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No surprise to see a placing and refinancing, they owe Mike Ashley a favour for keeping the price over £4.

The below stood out to me at first glance;

“Total cash financing cost of c.£55m for H2 FY23 includes interest and fees relating to the Existing RCF, convertible bond and Nordstrom loan, interest on lease liabilities, and interest, arrangement and advisor fees relating to the New Facilities. The H2 FY23 incremental cash cost of refinancing related to the New Facilities is now expected to be c.£45m (previously guided at c.£25m at the H1 FY23 results). The expected H2 FY23 interest expense of c.£30m is unchanged.”

So they are raising ~£80m gross of costs (likely £75m net) and based on the above, almost all of that cash will be consumed by interest expenses over the next 12 months…

That is brutal…

I've added again today on the UK inflation news.

The 6 year average ROCE here is ~24.3% with the last two years being 28.7% and 25.4%. If interest income tops £50m this year it's likely FY23 capital employed will increase by >£100m from the 31/12/2022 closing balance of ~£165m.

Should rates remain around current levels to the end of 2025 then I think it's probable that capital employed will top £500m. At a similar ROCE this would put EBIT at ~£120m exclusive of interest income, giving an EPS of nearly £3 (and a FY25 forward PE of

Volume is impressive & it's bounced off the support line at 152p. Suspect this will see a steady recovery back towards 200p over the next week or two.

The big trades are almost certainly institutional investors exchanging chunks of shares. You see similar trading on ALPH which is another very large non SETS traded share. So the 2 x 48k's will be a sell 7 a buy at the same price...

"Without the potential bid this would now be around £25.00."

It was trading around the £25.50 support only a few days before the offer, today's news would have likely sent it lower. The offer has very conveniently supported the share price...

I also listened to two podcasts this week which profiled Wise & Adyen in depth. I believe Adyen has more relevance to Alpha given it’s B2B focus, whilst Wise is notable as it shows LSE does value growing & profitable fintech’s if they are industry leading (contrary to the false narrative spread by the some).

https://www.joincolossus.com/episodes/30866661/willar-adyen-a-first-principles-payment-platform?tab=transcript

https://www.joincolossus.com/episodes/50736441/revell-wise-moving-money-around-the-world?tab=transcript

The common theme of all three companies is that incumbent banks lack of innovation / reliance on antiquated systems / prioritisation of profit has created a clear need for something better. All three markets are also absolutely huge, with the $20 trillion alternative banking industry arguably the biggest of the three

Both very thought provoking and provide an idea of what could potentially happen here over the rest of the decade.

Yep, it’s a remarkable company that is essentially still in stealth mode due to having one analyst & an AIM listing.

The resistance at £23 appears to have held for the 5th time - moves in September 21, January 22, April 22, December 22 & now May 23 have all tried to and failed to break it. I don’t think it’s a coincidence that £23 = ~£1b valuation & it’s extremely rare for a none SETS based share to breach this level.

The move to SETS & the FTSE index will likely be required for this to change as it will allow buyers from anywhere in the world to purchase shares - at present it’s off limits to 99% of international investors due to its illiquidity & the fact it’s only possible to buy shares via the daily auction process at 11/2/4.30. Once this changes & some publicity arrives via new analyst coverage I expect the demand for shares to skyrocket.

There doesn't appear to be any logical reason for the 7% drop to support levels just under 160p... confirmation of 15% organic growth YTD should have surely seen a rise in share price given this is trading on a forward PE of just over 10 and has a huge cash hoard for expansion. Suspect it'll be back in the 170's come this time next week as buyers outweigh short term sellers.

Very interesting interesting guidance in their CMD release;

“Financial targets

As part of the plan, the Group will set out two new key financial targets, as follows:

·

Medium-term revenue of £500 million; and

·

Medium-term adjusted operating profit margin of 25%.”

Forecast 2023 revenues are £265m, so they see a doubling in the medium term. Based on those ambitions this looks cheap at £930m market cap.

Why has the market suddenly dropped shares 20%? Part of the reason is surely the terms of their latest debt funding.

On 7th April 2022 they issued a trading statement that said; "The Group is pleased to announce an increase in its overall debt facilities. New debt facilities of £7.5 million have been secured from a new lender on regular commercial terms"

Note the phrase 'regular commercial terms'

An increase to £15m was then disclosed in the half year accounts, but no mention was made of the terms.

It wasn't until the final results landed last Wednesday that the market found out what these 'regular' terms were;

"In March 2022 the group secured a loan of £7.5 million from Blazehill Capital Finance Limited, with an additional £7.5 million drawn in September 2022, the total balance drawn at 31 December 2022 was £15.0 million. The loan is non amortising and committed for a three year period. Interest is charged and paid monthly at 13% above the central bank rate."

13% above the central bank rate = 17.5% interest rate on a £15m loan, which is quite staggering.

Now why would a company booking profit of £24m need to take a £15m loan at 17.5% interest rate?

This is a textbook example of why you have to read & ideally understand what all of a companies financial statements tell you. Sure, the P&L shows a whopping great profit of £24m & EPS of 16p, however the balance sheet & cash flow statement tell you this apparent profitability is nothing more than superficial.

Revenue is being booked to the P&L but never feeds through to the cash flow statement. Instead it sits on the balance sheet in an ever growing pile of trade receivables, which tallied an incredible £222m at 31/12/22, an increase of some £34m year on year. Because this cash isn't being collected, they need to increase their borrowings to finance new cases, so debt grows year on year too.

The result is a gradually expanding house of cards. They'll reach a point where they can't borrow any more & won't be able to invest in new cases, this will lead to a collapse in revenue & unless they can cash in a chunk of those £222m trade receivables to repay the debt, likely lead to insolvency.

