Fusionex Share Discussion Threads

[opodio] 16/3/2017 12:44

The lord giveth


And the chinese taketh away

[henchard] 16/3/2017 12:30

kcr69

Just had a quick scan.

Operating costs increased to 72.4m from 35.3m

Some of the cost increases are:-
Amortisation: +3.15m
Depreciation: +0.48m
Staff: +6.53m
Impairment: +0.66m
Office rental: +0.52m
Total +11.3m

Therefore other operating costs increased by around 26m.

The Directors state: "The reduction in profitability arose as a result of the Group increasing its expenditure towards marketing programmes and events, procuring of equipment, infrastructure, and cloud and other IT services, geographical and office expansion as well as into the development of its core products ..."

If, as you say, marketing spend was 10m in H1, a similar or slightly higher spend in H2 plus "procuring of equipment, infrastructure, and cloud and other IT services" could account for the 26m.

Edit: actually that would only be true if marketing and other costs were zero last year, which isn't the case, the directors saying they invested "significantly" in marketing in 2015. Hmm. Do let us know what the company says.

[henchard] 16/3/2017 11:57

kcr69

The full annual report is out today which may provide an insight into the big rise in operating costs. I haven't had chance to look at it myself yet.

[kcr69] 16/3/2017 11:17

Hi Henchard

Appreciated the debate yesterday and don't disagree with anything you said.

The crux for me at the moment is understanding how an additional 23m of operating costs has been spent this year against last year, over and above the 10m invested in H1 for marketing and 3.5m additional depreciation / amortisation.

Given the scale of this number it is a little disappointing that it hasn't been outlined clearly in the prelims RNS. I assume that a chunk of it is on further marketing spend, similar or greater to that declared for H1, but not outlined in the report. Lets hope so anyway.

I will contact the company to see if I can glean any clearer information as at this stage it is fundamental for me to understand whether the amount expended last year will freeze, grow, or prove to be non recurring at the levels incurred to date. What is clear as I said yesterday is that an operating cost increase of over 100% with a H2 revenue growth of 12.5% is not sustainable.

Still really like the product and sector but need further clarity on expenditure if I am to get back into the stock in any meaningful way.

Thanks again for the debate.

[j777j] 16/3/2017 10:32

"Fusionex has been encouraged by the take up of its big data analytics platform GIANT, which recorded a three-fold increase in customer numbers to 115 in the year. By the end of January it was 163."


This very impressive and they reckon Giant 17 will have even greater customer reach.


"Chief executive Ivan Teh is typically bullish: "With the impressive momentum continuing in the first four months of the year, a solid pipeline of new customers and the launch of our market-leading GIANT 2017 product on the horizon, the company is excited and confident in its ability to realise its significant growth opportunity."





Should get some upgrades to the numbers.

