is hedged away somewhere, or there's something else going on. Clear as mud.

https://markets.ft.com/data/equities/tearsheet/profile?s=FDL:LSE

Possibly, although there is nothing in the TU to indicate that is there? So difficult for the market to recognise that by bidding the shareprice up - I was just responding to comeonvog's comment on the market reaction.

Sometimes new contracts in new areas come with start-up costs as well, which eat into the cash balance.

£1.2m over 15 months, so a bit less than £1m over 1 year. TLY is now an £80m/year revenue company (based on £40m in 1H), so this new contract adds a bit more than 1% to revenue.

So did you buy on Monday graham-wales? Or was it just a ramp?

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graham-wales - 29 Nov '18
Back under £10m m cap if only it was Monday lol

stt1 - I was thinking more in terms of what has happened since acquisition. I think Vocare underperformance has probably been a factor in the deterioration of the balance sheet and the decline in the share price. The contingent consideration for Vocare was based on an EBITDA target (for year ending 31/3/2018), so failure to meet the target means earnings came in below target - so some combination of revenues and costs presumably. In addition, the various references to "challenges" in the context of Vocare makes me think integration has probably taken longer than expected.

Final results (10th July)
"£1.0m of this consideration was contingent on meeting financial performance targets. These targets have not been achieved... "
"As at 31 March 2018, the key performance indicators of Vocare Limited indicate that the target has not been achieved. "

Interim results (5th Nov)
"Whilst the acquisition of Vocare has not been without its challenges, ..."
"We still have challenges ahead and more work to complete on integration and..."

comeonvog - pretty much, yes, I'd agree with that - high risk but underpriced in my view. However, I think it's a bit more than macro that has got us here. I do think that Vocare required more time and investment than they originally hoped and that has contributed to the deterioration in the balance sheet and the consequent (IMO) drop in the shareprice.

graham-wales - if we're both at the next AGM I'll show you some transaction history if you really want to see that I tell the truth about being invested.

TLY is high risk but underpriced in my view and that's why I'm invested. Much like I'm invested in RTHM, SLN, HYR, BYOT to name a few other of my investments which I would put in a similar risk-reward bracket. With big risks tends to come the potential for big rewards.

What good does it do you as an investor to put your head in the sand and ignore the risks? Did you think tly was low risk when you invested at 60p? If so, how do you explain the fall to today's level?

graham_wales - becoming profitable is not the issue here IMO. The issue is whether they run out of cash before they start generating cash themselves. Or indeed whether the cash and balance-sheet position become so dire that they start losing business because of perceived poor financial condition.

But I wouldn't be investing in TLY if I thought that was a most-likely scenario. My issue with the balance sheet is about risk. Like (it seems) a lot of my current investments, they've got a good story but a fairly precarious position. If things turn out as management expect then it should be a great investment. But the question is how much contingency do they have if things don't turn out as expected? If you look at Allenby's numbers for FY20 they're not expecting them to generate much cash and the cash balance has declined significantly by the end of that year. So what happens if they get an unexpected drain on that cash - if they have to put significant cash into an IUC contract because it's in a new area of operation for them for example? Or if we get a general election and work dries up for a while as their customers wait to see which way the wind is blowing before letting any new big contracts?

Just as I've written elsewhere about another company today (and I could write about some of my other investments), I believe TLY is high risk but underpriced. It could be a great investment if things turn out as management hope, but it might not take much of an unexpected headwind to leave them in quite a lot of trouble. And the shareprice could quite easily go a lot lower (IMO) before it starts to go higher - looking at the cash balance against market cap is nonsensical in my view because of the net current liability position.

Further to my last post, the Edison note does comment "The Studio platform offers unrivalled value, growing its customer base, from 1.8m to 1.9m y-o-y. However, because of timing, this progress is not apparent from H119 results."

So it looks like it may be a base period issue, with the start of H2 being particularly positive year-on-year.

