RE: Peel Hunt update15 Jan 2019 09:51
CT,
I don’t think that WEN has been misleading with the Nov/Dec numbers, and reading back their Nov RNS, I actually agree with your comment on this. Thanks for correcting!
It’s a different story however for WENS accounting practices around the “cash call”: I do not understand why it is not included in the P&L statement, but instead added to the liabilities in the balance sheet. The impact is very significant, and looking at the expected costs for H1 2019, the numbers make it obvious:
Estimated costs H1 2019 (my numbers):
Capex ( 1 mln) + G&A (1.7 mln) + P&O (1.5 mln) + interest: (0.4 mln) = 4.6 mln. If the “cash call from the operator” is the same as in H1 2018, then we can however increase costs with another 3.5 mln(!)
Based on current accounting practices, I expect a very profitable H1 in 2019 (on paper), but a sharp drop in available cash, especially if WEN pays off the 2,5 mln overdraft: minus 4 to 5 mln in cash in total. End 2019, I expect the company to be in nearly the same situation as now cash wise (a small increase), although now with virtually zero debt.
And Eskil is talking about M&A opportunities…. while shareholders are dreaming about dividend. How on earth is WEN going to pay for it? Not for a while I’m afraid. My expectations regarding M&A opportunities are low, although I’d love a big surprise. Perhaps Maurel /somebody else is willing to pay for the remaining long term receivables?
2018 was a very disappointing year for WEN shareholders in terms of share price, and personally, I am also disappointed about its financial performance and the slow pace of the reorganization. While the financial basis is indeed improving, as well as the outlook, the company needs another year to start shining in my view. Hopefully things will get better again at the end of the year.
As I said before, in my view, this company is currently only a buy based on future growth opportunities, unfortunately not yet on current performance.
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