Dark destroyer is a monkey who
is putting his tail on fire to burn Ed Truell's empire but all he
seems to do is simply burn his tail!. The share price has recover
from the all time low. He wrote four articles to criticize
Tungsten's business model; and did a shoddy job in analysing and
presenting facts.
An
analyst who can't analyse-
In his fourth article, he
compared Ariba's dynamic discounting model with that of Tungsten
and calculated Ariba's discounting penetration to be between 0.003%
to 0.007%. Ariba's discounting model is dependant on availability
of buyer's spare cash and willingness to pay early to supplier's to
get discount. Dark destroyer somehow concluded that all of
about $700 billion dollars were made available by buyers for early
payment. He made a wrong assumption that buyer's have lot of
free cash and are willing to pay early. In fact it is quite the
opposite in the real world.
If buyers have spare cash and
are willing to pay early, the very existence of invoice financing
business does not make sense. Dark destroyer contradicts himself in
the second part of article by showing that there are lots of
companies involved in invoice financing. The sheer number of
businesses involved in invoice financing proves that buyers don't
have spare cash and are not willing to pay early.
I can almost sympathise with
Dark destroyer's ill-informed assumptions but for him to contradict
that very assumption in the same article is beyond the realm of my
comprehension. If nothing else, I think it displays his rather
questionable analytical skills.
Google
analyst
Dark destroyer has displayed his
skill of being able to google-search and has done wonderful job of
copying and pasting images from the web on his blog. Are we
expected to believe he understands the information he stumbled upon?
In his second article , he used
RBS's invoice finance pricing to calculate Net interest margin (NIM)
for Tungsten's model. He couldn't understand the difference between
1% of turnover and 1% of invoice value. He missed the renewal fee and
did a poor job of calculating NIM to be around 2.15%.
I can imagine it will be hard to
figure out RBS's actual NIM for invoice financing from their annual
financial statement as it runs a very large and complex business. In
the same article he used Bibby Financial Services (UK's leading
invoice finance specialist) to get discounting penetration
information. If he had gone one step further than the
know-all-google-search and spent £1 on downloading the annual report
of Bibby financial services from the companies house, he could have
saved himself from the embarrassment of coming up with a shabby NIM
calculation. It is quite easy to figure out Bibby's actual funding
cost and NIM from their last year's report. Aldermore Bank's last
year annual report also provides good insight into net revenue
margin, net interest margin , administrative expenses and impairment
losses of their invoice financing business in UK.
Cannot
understand Technology company
In his first article, he
compared Direct Insite with Tungsten and mentioned few sales pitch
quotes/numbers from their website. He thought Direct Insite to be
similar to Tungsten with the market cap about 21 times less than
Tungsten. There was also another article published on Seeking Alpha
which mentioned Direct Insite as hidden gem and also shown Tungsten
to be way expensive with market cap of 27X sales (which I believe is
factually incorrect). This has lead to a thought process that
Tungsten has paid too much for OB10. I believe most Hedge funds are
shorting based on this idea. Tungsten(or their broker) came out in
defence that they have paid 5 times of sales which is better than
what SAP paid (9 times of sales) for Ariba.
Direct Insite provides number of
enterprise level software solutions to corporate and banks. Their
main product is paybox to automate their client's lockbox services.
There revenue is around £5m per year and they have only got 6-7
clients (one global bank and few corporates). Every client runs this
piece of software independently for their own clients (which are
350,000 in total). So in effect every client is building their own
mini OB10 network which will never interact with each other. Direct
Insite doesn't control/own the data which runs through their
software. It is just providing software services and it's clients
will monetise the benefits by using the software. If Direct Insite
wishes to follow OB10 then they will need at least 5-6 years for
development and numerous rounds of funding to convert their
enterprise level software to a Global network.
Aldermore has learnt in short
time that it is not easy to scale invoice financing business. They
have cut balance sheet and are investing in a stable platform after
hit with number of fraud cases. They have to write down 8.9m in
last 2 years. In light of this, the value of OB10 is under estimated.
It provides more robust risk management for supplier fraud, data
security and contract compliance.
Weak
with numbers
In his second article, he used
RBS's invoice finance pricing to calculate NIM to be 2.15% and two
days later he corrected himself by using another website (Fund
Invoice ) to update NIM by approximate 6 times to be 12.5%. Using
his unmatched mathematical skills, he was able to predict that
Tungsten will earn £10M in net fees by using either NIM (2.15% or
12.5%). I suppose he will reveal this calculation for his Doctoral
thesis!! Dr Dark Destroyer?!!
No
clue about business model
Dark Destroyer has mentioned
more than a few times about the hardship Tungsten will face to
convince suppliers to ditch their “Trusted banks”. He has not
been able to figure out the captive supplier model.
As an SME, I would love to join
Tungsten network but the buyer of my services/products is not
convinced. Do I have any option?
As an SME, I hate Tungsten
network but the buyer of my services/products has mandated to receive
e-invoice only through Tungsten Network. Do I have any option?
Tungsten doesn't have to
convince suppliers. They just need to convince their 166 buyers to
mandate e-invoice through their network globally and help the buyers
to connect suppliers to the network as soon as possible.
Suppliers
will not need Invoice factoring services from the “Trusted Bank”
once it has got 50-60% of his buyers on the Tungsten network. The
basic feature of Tungsten Network is to improve DSO, reduce
collections and administrative costs.
When Suppliers will submit
invoices and check status through Tungsten network, I can't
understand why would they do the following to receive invoice
discounting from their “Trusted Bank”
- Let the bank have legal charge on the company
- Pay annual and renewal fee
- Email them the invoice and wait for 2-3 days for confirmation
- Get 80-85% of the invoice amount
- Total credit facility will have a limit
I can go on forever; it is quite
amazing that the above piece of analysis got mentioned in The Times
articles and that Tom Winnifrith (self proclaimed sheriff of AIM)
calls him the most respected analyst. Tom has done a good job on QPP
but he has lost it by comparing every AIM CEO with Rob Terry.
Don't get me wrong - this is not
about Tungsten's growth prospect. I'm not writing this to support or
criticise Tungsten's growth model.;I'm just amazed/surprised/shocked
at this piece of analysis.
Disclaimer
All
content provided on this blog is for informational purposes only. The
owner of this blog makes no representations as to the accuracy or
completeness of any information on this site or found by following
any link on this site. The
owner will not be liable for any errors or omissions in this
information nor for the availability of this information. The owner
will not be liable for any losses, injuries, or damages from the
display or use of this information.n
the public domain and where required the source of information is
referenced to for verification. While every effort has been made to
ensure the veracity of any information contained within this blog,
the author accepts no responsibility for the accuracy of any
information contained within this blog or for the sources of
information which may be referred to. Readers are responsible for
their own actions and interpretation of the information contained
within this b