[saj3] 16/3/2017 10:02

This is classic market makers if you believe in the company buy and hold

[j777j] 16/3/2017 05:00

Why is the Fusionex CEO so excited?By Graeme Evans | Wed, 15th March 2017 - 16:29??Big data analytics, artificial intelligence (AI) or the Internet of Things (IoT) are just some of the technologies that are transforming our daily lives. And yet, for investors, there appear to be precious few ways to ride the next wave of the 4th industrial revolution.According to the International Data Corporation, big data and data analytics spend is expected to reach $151 billion (£124 million) in 2017, presenting a significant revenue opportunity for companies with the right technology.Fusionex International (FXI), a Malaysian software firm specialising in all three technologies has attracted the attention of investors. Its shares crashed last year on concerns about poor cash collection, and they've fluctuated in recent months.However, the AIM-listed company did give a hint of its potential Wednesday when it posted results for the year to September. Crucially, cash collection days fell to 78 from over 100.Fusionex has been encouraged by the take up of its big data analytics platform GIANT, which recorded a three-fold increase in customer numbers to 115 in the year. By the end of January it was 163.The platform gives customers the power to extract data from sources throughout their organisation before turning this into information that can be used to increase efficiency or achieve a competitive advantage.?GIANT is proving particularly popular in the retail and travel and hospitality sectors, as well as financial services. This year, Fusionex is planning to launch a next-generation version of GIANT, which will feature enhanced visualisation features, stronger search driven analytics and more intuitive user features.The company racked up revenues of 94.6 million Malaysian ringgit (£17.4 million), a rise of 23%, despite switching to a subscription model from a licence-based one. Major client wins have included the Malaysian Stock Exchange, as well as business with an Asian resort and a global media conglomerate.The group still turned in a net profit for the year of RM1.4 million (£260,000) despite a significant increase in investment in the business.Chief executive Ivan Teh  is typically bullish: "With the impressive momentum continuing in the first four months of the year, a solid pipeline of new customers and the launch of our market-leading GIANT 2017 product on the horizon, the company is excited and confident in its ability to realise its significant growth opportunity."Peel Hunt analyst Damindu Jayaweera said the switch to a subscription-based model made it more likely that Fusionex's new business wins will remain on board, thus enhancing the company's revenue visibility.On yesterday's close of 154p, Fusionex trades on a price/earnings (PE) ratio of 25 for calendar-year 2018 and, given its 60% recurring revenue profile, Peel Hunt has reiterated its 'buy' rating with a price target of 220p.Jayaweera added: "Whilst the company has delivered ahead of expectations, our forecasts remain unchanged for now."We reiterate our 'buy' stance, noting that this stock is one of the few pure plays on some of the fastest structural growth themes in technology; Big Data, AI and IoT.". 

[galeforce1] 15/3/2017 19:41

A disappointing day!

The results were better than I expected. I was particularly pleased by the pace of new customer growth.

But after an early rally there was some determined selling. The share price fell from the late 150's to the early 140's, where it remained.

But Hopefully patience will eventually be rewarded here. Ivan Teh seems very impressive and his ambitious strategy for this business seems to be working. I will try to attend the AGM.

Does anyone have the old or more recent brokers notes?

[zcaprd7] 15/3/2017 15:19

Highly recurring, software business I suppose, once tech investment is done, it should become a cash cow (in theory)...

[muffster] 15/3/2017 14:28

Question, how on earth did this list with such an absurdly high PE. It is on about a PE now of 60 and share price was much higher years ago.
Crazy metrics.
Partially Agree with comment to not look at PE just the growth, but this ignores fundemental analysis crucial to assessing whether it will ever justify todays current share price.

[henchard] 15/3/2017 13:44

kcr69

FXI's accounting policy is to amortise development costs over 5 years (see 2015 Annual Report p.24). So, it has a cash development cost in any one year but accounts for it in the income statement by spreading it out over the subsequent 5 years.

[j777j] 15/3/2017 13:40

It's Malaysian, not Chinese.

[abarclay] 15/3/2017 13:36

Fusionex International plc - FXI
Where theres muck theres brass. Where theres chinese, theres usually a chinese take away.

Someone probably dumped a load of dung. Who flung dung.

[j777j] 15/3/2017 12:56

Nice video explaining Giant 17

[kcr69] 15/3/2017 12:41

Hi Henchard

Really appreciate the response, and can't disagree with you that the development costs of 26.4m and the property, plant and equipment costs of 18.1m are quite clearly accounted for on the balance sheet.

My point however is that without any clear information to the contrary, looking through previous accounts for 'accounting trends', along with guidance from the company in the RNS, I am of the view that both expenses have also been expensed in the income sheet and as such will not be liable to amortisation / depreciation in future years, and further have not boosted the 2016 P&L - in fact quite the opposite.

If you have any information that demonstrates that neither have been expensed in the Income statement, or can offer your own interpretation of what expense constituted the 37m (100%+) increase in operating costs in FY 2016, then I would be genuinely delighted to hear of it, particularly as I am not a trained accountant and this is very much my own interpretation.

Many thanks again.

[j777j] 15/3/2017 12:38

Jan 2016

Analyst George O’Connor predicted that Fusionex would swing from a £4.6m pre-tax profit in 2015 to a £1.4m loss this year, then return to profit in 2017



So far Fxi have bettered that forecast,with this year forecast seeing a strong swing back to profits.We know the first four months have been strong.

[henchard] 15/3/2017 12:27

Personally, I prefer to treat capitalised costs as expensed as this gives a prudent, more conservative view of current profit for calculating P/E valuation.

