Friday, September 21, 2012

Fri - 21 Sept - HMV, TAN, GBO, TMZ

Good morning, phew Friday at last, must admit I'm feeling a little knackered, so will enjoy a good rest this weekend! Right, here is my usual quick blast through this morning's results of interest. My old Dell laptop has staged a miraculous recovery, so the £ signs are back!

HMV Group (HMV) has predictably come out with another pretty disastrous trading statement - it's a miracle it hasn't gone bust (yet) - but the former CEO Simon Fox (since joined TNI as CEO) did a series of astute deals with the Banks & suppliers which at least gave it a fighting chance of survival. But with the onslaught of digital streaming services for music (e.g. Spotify, which I use & it's brilliant) & film, combined with exhorbitant rents, it's difficult to imagine how HMV can possibly survive longer term. Their LFL sales are down 11.6% in the last 20 weeks, but they point to a strong release schedule of music, DVDs and games ahead of Xmas. I doubt there is any value in the equity, since debt is so high & prospects to bad, so this is one falling knife I won't be tempted to catch.

Tanfield Group (TAN) has pulled its IPO of subsidiary, Smiths Electric Vehicles. Can't say I'm surprised, it looked like pie in the sky from the start. This is a great trading share, as waves of PI excitement regularly (and for years) take the shares up to ridiculously high valuations, before it disappoints and crashes back down again. We are now probably in the latter phase, and last time I looked it was touch & go whether the core aerial platforms business will turn itself around in time to survive. So I would use my bargepole on this one right now. I would expect a big sell-off in the shares today.

Am beginning to regret my decision to sell shares in Globo (GBO) due to concerns over what impact a Grexit might have on Globo's still substantial Greek operations. They say today that the Greek operations will be disposed of in Q4. Their interims today are very impressive, with H1 EBITDA up 48% to E10.87m. Although once again I note that all their reported operating cashflow is consumed by costs which have been capitalised. So how real is the profit? I'm pretty sceptical actually. Companies which capitalise internal intangibles are usually an accident waiting to happen, once people realise that the profits are largely fictitious. This may or may not be the case with Globo, but I don't like capitalising internal development costs one bit, and also question the longevity of services like this - the internet & mobile space is changing so fast, that what's hot one year is quickly surpassed by something new next year. Hence growth can be rapid but brief. So on balance, whilst I suspect these shares might have big short-term upside in them, it's probably best for me to watch from the sidelines due to my concerns.

Scratching my head over results from Toumaz Ltd (TMZ). This jam tomorrow operation has once again delivered negligible turnover, and consistent losses, yet has a mkt cap of £78m. Clearly investors believe that waves of jam will indeed roll in tomorrow (or am I mixing my metaphors there, with gravy?), in order to support such a high valuation. Not for me, have been caught far too often over the past 15 years with overvalued hype stocks. I'd rather pay a low multiple for good solid cashflows elsewhere thank you.

Futures are indicating a positive start with the FTSE up 26. Which is nice. More later when I publish Part 2, have a great day & weekend!


  1. Intereted in your comments on Globo (I hold). The capitalization of internal development costs is also something that concerns me. I can see two sides to it:

    1.) If the project turns out to be profitable, it turns out to be a sensible move- as your development work has produced an asset (the software) which you can then depreciate over the years- helping to spread out the tax impact of increased profitablity.

    2.) If it turns out to be a lemon- you look pretty stupid, and have to write it off over future years.

    In Globo's case, the new product that they've capitalized (Go Enterprise Server) is starting to deliver significant revenue (4 million in H1), so its looking like it might have been a sensible move.

    On the longevity front - this is definitely a concern with some Globo products (Citron Go and Go Social) which target feature phones rather than smart phones). Remains to be seen if the Go Enterprise Server revenues are going to be sufficient to cancel this out.

    1. If the upside case is right on GBO, then the shares are very cheap & could have serious upside. But there are a lot of question marks, so I'm watching with interest on the sidelines.

  2. Hi Paul, any chance you could take a look at ACHL results that were published this morning?

    1. Hi Stuart, afraid not - I don't cover any Chinese shares, for the simple reason that their entire economy is a rather bizarre fantasy, only vaguely related to capitalism.

      There are unimaginably vast bad debts within the entire economy which are never recognised, accounts are therefore unreliable across the board, and at some point I think there will be the most almighty collapse of their entire economy.

      Also the Chinese have long had a reputation for having a penchant for stealing intellectual property, and specialising in fraud, so again not something I want to get involved in.

    2. Hello Stuart,I have invested a small amount in ACHL-like the business model ie: starting off propagating seed in their laboratories,planting the best varieties,harvesting the oranges and either selling them or diverting them to the fruit concentrate business they acquired.Being an ex farmer I know there can be good harvests and bad ones but hopefully the 240 million pounds of cash will keep the wolf from the door.Also useful dividend of 5%(35%of core profits paid each year).

    3. Stuart, I've been a holder for several years, but more lately I'm concerned about wage inflation vs lack of pricing power, and the health of the current crop. However, with current share price below 30p and with the juicing operations having the potential to surprise to the upside it's looking good value. More likely a steady income and growth asset for a portfolio than a share that's ripe for making a quick buck though.