The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
The Lombard Odier short would have been cancelled out by the bigger long position that came from their RhythmOne holding wouldn't it? At completion of the merger, the short would have netted out. Depending on how the short was implemented the gross short might have automatically expired or they might have had to do something (such as return borrowed shares). I guess someone just forgot to update the fca when that happened.
Indeed, it's all about trying to understand the levels of risk and what assumptions are needed to make this work.
I have bought today, largely on the basis that I believe the CEO's rather extraordinary performance in that interview must mean she is extremely confident that near-term results will not disappoint. I hope that performance may be enough to put some upwards momentum behind the shareprice. I can't remember ever seeing a CEO on camera state something along the lines of "we are ridiculously undervalued" although it wouldn't surprise me to learn that Elon Musk might have done it. I presume the Nomad must have approved the statement as well as the placing of the interview on retail investor sites such as this one.
I'm not arguing that they don't tend to be sticky, but would you bet the company on it?
As I see the numbers, Totally is paying £16m for a company with £3m of net assets (as of 31/10/2018) and a series of profitable contracts. So £13m for the contracts plus the value of the business as a going concern (assuming no fair value adjustments). How much of that £13m is going to be paid back by expected profit while the existing contracts run to completion and how much has to come from future business beyond the existing contracts?
5 of those contracts account for 10% or more of revenue each, approx £15m in aggregate of the £22m revenue, in the period to 31st October 2018. 4 of those 5 contracts come to the end of their extension period by April 2021.
So I would think they expect all 4 of those contracts to be renewed or replaced with equally profitable ones going forward and that would be good. They also expect to continue winning additional contracts. That will be a base case and the acquisition should look good in that base case, when synergies are also taken into account.
But what is the risk of 1 or more of them not being renewed, and what would that do to the acquisition economics? What if they are renewed but at lower rates, either through competition or counter-party demand, perhaps even in part because the CEO has just been talking on camera about the profit margin and the documents published around the acquisition will reveal data on the attractiveness of the contracts that perhaps wasn't previously available to the counter-parties?
I think she's talking about the plc profitability, but at the adjusted level. Which is fine if she says that is what she is talking about but I would have thought very questionable if she doesn't, particularly if the interview is aimed at retail customers.
"...we said we were going to be profitable at the end of the year and we were." and "This will be the first year where we've been profitable..."
or something along those lines from my hearing of the interview.
If a house broker (Allenby) is estimating an FY20 loss of around £4m (as per your post on the other board grahamwales), how is Wendy allowed to say in an interview apparently aimed at retail investors that they are profitable, without any qualification as to what measure of profitability she is actually talking about?
It seems to me this all hinges on the stickiness of the contracts, especially the Greenbrook ones.
From the interview it seems fairly clear Wendy is focusing on adjusted profit, which strips out the amortisation of the acquired contracts, as well as exceptionals. Acquisition and integration exceptionals should be largely out of the way this year so that leaves mainly amortisation in FY21. Then in FY22, by when the acquired contracts have all but finished, the adjusted profit and actual profit should be about the same.
So if the contracts are sticky, i.e. if they can renew or extend them with equivalently profitable contracts then things should look really good in FY22.
Wendy's thesis is that if they perform then the contracts will be renewed. And that I think is why she was prepared to pay such a high price, in relation to actual contracted business plus net assets, for Greenbrook, which had good performance ratings. And that presumably is what Miton and Columbia Threadneedle see, while some of the other pre-merger shareholders presumably see less stickiness or more other risk.
It's all gone a bit gloomy over here. The bull case is still there you know. I was rather surprised that Wendy stayed as CEO but Miton and Columbia Threadneedle are no mugs. If they were happy to invest in the placing without requiring a change at the top then they must believe she can deliver. Either that or they've agreed a probation/transition period. Either way I think they are better placed to take a reasoned (long-term) view than we are given the access they will have had.
Going back the other way again now. I swapped some CRST into TEF on 28th Feb after the TEF profit warning. Now swapping back thinking that CRST may have been unduly beaten down by fears of Woodford liquidation. TEF still a top 10 stock in my portfolio (and CRST top 3).
"I suspect one of the reasons that Taptica wanted to acquire R1 was to achieve its verifiable anti-fraud stance and Pixalate ratings." You might have thought so, but one of the curiosities from the AGM was the chairman's apparent complete ignorance of R1's pixalate ranking achievement. So while the road show presentation paid lip service to "brand safety technology" I suspect that wasn't a key factor in the Taptica board's decision to do the deal. It seems to me that the acquisition was much more driven, from the Taptica side, by the perceived need to strengthen their video and CTV credentials and platform.
No they haven't. Same holding as their last notification, but the denominator has gone down and so their % has gone up due to the buyback.
Couldn't resist the temptation any longer. Findel had become my 2nd largest holding with the recent spike, so I've sold the ones I bought on 7th March, at just short of a 50% gain. It remains a top 10 holding.
Someone having fun with the algorithms today, or have they got the units wrong and meant to be buying in 100's or 1000's? Perhaps a cunning plan to get us through what looks like a bit of resistance at the 250p-ish level (the "undisturbed share price" ahead of the Toscafund sale)?
According to the circular, the USP was 250p. We've got back in the vicinity impressively quickly, post bid.
hope the trend continues back to the "undisturbed" price and beyond.
Good to see the shareprice clawing its way back thanks to the goodish results.
In terms of the cost of defending the SPD offer, I don't blame SPD for that. They were offered a chance to pick up a big tranche of shares (6m shares at 161p) and took it, when apparently no-one else was prepared to buy that volume at a higher price. Because of their % holding, buying those shares forced them into the mandatory offer, which Findel then had to defend.
I think spd spun the process out a bit longer than was necessary, given the lack of interest at the price, but I don't suppose that in itself added a lot of cost for Findel, although it did perhaps delay the recovery in the shareprice.
Pretty good. Some exceptionals, but offset by exceptional gains.
stt1 - any thoughts on why they're headlining it as £11.5m when they appear to be expecting to pay out £16m for the company, of which £13.5m is cash? Do you feel that stripping out as much cash as they are from what appears to be a successful company with a conservative balance sheet is leaving the enlarged group as a high risk investment for shareholders, given Totally's negative operating cashflow in FY18 and 1HFY19? Do you have any thoughts on why such a high proportion of the purchase price is cash and there appears to be no contingent consideration? Do you think this reflects on the Greenbrook owners' view of the risk of what tly are doing?
"In addition, adjustment to the purchase price to reflect a normal level of working capital is expected to result in additional cash consideration payable of £4.5 million on Admission giving a total purchase price of £16.0 million. The cash adjustment including the one-off transaction costs outlined below of £1.3 million is therefore a reduction of £5.8 million for the Enlarged Group."
[Note 5 on page 112 of the Admission document]
This removal of cash increases the net current liability (or negative net current assets) position of the enlarged group, compared to the Totally plc balance sheet before the acquisition (see pro forma balance sheet on page 111):
-£4.6m Totally (net current liabilities)
+£2.8m Greenbrook (net current assets)
-£5.8m Excess cash taken out plus fees
-£7.6m Pro Forma net current liability of enlarged group
The point is they took all the cash out of the business plus a bit. At the time of announcing the price, tly appear to have been expecting to pay about £6.5m cash up front. Between that announcement and completion, Vocare managed the business to get an additional £6.5m under the "surplus cash" provision. That £6.5m "surplus cash" came out of what tly were buying, leaving them with equivalent greater liabilities than if no surplus cash had been paid.