I should add that I also adjust analyst forecasts on the same basis for calculating forward P/E.

[henchard] 15/3/2017 12:15

kcr69

If development costs are capitalised they become an asset on the balance sheet.

If development costs are expensed they go through the income statement.

The former effectively boosts profit on the income statement for the year in question but reduces profits in future years through amortisation.

If development costs are expensed they're taken upfront through the income statement, reducing profit for the year in question but effectively increasing profit in future years as there is no amortisation.

Personally, I prefer to treat capitalised costs as expensed as this gives a prudent, more conservative view of current profit for calculating P/E valuation.

However, the question of capitalised or expensed costs makes no difference when it comes to free cash flow and P/FCF is the ratio I give most weight to for valuation.

what is clear is that at some point the monetising of the growth has to start outstripping the costs of delivering it.

I agree with you on this.

[zcaprd7] 15/3/2017 12:12

Indeed. These results are already 6 months old...

[kcr69] 15/3/2017 11:06

Sphere 25 / Henchard

My reading of the accounts is that both development costs on intangible assets and amortisation / depreciation are expensed at 36,897,673 within the operating costs of the Income sheet. They relate to an increase of circa 10.3m on development costs (e.g. marketing spend) and 3.6m on amortisation / depreciation as has been advised by the company in various RNS.

I do not have an issue with either of these costs and do not believe in any way that they are a boost to the Income sheet.

I am however slightly unsure as to what makes up the additional 35.5m of operating costs, which is an increase of over 23m on the previous year. If it is primarily made up of the 18.1m noted for 'acquisition of property, plant, equipment and software' as eluded to in the financial review then this would make sense and would by default not suggest any major explosion in unexplained normal costs of operating.

My overall take as such is that the growth potential and gross margin look outstanding, but what is clear is that at some point the monetising of the growth has to start outstripping the costs of delivering it.

Edit: My reading of the RNS is that this is likely to start happening in this financial year, albeit with the caveat that the business has noted that it will continue to invest at the expense of short term profit, in delivering a desirable brand for longer term profitability.

Appendix - My take on operating costs 2016 (2015)

Investing / Development Costs: 26,448,903 (16,104,866) - Primarily Marketing
A&D: 10,448,770 (6,819,719) - As advised
Other Operating Costs 35,542,319 (12,409,279) - Primarily (18m) property and equipment

Total Operating Costs 72,439,992 (35,333,864)

[j777j] 15/3/2017 10:58

repost of that write up a few weeks back.No surprises and answers an above question re p/e

3 small-cap growth stocks I'd buy in March




By The Motley Fool 27 Feb 2017, 15:30

Updated: 27 Feb 2017, 15:45

Internet of things

Yes, that buzzword. It's apparently part of what Fusionex International(LSE: FXI) does, and the City's analysts are expecting it to help deliver profits for the software specialist. But the shares have lost 80% of their value in the past three years, as reality hasn't quite lived up to early promise just yet.

Results for the year to September 2016 won't be with us until 15 March, with the firm only having appointed Stifel Nicolaus Europe as nominated advisor (or Nomad, an AIM requirement) and joint broker this month, and that delay could be making people twitchy.

Growth is expected to soar from 2017, and the shares' predicted 2016 P/E of 71 should drop as low as 11 if forecasts come off. That would make the shares look very attractive today, though the combination of AIM, a new Nomad and the uncertainty surrounding the firm's technology could be a little off-putting. Still, with a bit of in-depth research, I could see Fusionex as a tempting speculative buy.

[j777j] 15/3/2017 10:44

Always the same crew.

[sphere25] 15/3/2017 10:40

Further to the below, operating cash flow always exceeded by capex and development spend.

This company is either suspect or just doesn't actually make any money. Why take the risk?

Sell

All imo
-----------------------------------------------------------------------------------
Henchard
15 Mar '17 - 09:58 - 1309 of 1311 0 0
Development costs on intangible assets 26,448,903
Amortisation of intangible assets 7,716,485

So, a net boost to the P&L of 18,732,418

This for a company reporting a PBT of 4,551,494

If development costs were expensed instead of capitalised we'd be looking not at a profit but at a heavy loss for the year.