The latest Investing Matters Podcast episode with London Stock Exchange Group's Chris Mayo has just been released. Listen here.
I'm really sorry for PIs. Just like many others, I learnt my lesson through Afren. When it looks too good to be true, it is better to take shorter's views into consideration. This time I sold my shares before the news came out when I saw some tweets from WShak. When I saw the first RNS, I wasn't shocked but I lost my faith in AIM completely and GBO was my last AIM investment.
As stated in the first listing, we have entered into the US and Asia. It should increase the turnover and profits drastically IMO. JV will have shares at on or more than 27p and Miton have added close to 9% stake. Cash reserve of more than 3m... I expect it to multibag at this price as it was at 47p not so long ago... As mentioned in the interview, US will start increasing revenue next year and now Asia will also contribute more revenue. The SP looks extremely cheap and completely ignored by the market. Agree with Miller - it can go up as quickly as it came down (as there are not too many shares available).
The RNS looks extremely positive till the last statement. Nicely presented
Financial Highlights · Revenue increased to US$7.34m (H1 2014: US$7.16m) · The core software licencing revenue increased by 33% to US$4.03m (H1 2014: US$3.03m) . Gross Profit increased by 16% to US$5.18m (H1 2014: US$4.46m) · Gross Margin increased by 9% to 71% (H1 2014: 62%) · Operating profit decreased by 86% to US$0.10m (H1 2014: US$0.74m), due to a greater proportion of R&D expenditure being expensed through the P&L account (US$0.58m) in H1 2015 compared to H1 2014, combined with an increase in non-cash expenses (US$0.39m) · EBITDA decreased by 31% to US$0.55m (H1 2014: US$0.80m), mainly due to a greater proportion of R&D being expensed compared to capitalised in the prior comparison period · Cash position at the period end was US$4.6m (H1 2014: US$2.3m) Operational Highlights · Simplified FOREX, the Company's second trading platform final product was launched earlier this year · Number of active brands serviced by the Company's software increased by 17 brands to 65 since 1 January 2015
Article in Proactiveinvestors: 02 Jul 2015 Lahav explained that after listing on AIM TechFinancials was approached by many companies wanting to help them develop their business in different areas, but his focus is China and he expects to announce a deal there in the next few months. “ The first thing that we intend to do going forward is to create a joint venture in China, so we are looking for potential companies that we can join in order to penetrate more deeply into the Chinese market” he said. https://group.techfinancials.com/news/techfinancials-looking-for-new-ventures-in-asia/
Here is the link to it: www.iii.co.uk/investment/detail/?display=discussion&code=cotn%3AGBO.L&it=le&action=detail&id=11721372
Despite the undeniable operational and financial progress (the above analysis is based on cash which does not lie), Globo trades on a substantial discount to its peers. Like some other AIM stocks, Globo has been the subject of short selling which tends to drive prices down. Additionally, some commentators are persistently insinuating that something is wrong, there are too many red flags and no doubt these persistent negative comments have had an effect. This cash analysis supports my view that Globo is a well run, high growth company that has managed its cash resources well in a difficult climate striking the right balance between growth and cash generation. My discounted cash flow model indicates a fair value model of 114p verses a share price currently of 42p. The author is a private investor in Globo.
So there are 4 clear trends: Revenue increasing exponentially consistent with Globo’s claims that they are winning new business while retaining spend from existing customers. Net operating cash flow increasing in line with revenue (at 29% of revenue) Capex decreasing as a percentage of the accelerating revenue Free cash flow increasing year on year, probably at an accelerating rate. My conclusion is that the €114.8m of cash raised through financing (and spent/invested) has been well invested in transforming Globo from a Greek software company to an international enterprise mobility player. The evidence for this conclusion is the increasing free cash flows. This year I’m expecting around €15-20m free cash flow or about 13 to 17% return on investment. I expect free cash flow to increase next year, and the year after, and the year after. But what about the proposed $180m bond issue and subsequent acquisitions? Some have been critical about the high debt burden, the high interest charge (expected to be around 10%) and are sceptical because neither the acquisition targets nor time frame are known. To understand why Globo want to raise $180m to buy businesses you need to understand Globo’s place in a rapidly growing but competitive market. Globo’s strength is that it offers both EMM and MADP solutions, it has won large contracts (e.g. Milton Keynes) because of this. Additionally, the Mobility Business Solutions division (MBS) supports customers in their mobile strategies and implementation. IBM and SAP are the only other vendors recognised by Gartner in both EMM and MADP Magic Quadrants. EMM is becoming increasingly commoditised which is why Globo’s better known competitors like Good and Mobileiron struggle to make money. MADP is higher growth and higher margin and Globo is well positioned to be a one stop shop for companies looking to create, deploy and manage mobile applications. The problem is that Globo’s brand recognition is low in the US which is the largest and most important market. Globo has strong products but versus the leaders in both EMM and MADP, Globo lacks both scale and the selling resources needed to be a leader. Hence the need to acquire a business or businesses that will provide that capability enabling Globo to rapidly expand its customer base and increase brand recognition. Targeted acquisitions have the potential to transform Globo’s place in the industry, propelling Globo towards a leadership position. If executed correctly, the acquisitions should accelerate cash flows and increase shareholder value. Given management's track record of strong execution I’ve no reason to doubt they will deliver this time.
