Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Just reread the December TU and today’s results, both revenue and ebitda, come in at the low end of the ranges given in that update, _after_ taking into account the trading disruption announced. So certainly a lackluster performance, yet again.
There’s no new information here. We know there aren’t many state launches lined up. They already told us about the issues with Barstool. “Consolidation” is exactly what we need - continue operating, signing partnership deals, and ideally more revenue share agreements. No more expensive purchases of websites, no more overhauling of the business model. Meanwhile the valuation is ridiculous. I don’t understand what the market expects of this share!
I can see that forecast revenues have been revised down to $50-52M, but can anyone see what they were revised down from? We already knew they weren’t going to be as high as 2022, but we’re actual numbers given anywhere?
Is it just me or is the TU today barely penetrable?
"The second half of the year has seen revenues earned in previous years from August through October, in part moving back to mid-November onwards."
WAT?? I'm interpreting this to mean "The revenue in this August - October was similar to revenues during that time period in previous years (which previous years?!?), this gradually ramped up and by mid-November was back on track with how this year was forecast." But it's a lot of guesswork because the wording is gibberish!
From what I can understand, what actually happened is a bit of a "blip" - Casino operator PENN went from running the Barstool sportsbook to the ESPN one. Both Barstool and ESPN were XLM partners, but the nature of the process meant there was a period of a few months when neither was generating revenue for XLM. Obviously not great, but phrasing it as "a significant change in the revenue profile of the Group's North American activities." seems overkill!
I know it's been mentioned on these forums before, but these guys _really_ need to up their game when it comes to making these announcements!
Yeah it has been pretty quiet! Been going over this one and I just can't understand why it's so low.
Has the market decided that it can't handle the lack of predictability?
Hopefully there will be a buzz around the superbowl in a couple of months.
Forensic, what makes you say the business is operationally geared?
Mano have said this themselves, but it’s not intuitive to me. Presumably bigger cases have bigger purchase costs, higher legal fees, etc. Plus a larger share typically goes to the estate. Where’s the gearing?
The definition they use of Money Multiple is:
MoM Money Multiple is the Gross Proceeds less the Insolvent Estate's share of the Net Returns, divided by the sum of the upfront payment to the Insolvent Estate and total legal costs and other expenses of the claim.
So maybe more akin to operating margin? But yes there will be costs and expenses not counted in the denominator (not clear where the IPs share goes in this equation??)
The bigger issue is that the amount of money that they are actually earning this return on is relatively small. The promise of the IPO was that it would grow rapidly but covid set that all back; so in that regard we’re back to square one.
Smaller case sizes - they’ve covered this pretty well; BBLs are small (but, if I understand correctly, relatively low-work, so still high margin), and larger cases (administrations) have already recovered in volume and will filter down to Mano’s caseload imminently. So this is something I’m not concerned about.
Yeah this is interesting.
Of course this period spans COVID. Presumably the MM was affected by the same factors that caused the fair-value writedown (related to your first comment on this thread). So maybe the MM will stay suppressed in the current conditions?
They have been transparent about cases taking longer during COVID, due to lockdowns, important people being ill etc. This explains why the RoI (which has a time component) has been hit by a greater proportion than the MM in your data. That should be on the way back up now that case durations are back down to their historical average.
A possible factor is the lower average case size. I'm not entirely sure about this one, but presumably there is an element of fixed cost as well as variable, and lower case sizes will mean a higher proportion of these fixed costs. Mano has explained that they are expecting to see the larger cases returning en-masse.
Another factor is inflation - inflation is already affecting their costs, fees and wages, but hasn't yet trickled down into the headline size of the claims being brought to them. Again this is another frustrating consequence of their business model (similar to paying tax on "income" long before they see any corresponding cash, etc), but there should be another reversion to the mean as the size of claims start rising.
So there are multiple factors, but yes, I agree that this is not a positive trend, and an important thing to keep an eye on.
Re Peel Hunt - who knows where they get their numbers from!
There’s possibly some truth in this, but I disagree that the issue is flying under the radar. Mano employs a “Net Worth” team - which they recent expanded - to ask and answer exactly this question, ie “will the defendant actually be able to pay us if/when we win”. So they are well aware of the issue and are doing what they can to mitigate it.