Interesting situation developing here;

If GGP do have a shot at buying back the 70% of Hav they don't own wouldn't the directors be savvy in downplaying it's value in the short term?

The placing rumours are one way of reducing the equity value of the 30% they do own, which could be potentially helpful in any negotiations...

Notable that Zeus had a 180p target price as of 29/03, clearly EQLS aren’t in the same league as ALPH but the increased gross margins should lead to a significantly higher valuation. No surprise to see 100p going & could re-rate nicely with longer term aspirations being disclosed at tomorrows CMD.

(Alliance News) - Asos, currently aiming to revive its fortunes with a restructuring plan, may need a fundraise to help get the ball rolling, analysts at Shore Capital Markets said on Monday.

The broker said that while it has noticed early fruit from the retail company's turnaround plan, the "laser focus" pursuit of immediate profit growth could hurt future growth.

Shore rates Asos at 'sell". Asos shares closed 21% lower at 400.50 pence each in London on Monday. It has slumped 72% over the past 12 months.

Back in October, Asos announced a turnaround plan. It said it would look to improve inventory management, reduce its costs and "reinforce" its leadership team and culture. The plan was one of Jose Calamonte's first acts as chief executive.

"Asos has taken decisive actions to bolster its financial performance, including reducing its reliance on unprofitable brands, streamlining operations in less lucrative markets, and strategically targeting unprofitable customer segments. While there have been some encouraging signs, such as heightened sales for their flagship brand, Topshop, and improved gross margins, the laser focus on immediate profitability risks stifling future growth prospects," Shore analysts commented.

Last week Wednesday, the company reported a markedly weaker half-year financial outcome, though it said its turnaround plan is progressing.

Asos, which said it is "prioritising order economics over top-line", explained it is committed to ending the financial year with a better inventory position.

For the six months to February 28, revenue declined by 8.2% to GBP1.84 billion from GBP2.00 billion a year earlier. Its pretax loss widened to GBP290.9 million from GBP15.8 million a year ago.

The outcome reflects "both deliberate actions on capital allocation to improve profitability and a challenging trading backdrop".

Asos said its gross margin fell to 36.1%, from 43.1% a year earlier. Its adjusted gross margin was largely flat year-on-year, however, at 42.9%.

Shore also noted that Asos saw its gross margin improve by 300 basis points in February. The broker also hailed a sales rise at Topshop.

"Furthermore, Asos has been steadily growing its market share in the core UK online retail market among its primary 16-35 demographic and capturing a greater portion of its customers' wallets," Shore added.

However, Shore is still bearish on the stock.

"Given the ongoing restructuring and cost savings initiatives, it is becoming increasingly evident that Asos will need to seek further capital infusion to support its long-term viability, in our view," Shore analysts added.

By Eric Cunha, Alliance News news editor

People are mad trying to buy this today, it's literally providing liquidity to the hedgies who more than likely have information regular PI's don't. Would you be chucking £40k in at £4.08 average if you knew they were placing at £3 tomorrow?

It opened down due to a downgrade from JP Morgan (1000p to 610p), it then sat at support for a while before heavy selling took out all buy side order down to 435p. With support gone it's a case of price discovery taking place to find a new low. There is an order for 50k shares at £4, so this may be where it gets driven down to by the hedge funds who are shorting. Oh and I totally agree on the CEO / investor comms. It's horrendous.

"Even if they had to write off 100% of inventory to zero, it is a non-cash item as the inventory has already been bought. It should have no bearing at all on FCF."

You can't be serious surely?

They've put the £500m convertible debt into inventory, if this inventory is then worthless how do they repay the debt? And do you think for one second they would get fresh finance if this turned out to be the case?

If a company with net debt of £400m has to write off £900m of inventory then I think it's curtains...

When they had drawn £258m of an RCF as of 28/02 what good would a £100m raise do? Further, with £978m of inventory & £837m of payables, £100m is pocket change. I think they need a minimum of £250m to repay the RCF (coincidentally they raised £247m when covid first hit). Who knows price wise, however given their recent financial performance & the approaching £500m convertible debt maturity in April 2026 I suspect play hard ball. The longer they take to raise the money the lower the price goes, this is more like a samurai sword than a knife right now...

In 2021 there were 1729 accounts under management, so average cash swept per account was ~£460k. Last year the 4200 accounts had a slightly lower average cash sweep of ~£380k. Being prudent let’s assume this falls to £300k over the year, with 8400 accounts that would give an average cash balance of £2.5b.

Up to Feb they’ve locked in USD & GBP 2-year hedges for around £540m at an average rate of 4.1%, commencing midway through 2023. Since then interest rates have increased a further 0.5% in the UK & US whilst the ECB has added 0.75%. I think it’s fairly prudent to assume run rate interest of at least 4.1% on the unhedged balance for the remainder of 2023 (USD + GBP balances could earn more than this, whilst EUR will likely end the year between 4-5%).

£2.5b * 4.1% = £103.3m PA interest income run rate by end of year (£8.6m a month!).

Just how big could this get?

Really interesting announcement on Wednesday which really reinforces the vision stated in their latest annual report;

"Our vision over the next few years is to be recognised as the global leader in financial services, that is built to empower the alternative investment industry. The market opportunity in front of us is huge, and we are looking to scale at pace. Last year we ended with 4,200 accounts, and we intend to finish 2023 having at least doubled this to 8,400."

It very much feels as if Alpha is disrupting the alternative investment industry in a similar manner to the way Transferwise disrupted cross border money transfer.

It is frankly incredible how under the radar this remains, there appears to only be one analyst covering the stock (Liberum) and as a result I very much doubt anyone outside of the current funds invested + diligent PI's are aware of the story that is unfolding here. I'd be willing to bet that most analysts still think this is an FX player, such is the lack of awareness of this stock.