Serco (SRP) ... high fives and low 300s

Thursday 30th January 2014

Palm to forehead (THWACK) for holders of Serco.

U woz warned ... at it again? ... not much PECS appeal

I reckon somewhere in the 300 pennies area beckons. Oooh. 

Serco share price
Source: Bloomberg

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in 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 blog. 

Globo (GBO) ... competition and testimonials

Tuesday 28th January 2014

I've shorted more Globo, this time at 66.5p/shr

In late October last, I used the website, xyo.net, to find out how many times Globo’s, GO!Enterprise app, had been downloaded onto iPhone, iPad, and Android device. The results were detailed on this posting: The very low down on downloads

There is supposedly a margin of error of c. 10%, but even so, Globo’s results were pretty lacklustre compare to those of its peers: Good for Enterprise, MobileIron Mobile@Work, and AirWatch MDM Agent.

The table below details the number of times each of Globo’s and its competitors’ apps had been downloaded across iPhone, iPad and Android devices through to 29th October 2013.

Total number of reported downloads through to 29th October 2013
Source: xyo.net

The table below is an updated version of the above, through to 28th January 2014.

Total number of reported downloads through to 28th January 2014
Source: xyo.net

In the three months since late October last:

• Good’s, Good for Enterprise, downloads have increased by 126,000;
  
• MobileIron’s, Mobile@Work, downloads have risen by 92,000;
  
• AirWatch’s, MDM Agent, downloads have grown by 87,000;
  
• Globo’s, GO!Enterprise, downloads have gained by 1,400.

Globo’s growth in downloads is less than 500 per month. Why is it so paltry?

One reason may be that Globo apparently also offers its product to download from its GO!ES server directly:

 

“... GO!Mobile Client  is distributed form (sic) GO!Enterprise server to end users without the need to have an app store account by utilizing Enterprise Licencing options provided by most OS vendors such as Google, Apple, etc.”

So, can anyone advise if Globo has had more success through this route than the limited success it has seemingly had with the app store path? If so has the company quantified this? One method to quantify this may be the following ...

This morning the group indicated that it had generated GO!Enterprise related sales of “... close to €31 million” in FY 2013. This product costs c. $700 for 10 devices per annum. That is $70 per device or c. €51 per device per annum. This is a gross price and will not include the cut of a distributor nor reseller. Nonetheless, €31 million in revenue at c. €51 per device, means c. 608,000 devices. Given that less than 8,700 devices have downloaded the GO!Enterprise app (see above), that would mean just 1.4% of Globo’s customer base has used the app approach. Or put another way, it must mean that 98.6% of Globo’s customers use the server approach. Is this realistic for a customer base which must be weighted towards SMEs which would likely prefer the low IT approach via simply downloading the app?

Further, as Globo’s peers look to be achieving such strong growth via the app store route, why does Globo not also attempt to tap into this more?

More successful apps ...

A recently published research note by Ennismore Investment Management is worth a read (found here). Amongst the information that Ennismore provide, they highlight a case study which a distrubtor, Computerlinks, uses in its promotion material for Globo’s GO!Enterprise product. The case study centres on a mobile app developed for the Theocharakis Foundation, an arts centre in Athens: Theocharakis_foundation.pdf

As Ennismore observe, this is a curious promotion. As far as I can tell, the work Globo performed for the Theocharakis Foundation centres on an app to inform customers of events and offers, as opposed to any Bring Your Own Device (BYOD) / Enterprise Mobility solution, which is what the case study is attached too. 

Theocharakis Foundation app
Source: xyo.net

And another thing ...

In my quest to find references from Globo’s customers vis-à-vis GO!Enterprise, the only customer which seems prepared to endorse the actual product is a company called, Gregory’s Food Service Group.

 

Indeed, Ingram Micro, uses Gregory’s testimonial to market GO!Enterprise:

Gregory's - Customer Testimonial as used by Ingram Micro
Source: Ingram Micro

Gregory’s is a coffee merchant in Greece, Albania and Romania. It must also be the most tech savvy coffee merchant in the whole of Greece, Albania and Romania: Gregory's

Gregory’s appetite for technology is so strong that it has testified for three different Greek IT companies’ products, including Globo’s. The others being: 

• Data Team - a Greek based provider of "Document Automation Technologies" for "Enterprise Re-engineering."

and

• Qualco - a Greek based provider of "enterprise-level, industry-specific software solutions."

Gregory's - Customer Testimonial as used by Data Team
Source: Data Team

Gregory's - Customer Testimonial as used by Qualco
Source: Qualco 

I expect Gregory's gets a discount for all these testimonials. 

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in 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 blog.

Tesla (TSLA) ... now I'm shorting

Friday 17th January 2014

I've updated the chart I was sent a few months back on Tesla (TSLA, mkt cap $21bn). Still no position in Cisco (CSCO, mkt cap $122bn). Now short TSLA. 

Tesla share price (2011 to current) as compared
to Cisco Systems share price pre and post dot com bubble
Source: Bloomberg

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in 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 blog. 

RBS (RBS) ... loading up

Friday 17th January 2014

I’ve bought a fair few shares in RBS (RBS, mkt cap £42bn) at 366p/shr. The rationale is broadly similar to that behind my purchase of Lloyds. The UK government (HMG) has an 81% stake in RBS, with a break-even level of 502p/shr. Therefore in order for a placing to occur, I reckon the price will have to be at or higher than this level. As with HMG’s break-even level in Lloyds, at 61p/shr, the chance of it taking a loss and the political/press fallout as a result would be anathema to the Treasury.

