The
Tungsten Saga continues....... this time what has gotten me started
is another gem from a so called “value” analyst Paul Scott on
14th
May after Tungsten declared it's trading update. So here goes....
As
usual, he started by blaming the house broker as follows “a
major reduction in broker expectations, slipped out without informing
the market properly”.
This seems to be an absolute lie (and if not, then Canaccord has to come clean on this). Canaccord Genuity is the
only broker who covers this stock and has reduced target price only
once – on the14th
Jan 2015
from 405 to 369. Canaccord even came out to defend Tungsten on 25th
Feb 2015
after the first bear attack. Few noteworthy points below -
On
Cash Balance
Canaccord
on 25th
Feb 2015
“We
expect Tungsten's free cash to support cash burn to at least October
2015. Tungsten
had £27.7m of free cash as at the end of October 2014. Based on FCF
burn of £16.5m in H1 FY15, we estimate cash burn of £2.8m per month
until the end of the fiscal year and a
year ending free cash balance of £11.2m.”
Tungsten
on 14th
May 2015
“Tungsten's
cash position at 30 April 2015 was £31.4
million, including £18.6 million
of cash or cash equivalents held in Tungsten Bank.
”
On
Financing
Canaccord
on 25th
Feb 2015
“We
do not forecast that 10% of Tungsten's e-invoicing volume will be
financed. We forecast adoption rates rise from
0.3% at the end of FY15 to
2.2% at the end of FY16 and 2.7% at the end of FY17. We make
no
changes to our forecasts that were revised in January.
We forecast average annualised financing volume rises from £7m
in FY15
to £257m in FY16 to £566m in FY17.”
Tungsten
on 14th
May 2015
“By
30 April 2015, 188 suppliers had signed a contract to use Tungsten
Early Payment, and 38 suppliers had completed the registration
process to become a customer of Tungsten Early Payment. Total
invoices financed was
£32 million.
”
*average
annualised financing as per Tungsten is £10.6m
On
Net Interest Margin
Canaccord
on 25th
Feb 2015
“We
forecast a
5.5%
net interest margin”
Tungsten
on 14th
May 2015
“Tungsten's
experience has shown the two distinct markets, large corporates and
SMEs, have different average yields, with large corporate invoice
financing having an average yield of 4.5%
p.a.
and SMEs having an average yield of 12.4%
p.a.
”
So
Canaccord was spot on with the numbers about two months before the
update.
Mr NoValueAdded analyst goes on to say - “a
total of £32m invoices having been financed so far is chicken
feed.
They're only financed for say 30-60 days remember, so that's next to
nothing in income for TUNG”
. He
perhaps forgot to mention that only 38 suppliers got £32m
worth of invoices, out of their total £40.5m invoices, financed in
4.5 months. In my humble opinion, this indicates some demand of the
product from enrolled suppliers.
This
quote from him probably deserves a special mention of its own -
“recently I
stumbled by accident upon another UK listed company which is
doing very much the same thing as Tungsten, although possibly on a
smaller scale, and is already profitable, called Proactis
Holdings (LON:PHD)
(disclosure:
I hold shares in Proactis)”.
Deja vu? This comment seems to be on the same lines as that of Dark
Destroyer who compared OB10 network with a small software company.
The key point used by shorters for the last 3-4 months is to
discredit OB10 network and to show it as worthless. There are few
companies who provide compliant e-invoicing services at global level
and one of those is listed independently- Basware (Market Cap
-£400m).
Tungsten
released an RNS on 21st
May about the possible JV which got lost in the placing saga and
surprisingly this JV news is ignored
by biased unregulated bloggers.
“The
Company is currently in discussions with respect to a proposed joint
venture ("JV") arrangement with a global
financial institution, which
would be complementary to its current funding arrangements and which
could, if concluded, involve both Tungsten Early Payment and
some of the global financial institution's customers being
channelled through the JV. There is no certainty that any such
JV arrangement will be consummated and further announcements will be
made in due course.
”
If
Tungsten is able to enter this JV, the obvious downside is they will
lose half of the financing growth but the upside is to gain some of
the invoice financing clients of the global financial institution,
which will jump start Tungsten's early payment and will provide
revenue to feed the growth engine and bring down the cash burn rate.
The key will be outstanding loan book of global
financial institution's invoice financing business. If a UK based challenger bank (Aldermore) can build a loan book worth £200m in 3-4 years, then the loan book of prospective JV partner should be substantially bigger.
From
the global financial institution's perspective, it will gain half
the share in the financing growth of Tungsten early payment and will
loose half of the revenue from it existing invoice financing
clients. The JV's revenue will be more from the clients on Tungsten
Early payment than that of the global financial institution's
system because of reduced operating cost.
Based
on the above, the JV should be in the money from day one and have a
lot of potential for growth.
And
the last point about Tungsten share price; Ed Truell single-handedly
supported the share price with his buys after the first bear raid on
24th Feb and price recovered back above 200. I believe Ed
Truell got restricted from the first week of April because of the JV
deal and from there onwards the share price has been ground down on
daily basis. There was no support from other long only funds which is
the key deferential from the US Market. Gotham City tried a similar
trick on another Tech company (EIGI) in US and that didn't work. It
seems like UK is not the right place for Tech growth companies.
We
shouldn't be far off from an update on the JV as the time frame for
these types of deal is around 2-3 months. It will be interesting to
see the impact of the JV on the share price. And of course the impact
from an unrestricted Ed!!!
I'm
not writing to support Tungsten's growth prospect. My aim is to bring
out the lies spread by unregulated bloggers.
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