That’s not to say there won’t be some haircut that Mano has to accept if things get severely worse than they are now. But this should be offset by both the greater volume and higher headline sizes of the cases that come Mano’s way in such circumstances. Mano will still cherry pick the best cases as it does now, but from a larger pool. I expect they would be able to make hay.
And if things get so bad that Mano’s receipts all but dry up, I suspect we’ll all have bigger problems too!
I think my last post was too flippant re. debt. Yes each incremental bit of borrowing that is then invested into cases can be justified by my argument, but it was a mistake to ignore the large amount of existing debt that was required to a) bootstrap the business and b) keep the lights on during covid.
Covenants aside, the debt pile really is going to be a drag on their bottom line because of the interest expense.
Hopefully the cash flows will keep increasing and they will be able to start meaningfully paying down this debt, as well as investing in new cases.
Of course the game changer here would be the cartel case windfall. Converting that “investment” into reduced debt will be a huge win. Keep on eye on the news around 19 Dec - the day of the appeal; hopefully there will be some positive news on this early next year. Quite a bit riding on this I feel! But again, all the recent updates re the cartel cases have been very positive, so I still feel optimism is warranted.
Again I think there is more room for optimism here.
Yeah the accounting model means taxation up front. That’s just a fact of the model, a cost of doing business. They’re borrowing at 8% and making 120%; they should be ok.
The margins are low now, but staff costs aren’t expected to increase again; the additional staff required for the higher caseload is already “priced in”. So margins should improve.
I know what you mean about the overly-optimistic updates. Personally I’m not a big fan of how the KPIs seem to change oh every update, in order to highlight the best-performing aspects of the business (ie note that eps wasn’t a KPI this time!) but then again their business has been through the wringer, and the bbl stuff is all new to them - it’s not crazy that they adjust the KPIs to match the new reality.
I get the impression that it wasn’t obvious to them that the larger administrations would take longer to pick up after covid than the smaller CVLs. This strikes me as fair enough - no-one had been through anything like covid before!
Similarly, the continuing extensions of govt anti-liquidation measures clearly came as unwelcome surprises. Not sure what else they were supposed to do here?
Plus, it’s only to be expected that he’s a bit of a salesman. Would we have been happy if he’d said “it will take us years to recover from this”? Of course not, we’d be outraged he didn’t put a more positive spin on it for the markets.
Agreed that the CFO seems a bit of a deadweight. He didn’t impress on the call.
Watched the presentation and I do feel more positive about the update.
The extra context around the covenant breach was helpful - the fact that the covenants haven’t changed over the last 7 years while Mano has grown significantly and has different requirements does sound off; the fact that HSBC waived the breach indicates that they agree.
I didn’t think he was too cagey answering questions about it - he’s in the middle of negotiations so obviously can’t make any promises. It was clear that the market can expect an update within the next couple of months.
The tone of the presentation made it clearer that the bbl pilot with another bank was “about to start” - ie it’s fully in the bag. This is great news, and I expect another announcement with clarification shortly.
I also felt better about the disappointing net margins. Part of it is interest expense, but another large part is additional staff costs; of course, those extra staff are required to work the higher caseload that has only recently been taken on, _and hasn’t worked it’s way into the top or bottom lines yet_. So it’s impact should be transitory.
Finally, there does seem to be some genuinely light at the end of the cartel case tunnel.
So overall very positive I feel.
FoMo: haven't had a chance to watch yet, I'll look out for your question.
StreetsJ: agree re it being a bad sign generally. Particularly given the nature of the business itself, and the expertise of the people running it!
Does the fact that the breach was "waived" imply that there was no penalty?
Given that they are renegotiating the contract, I guess it makes sense that they've hired specialists. Sounds expensive though :-/
Yeah it’s been quiet!
Agree that the breach of bank covenants was a nasty surprise - but then if Mano has a relationship with the bank such that they’ll sign a waiver and renegotiate the terms, surely that’s a positive thing? I’m not at all familiar with the details of how these things go though.
I guess ultimately the results were as expected, with more surprises on the downside than the upside:
- breach of covenant, as mentioned above
- lower profit (as you mentioned in your other post) despite all the KPIs tracking well
- no meaningful updates on what’s coming with the BBLs (we’ve been hearing about Barclays expanding their pilot, and this mysterious second bank, for months now)
- no dividend (as discussed in an earlier thread I wasn’t expecting one and didn’t think it would be a good idea, but still forms part of an unexciting update)