Lloyds looks as though it’s to be soon offloaded by HMG. Then the attention will likely turn more so to RBS. This will be a big juicy fee for the investment banks (IBs) and it will only really be possible if RBS’s share price is closer to the 502p mentioned above. Therefore, I’d expect the IBs to be keen to promote RBS higher.

The UK economy is seemingly on an upward path, while recent data on the Irish economy has shown improvement; allowing Ireland to borrow at the lowest spread in years. Further, RBS has begun to sell-off some of its US assets; shedding 94 branches in Chicago.

As with Lloyds, there is substantial investor underweight in RBS. When HMG decides to kick start the sale process, the free float will go up from 19%, meaning UK long only funds will have to take more notice, while tracker funds will also have to load up. The rally in Bank of Ireland, has in some part been driven by the implications of its greater weighting in several indices.

In valuation terms, while RBS may not warrant a valuation on par with Lloyds, its 46% discount on a price to book ratio is difficult to ignore. RBS currently trades at 0.67x forwad tbv (544p) as compared to both Lloyds and Bank of Ireland on 1.24x.

Technically, the shares appear to be on the verge of breaking out of a 14-month channel, which may signal a bull flag.

And another thing ... 

The trend in credit (CDS) pricing is also noteworthy. It’s fallen dramatically over recent months, to 4 year lows and has historically been a strong indicator for the path of the equity. 

UK GDP forecasts being revised higher
Source: Bloomberg

Forward price to book values
Source: Bloomberg

RBS share price
Source: Bloomberg

RBS CDS as compared to equity
Source: Bloomberg

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in 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 blog. 

WEIR (WEIR) ... demand driven short

Tuesday 7th January 2014

I have sold short in Weir Group (WEIR, mkt cap £4.5bn), at 2,094p/shr.

According to Bloomberg estimates (BBE), WEIR’s top 13 customers* account for 32% of its revenue. Further, BBE suggest that these customers are set to cut their combined annual capex by 6.5%, 4.0% and 4.1% in 2014, 2015 and 2016. This is a total cut in capex of 14% over the next three years. By comparison, BBE forecast that WEIR is set to grow its revenues by 3.5%, 5.0% and 9.5% in 2014, 2015 and 2016. This is a total of 19% growth in revenues over the next three years.

I do not see how see how 19% revenue growth as compared to a 14% cut in capex by the top third of WEIR’s customers squares.

Further, forward EPS forecasts have recently been cut on the back of a profit warning in November. I suspect a further warning may be on its way, either prior to or in the group’s 2013 prelims scheduled for 26th February.

At 12.5x forward earnings, its rating still appears full.

I reckon the principal risk is a short squeeze as it’s somewhat crowded with short interest at what looks like c. 12%. But I doubt this will happen any time soon, considering that the downside looks to have only just begun.

*Bloomberg estimate of WEIR's revenue by customer - Glencore Xstrata (6.6%), RIO (3.9%), EDF (3.2%), CAN Natural Res (2.6%), BHP (2.5%), Royal Dutch SH (2.2%), Anglo American (2.2%), Exxon Mobil (2.0%), Southwestern Energy (1.9%), PPL Corp (1.5%), Freeport-McMoran (1.3%), Vale (1.0%), BP (0.9%).

And another thing ...

In terms of the chart, there is what appears to be a nasty bear flag formed over recent months, itself within a down channel. Further it decisively gapped down through its 200dma in early November and has failed to recover ... not an encouraging sign.

WEIR consensus revenue growth and EBITDA margin forecasts
as compared to consensus capex by top 13*(see above) customers
Source: Bloomberg

Recent forward EPS downgrades following profit warning in early November
Source: Bloomberg

Forward P/E and EV/EBITDA rating
Source: Bloomberg

Chart suggesting possible bear flag formed in downward channel
and decisively gapped through 200dma and failed to recover
Source: Bloomberg 

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in 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 blog.

Serco (SRP) ... at it again?

Monday 6th January 2014

Having closed my prior short in Serco, I've sold short again, this time at 511p/shr.

Not that I usually tune in, but I did and listened keenly to a small report on Western Australia’s, 6PR’s, news beat at www.6pr.com.au about Serco.

Serco have found themselves at the centre of a prisoner escape in Western Australia over recent days. This appears to be widely known and is not that major a news story. However, 6PR is also reporting a separate story on an investigation into whether Serco has been overcharging. 

  

6PR reports ...
“Meantime the state government is looking into claims private security firm, Serco, is overcharging on its WA prisoner transport contracts. Corrective Services Minister, Joe Francis, says “it’s launching an investigation.””

I am told that the Western Australia Prisoner Transport contract was won in May 2011 and is a five-year contract for the provision of Court Security and Custodial Services (CSCS) to the Western Australian Department of Corrective Services. The contract value is £140m.

Although a sizeable contract, this is less relevant. What is more concerning is that it is the first I’ve heard on reports of overcharging being committed outside the United Kingdom. If there is a case then it suggests that Serco’s wrongdoing is more widespread. I doubt that is fully priced in.

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in 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 blog.