Dark Destroyer- destroyer of common sense Part II

Thanks a lot for all the messages. Perhaps know my last post was a little bit unprofessional but I'm not going to apologize. I strongly believe that unregulated bloggers who write without proper homework should be questioned and checked at some level. And I can see the motivation of such bloggers as my last piece was read in more than twenty countries.

On my part, I went through Dark Destroyer's series again to make sure that I wasn't unfair. And once again, I am at a loss for words. Here are a few more points that I believe are worth a mention -

Growth Story

In his third article Dark Destroyer mentioned-“The interim statement to 31 October 2014 indicates that suppliers grew to 171,000 from 168,000 in April 2014. This is 1.7% half on half growth.  However, this differs with the accompanying interim presentation, which highlights 174,000 suppliers (up from 168,000). I can only presume that the discrepancy lies with this figure representing growth in the period 31 October 2014 to the release of the interims. That growth is a bit better, but still less than a 2% increase over several months. ”

As I mentioned in my last article, Dark Destroyer is not able to work out the supplier captive model. He was biased and ignored the growth in buyer numbers. OB10 took 14 years to add 122 buyers (IPO document- Intention to float -page 2) and the current management added 46 (37.7% growth) in one year since OB10 acquisition. It is a massive achievement in this market with fierce competition from Ariba, Basware, TradeShift, Taulia and numerous other small companies. The master stroke was to acquire DocuSphere. The other key point was to get four German government departments on-board on Ariba's home turf.

Similarly supplier numbers were 140,000 as per IPO document (Intention to float -page 2) and 31,000 (22.14% growth) were added in one year since OB10 acquisition.

The increase in buyers had definitely increased their addressable market and will reflect in supplier numbers in a very short while.

Cash burn

In his first article on 23^rd Feb 2015, Dark Destroyer mentioned - “Its net cash position declined from £62.6 million as at 30 April 2014, to £27.7 million as at 31 October 2014. Whilst it is investing heavily, it is also burning through considerable operating related cash. Consensus forecasts project that net cash will have declined to £4.3 million by 30 April 2015.

PwC has to sign off its books during the next four months or so, and therefore be certain that it has sufficient resources to meet its obligations. My reckoning is that a sizeable cash call is needed to persuade them to do the signing.”

Tungsten declared preliminary results for the year to 30^th April 2014 on 8^th July 2014. Dark Destroyer missed the post balance sheet event (page 35 and also explained on page 12 of annual report 2014) which clearly conveyed £25.3m was paid in June 2014 for FIBI bank acquisition. So anybody who can read and read carefully, would have known that cash available at start of that period was not £62.6 million but £37.3m.

Let's look at the cash burn in first year (Oct 2013 – Oct 2014 ) of Listing-

If Tungsten had a similar cash burn (26.2m) in the second year, they would still have enough cash till Oct 2015. I cannot understand how Dark Destroyer arrived to this - “Consensus forecasts project that net cash will have declined to £4.3 million by 30 April 2015”

The other important point to consider is one-off costs in first year of listing. Understandably, a considerable cost would be incurred to-

- integrate OB10 and FIBI bank systems to launch early payment.

- integrate OB10 and cloudbuy software for Analytics

- get FIBI bank licence transfer

Tungsten's cash balance is more than enough to cover whole of 2015 even without

• no revenue* increase from e-invoicing (37.7 % more buyers in second year)
• no revenue from invoice financing ( went live in UK and US in Dec 2014)
• no revenue from Analytics (one contract signed and 27 in trial as per Jan 2015 interim statement)
• no revenue from DocuSphere

*Revenue from e-invoicing in first year was £21m

In my opinion, while Tungsten doesn't need to raise cash they should do so to strengthen the balance sheet and ward off bears.

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 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