So the next question is, has the money spent been put to good use? A lot has been made of the fact that Globo spends more money than it generates. Despite being free cash flow positive for the last three years, this statement is in fact true of every year going back to 2007. Free cash flow less acquisition costs has always been negative. Some of you may be familiar with the concept of Owner Earnings which is defined as the cash generated by a business after all expenses including acquisition costs. It’s termed Owner Earnings because this cash could if desired be returned to shareholders in one form or another, or a business could choose to reinvest if it believed it would generate a return on investment in excess of the cost of capital. Anyway, Globo’s owner earnings have never been positive. But this doesn’t mean that Globo is a bad business or doesn’t represent a good investment opportunity. To answer these questions we need to consider the future prospects of the business. The trends in the financial data over the last 8 years reveal some useful insights. Globo revenue has increased every year, in fact it increased 10-fold between 2007 and 2014 and appears to be growing exponentially. The one-off levelling out in 2012 was because Globo shed €12m of revenue with the sale of 51% of the legacy Globo Tech business. The more mathematically minded will recognise that the growth in revenue is not following a straight line but appears to be accelerating. The fact that 2015H1 revenue (not shown) at €72.4m is higher than the entire 2013 revenue appears to corroborate this observation and is consistent with the high recurring revenues reported by Globo. This ‘sticky’ business is like a gathering snowball; the bigger it gets the more it accumulates. If this trend continues (even excluding further acquisitions), expect sales to comfortably exceed €500m within the next 5 years. Growth in net operating cash flow is also accelerating. There has been a marked increase in net operating cash flow over the last 3 years since Globo launched GO!Enterprise and as a percentage of revenue, net operating cash flow appears steady at around 29% of revenue. Capex (including capitalised R&D costs) has also been increasing year on year but importantly at a slower rate than operating cash flow. The trend in capitalised costs as a percentage of revenue is actually decreasing. This is in contrast to the operating cash flow which is why for the last three years Globo has been able to generate increasing free cash flows. The trend in free cash flow generation has continued into 2015 with €7.2m generated in H1 compared with €7.3m for the whole of 2014. Given that Globo’s revenue is normally weighted to the second half, the strong H1 result indicates that 2015 as a whole should generate free cash flow in the region €15-20m.
Below is an extract from the link that was posted earlier. I believe the original author is JuicyShares on ADVFN. Globo Plc – A high growth company generating cash. Disclaimer: I am invested in GBO.L. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article or any affiliation with Globo other than being a shareholder. Summary: Cash analysis demonstrates strong operational and financial performance Cash flows expected to accelerate Bond issue and acquisitions a potential game changer Globo’s revenue has grown at a compound annual growth rate of 38% since 2007. Despite the rapid growth Globo trades on far lower multiples than its peers so looks undervalued and over the last 2 years it has been the subject of several persistent negative reviews and comments regarding accounting treatment, lack of cash flow, lack of online reviews, whether reported revenues are real, criticism over high debtor days and even questions over where it stores its cash. So is Globo a good investment or a sham as some claim? This investor ultimately only cares about cash, I want to know if the future cash flow generated by a company discounted to present value represents a significant premium to today’s market value. People say that cash doesn’t lie, so I have gone back to 2007 to see where the cash has come from and where it has gone. Where has the cash come from? Cash Generated by the business: From 2007 to 2014, Globo generated a net operating cash flow (after interest and tax payments) of €83.2m. Cash from equity: In the same period Globo raised €67.9m from the issue of shares net of expenses. Cash from bank loans: Globo borrowed €74.7m and repaid €27.8m of bank loans, net borrowings were €46.9m So Globo generated €83.2m of cash internally and has received €114.8m through financing, giving a total cash in-flow of €198.0m Where has the cash gone? €93.0m has been invested in tangible and intangible assets (mainly intangibles) which includes capitalisation of R&D expenses. It is this that some commentators have been critical of although others have pointed out that Globo are only doing what is required of them under FRS. A further €13.7m was used to acquire businesses, €6.7m of cash was disposed of with the sale of 51% of the legacy Greek business. €82.8m of cash remains on the balance sheet (as at 31st December 2014). One way to think of it is that Globo has spent all the money it has raised through financing on transforming the business from a Greece focused business software company to an international enterprise mobility business. All the money Globo has generated internally is in the bank.
