Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
The Simon Thompson effect. Provided it goes to point on Friday more upside to come. Need to hold today’s gains tomorrow.
4th March
A big thank you to all the knowledgeable, informative, excellent judges on here - you know who you are. I took the plunge at lunchtime - just in time by the look of things.
I didn’t say it brought nothing to the party Ian. I was highlighting a situation where it would not be appropriate to write off goodwill over a set number of years and not address periodically whether that was an appropriate policy. I suspect GT might currently have their doubts as to whether current amortisation rates are appropriate. My only motivation was to make people aware that this might not necessarily be just another buying opportunity before the SP heads off to 250p and beyond. Audit firms don’t tend to bite the hand that feeds unless they really have to. There might actually be an issue of some gravity. Equally there might not.
You should definitely write it down if it isn’t going to bring anything to the party - fact! If you’ve spent the cash and there are no future benefits to be derived from that spend then it’s a cost that needs to be recognised and not an asset. It might not be palatable to shareholders but it’s a fundamental accounting concept I’m afraid.
I agree with you Tommy - now is not the time for blind optimism. My take is that the auditors want a significant goodwill write down. SF isn’t prepared to sanction that. Hence the stalemate. Nobody on here seems to know how big that write down might potentially be. One possible scenario is that the magnitude of that number combined with the current turnover ARR might not be a winning combination vis a vis the share price. All outcomes are certainly possible. However deferred results and a continued lack of communication from the Board are certainly disconcerting to say the least. As things stand Tommy whatever action you take will be a gamble. Maybe take the option that you are most comfortable with should the outcome go against you?
31 December 2019 net assets of the Company were £58m of which £70m were intangibles. If Grant Thornton are looking to write down those intangibles does anybody have a handle as to how significant a write down it might be?
From IC July 2020:
Risk assessment - Of course, there are several risks to consider when making an investment:
LoopUp capitalises development costs within intangible assets.
Development costs recognised as assets are amortised on a straight-line basis over their expected useful life. The amount capitalised in 2019 amounted to £5m (£4.3m in 2018) and the company also amortised £3.8m of development costs to end the financial year with a closing balance of £9.1m (£7.9m in 2018).
The capitalisation of development costs under International Accounting Standard (‘IAS’) 38 ‘Intangible Assets’ involves significant judgement and there is a risk that a material error could occur if items have been incorrectly capitalised. Furthermore, any deterioration in trading could result in diminution of value of the business and asset impairments.
Assuming LoopUp delivers average annual operating cash flow of £10.8m this year and next as analysts predict, then it will be able to cover the projected £6m cost of software capitalisation spend in both years, and still have surplus cash flow left over to pay down debt significantly to enhance shareholder value, thus supporting the decision to capitalise some of the development costs. Please note that development costs are only capitalised if it can be demonstrated that the asset will generate probable future economic benefits.
Goodwill on acquisition.
LoopUp’s net asset value includes £60.6m of goodwill and intangible assets, half of which represents the goodwill acquired on buying MeetingZone. The balance is attributed to customer relationships in intangible assets. Any deterioration in trading could lead to an impairment of both goodwill and the value attributed to customer relationships. This risk is mitigated by the recent strong trading performance.
Absolutely shocking. How can a historic issue of amortisation be allowed to fester until the Final Results RNS is due to be dropped? If Carlsberg did Investor Communications it would be the absolute opposite of Loop’s strategy! Now we know why the results date disappeared.
It’s pathetic Cantseeit. Today looks like a sea of red. But 152 is the buy price and 150.25 the sell price. So I strongly suspect all bar 2 trades so far today are actually buys.
Simon Thompson tipped it at 5pm on Friday.
Hi Ian. Re "The £84m pipeline is live opportunities not sure it can be split into 2 years. "
Steve Flavell seems fairly sure
"Therefore the Pipeline TCV of £84m equates to a Pipeline ACV of £42m"
That was Lemonades post of 16 January
I emailed the CEO Steve Flavell a similar question because I was confused by recent trading update:
My email:
What does this statement mean exactly?
> Our pipeline for cloud telephony live opportunities continues to grow rapidly, now standing at potential Total Contract Value of approximately £84 million
I understand the contract values themselves are over a two year period from the footnote, so does this mean that the £84 million possible contracts will be recognized in 2021 & 2022? This doesn't really make sense though because 2021 ARR was expected to be £32m so I am confused.
Basically, what years/timeframe will this £84m be recognized in?
CEO response:
A few comments:
- The statement doesn’t say – and isn’t meaning to imply – that 2021 revenue is expected to be £32m. It is saying that – at the time of writing – the Group’s annualised revenue run-rate currently stands at c.£34m (i.e. 12x the current monthly revenue)
o Please note: no mention of £32m and no mention of 2021 expected revenue
- Pipeline Total Contract Value (TCV) is a totally different metric
o You are right that, as per the footnote, we are assuming an average contract term of 2 years for this new Cloud Telephony pipeline of business (separate to our Meetings pipeline)
o So Pipeline Annual Contract Value (ACV) would be 50% of the Pipeline TCV
o Therefore the Pipeline TCV of £84m equates to a Pipeline ACV of £42m
o Clearly, only a certain proportion of this pipeline will convert into customers and ongoing ARR
o So, for example (and only an example rather than any stated expectation), if 10% converts, then this pipeline would turn into ARR of £4.2m
My intepretation:
So it seems to be that LoopUp doesn't actually expect 2021 total revenue to drop to £34m, it's just the current ARR and the markets are mis-interpreting it.
I am thinking that progressive research has it wrong for next years drop in 2021 revenue and maybe I do in the above DCF. I have a feeling that it is going to be higher than the current ARR. Maybe because the contracts are gong to start converting.
Im currently out but was on board for a couple of months. Didnt those who communicated with SF (see this board mid Jan) determine that 84m was 2 year figure and so 100% conversion would add 42m to ARR? If conversion rate is 25% (complete and utter hypothetical guess) that would add 10.5m to ARR? However if that comes half way through the year then it can only add 5.25m to that years revenue? At least that was my interpretation of those communications.
Now I really am confused because they are showing on the share trades as a sell.......
Just bought @ 125.20 which was significantly cheaper than I expected?
I sold 2 x 4000 Stew. One false dawn too many for me I’m afraid. Hopefully for you guys the real dawn is just around the corner. I might nip back in just before the annual accounts presentation if my ducks align! Good luck all.
Stew - have a read of PIs comms with Steve Flavell on here between 13-16 January. If you still feel the need to contact him then good luck - you’ve been warned! ;)
Not there.