The fact remains though, Skindle, that they talk about a 28 week period in the TU, whereas the results are on a 26-week basis. So that at least muddies the waters, whether or not it is indicative of a "mistake" somewhere in reporting the numbers. And Express is complicated by not only the combination of product and financial services revenue, but also by the restatement caused by the new accounting standards.

What they do say is that year-to-date (including the first 10 weeks of H2 I think), Express Gifts' total revenue is up 7.7%, which would round to 8%. So I wonder if it is just extending the period to 28 weeks from the 26 in 1H brought in a particularly good comparison fortnight which got the number up to 8% on a rounded basis?

Edison have a revised note ("Extraordinary growth continues in peak period") on their site.

Good point. I can't immediately see how to get the 8% number from the 1H results. Is it as simple as them mistakenly comparing a 28-week period in 2018 against a 26-week period in 2017 in the TU, whereas in the results they've got a like-for-like 26-week period for each year? Or might it have been a genuine like-for-like 28 week period (including 2 from 2H) and they had a very poor first 2 weeks of 2H last year because of the implementation of this new Financier platform? I agree it looks a bit odd.

graham_wales - I didn't forget anything, although perhaps you've forgotten that you called them idiots when they put the note out?

You made a point about cash, implying it somehow protected the downside "Tly has already collapsed and very close to cash."

I was just pointing out that one of the house brokers was suggesting that cash balance might drop materially by March 2020. And wondering what that would imply for your "protection" argument.

If they do win one or more of the IUC contracts, what sort of hit do you think that will give to the cash balance as they resource up to deliver it? Or do you think it will be cashflow positive from the start, benefitting from the same sort of working capital characteristics as the current business?

Are you suggesting Allenby don't understand the accounts? I thought you were arguing tly share price was somehow protected because it was close to cash? But if the cash balance shrinks in line with the Allenby analysis, what does that imply for your protection argument?

So graham_wales, if you're taking comfort from the cash balance, what do you think of the Allenby capital analysis for the end-FY20 (31st March 2020) cash position? How much of the cash balance are they suggesting will be left by that date?

Of course, you already gave an initial reaction on the day it came out and seemed to be implying it was flawed analysis. Is that still your view, and if so what are the key errors you think Allenby have made?

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graham_wales post from 7th November:

Sorry but not impressed by the report as yet again seems to be suggesting that cash is reducing quite a bit and probably why we had today’s sell off. What the feck are the BOD paying these idiots for to produce the same old crap. Better off not having these broker notes and save some cash.

So do you not have an opinion on why the share price has fallen since the results came out? Or over the last 3 months, 6 months, year-to-date, 1 year? Isn't that a worthy topic of discussion on an investor bulletin board?

I wouldn't have had to put up evidence-backed posts on each of those 3 potential reasons for shareprice weakness if someone hadn't gone running to admin to delete the much more succinct post which just listed those reasons, assuming that they would be fairly non-contentious.

No I haven't sold graham-wales. Your guesses don't get any better do they? I have still bought on 5 days and not sold any TLY shares. I think all my buys were declared on the other board and were on 30th November 2017, 22nd March 2018, 23rd April, 26th April and 10th September.

I'm an investor here for the turnaround which I still think they've got a reasonable chance of achieving. I'm not a trader interested in selling out after a little spike caused by stilted banter about buy orders, level 2 goings on, canny buyers, the price in danger of racing away etc.

I also commented on the apparent discrepancy between the TU comment and the cashflow statement in the results and I think suggested that might be one issue behind the weak shareprice since the results were published.

The 24th October TU stated “cash generation continued to be strong”

The 5th November results reported operating cash outflow, with the cashflow statement showing, in £000:

(903) cash generated from operations
(867) Net cash flows from operating activities
(352) Net cash flows from investing activities
(1,219) Cash outflow before financing

This apparent discrepancy between TU statement and cashflow actuals could be a concern to investors. I find it surprising the company hasn’t managed to get a cash bridge into the public domain to reconcile the 2 statements.