Below link was earlier posted on ADVFN by Juicyshares. It is worth reading it. https://docs.google.com/document/d/1r_jrhnZZr1cGd982p_Tf1IXB2a8o-k04_SI87xgh_ZY/edit?usp=sharing Also, below was posted on iii by pendil. Hope they don't mind me posting their analysis here. Yes, some very good financial analysis including: - Revenue is growing exponentially; - Net operating cash flow is a constant percentage of revenue (29% over the last 3 years); - capitalised costs are a decreasing percentage of revenue; - free cash flow is increasing strongly. I would add 2 things: first Costis's rationale for the proposed acquisitions was more about the need to acquire execution resources - established teams of people - to deliver Globo's existing products. The implication was that demand was not a problem, it is the ability to deliver which is constrained (which, as problem goes, is a good problem to have!) Second, just to recall that Ennismore's main rationale for shorting Globo and indeed calling the business a sham was that they couldn't reconcile Globo's statement that the US was their main target market with the lack of brand recognition etc in the US. It may be that English isn't the Ennismore team's first language. It's clear that back in 2012 the US was not a major source of revenue for Globo but clearly it was indeed the target market, as borne out by the huge increase in US revenues over the last couple of years and the increasing industry recognition there, e.g Gartner. Curious that Ennismore doesn't seem to have updated their "research" in the last couple of years.
Probable example for Bond - another successful India based firm Lycos Internet (like Sourcebits), were recently looking at raising $100 million for their expansion. If a company like this is acquired through the money raised through a bond, it can be another profitable source like Sourcebits. In this case, 10% on Bond shouldn't be an issue over a period of time and this bond can be replaced with a lower rate bond once the market becomes better later. www.business-standard.com/article/companies/lycos-in-talks-with-pe-firms-to-raise-100-million-115041700263_1.html http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/18DADD05_CF17_411D_BD8C_1A30C0F090CA_122602.pdf /www.screener.in/company/?q=532368
Globo’s solution is currently deployed to around 300 devices with plans to reach 1,100 devices used by staff and council members. www.realwire.com/releases/Globos-Enterprise-Mobility-Technology-Underpins-Milton-Keynes-Council Issue date - 16/07/2015
RNS clarifies Globo's position nicely...
Added some over last few days... let's see when it becomes another CHAL or HNR... good to add from main market
The revenues seem to be as below: 2011 = $3.798 million 2012 = $8.895 million 2013 = $8.384 million 2014 =~ $16 million (First Half 2014 = $7.156 million & Second Half 2014 = $8.5-$9.0 million) 1. 2014 full year revenues nearly double of 2013 2. Second half 2014 revenue has about a 20% rise over first half 2014 3. The underwriters were hinting the net profit forecast to the tune of about $3.5-$4.0 million in 2015 4. It now has about (or more) 50 active brands running its software, with monthly volumes of about $150 million on more than 2 million monthly trades across the network. Roughly half of the 2 million monthly trades originate from clients in Asia 5. Entered into the US market and won 8 contracts recently It seems to be going in the right direction (just like my other stock CHAL - good number of RNS’s in last 3-4 months). The SP certainly looks very cheap based on the above figures, valued products and potential of the company. IMO
It seems MMs are fallen asleep as the spread has not changed after the last few big buys or big news may be around ....
My buy of 32,990 at 28.19p is not shown and I really struggled to buy shares since morning. Is anyone facing this issue?
Apart from most likely good results in June, we have won eight new contracts and entered the US market since the IPO in March this year. The current SP is at the IPO price i.e. it doesn't include the updates since the listing. Hence, the SP certainly looks very cheap. IMO we can target at least 1 bag from here as the SP had touched 47p just a month ago.