Share Name Share Symbol Market Type Share ISIN Share Description
Geong International LSE:GNG London Ordinary Share GB00B1570688 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00p +0.00% 1.625p 0.00p 0.00p - - - 0 05:00:10
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Software & Computer Services 9.5 0.0 0.0 81.3 0.61

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Date Time Title Posts
15/4/201601:31GEONG : new IPO going for a song21,944
02/11/201412:49$GNG.L – memories past-
20/11/201208:42Golden Goliath: the unknown Silver Explorer17
15/10/200810:38GEONG International223
08/6/200713:08Geong International Limited45

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DateSubject
24/9/2016
09:20
Geong Daily Update: Geong International is listed in the Software & Computer Services sector of the London Stock Exchange with ticker GNG. The last closing price for Geong was 1.63p.
Geong International has a 4 week average price of - and a 12 week average price of -.
The 1 year high share price is - while the 1 year low share price is currently -.
There are currently 37,834,622 shares in issue and the average daily traded volume is 0 shares. The market capitalisation of Geong International is £614,812.61.
24/4/2015
11:34
rivaldo: A 128,763 share buy just reported at 4.65p, well above the 4.5p share price. Someone's keen. And it moved the share price nicely.
08/4/2015
07:45
rivaldo: Amusing to see the share price rise 10% on less than £1k of buys yesterday.
26/2/2015
10:54
rivaldo: Interesting to see around 200,000 shares sold this week, but the share price is solid. Someone accumulating perhaps. Hi GI. Yep, still here :o)) As SR says, the interims were OK, with some promising comments about trading etc and the much seasonally better H2 to 31/3/15 to come. I'm hopeful that after all this time the transition to SaaS will finally start to benefit cash flows - as will the passage of time on trade debtors and accrued income. We shall see. A m/cap of £1.7m remains tiny imho considering the client base and what might (just might) be the case in a year or two's time as regards cash flow and profitability.
24/12/2014
08:09
rivaldo: Since H1 is so much seasonally weaker in terms of trading and cash flows it's too soon to draw definitive conclusions. Certainly the vibes are more positive overall than for a while. If the CULS are repaid before 31st March and the improved trading continues then GNG's share price would fly to - who knows, 15p, 20p? - in an instant.
11/10/2013
18:37
eacn: Any possibility of conversion of the CULS should depress the share price, since conversion is at 5p and gives Hanafin 36.4% of the enlarged issued equity. The company has the option to redeem the CULS, which would clear the dilutive overhang and provide a fillip to share price However, if speculators have bought into the stock believing redemption is on the cards, then they may cause the exact opposite to happen; namely conversion of the CULS. I say this because Hanafin can make a nice turn on conversion if they can convert and sell their resulting holding at an average share price of say 6p (a 20% return, which compares favourably with the 7.5% coupon attached to the CULS). Now, whether in practice that would work without a fundamental change in the company's fortunes is a moot point: conversion for the CULS will need to be the subject of an RNS and the LSE will have to admit the additional stock before it can be sold, so the offloading of any converted stake cannot be done without the market being informed. Of course a share buy back would run into similar problems: why would GNG want to buy back shares so as to elevate the share price above the CULS conversion level? It is asking for dilution, which will dilute the management's stake (unless of course they happen to be behind Hanafin). The board sought and obtained an authority for a buy back at the AGM. It would not be logical to use that authority unless you had agreed with Hanafin that they would not exercise the CULS or you had agreed to redeem the CULS. If either of those later statements were true then the dilutive overhang has effectively been cleared and you might expect the share price to rise as those in the know bought into the stock. It may therefore be that a share buy back has yet to proceed but that the conditions necessary for it to proceed have been agreed and this is the source of the speculative interest. The alternative is, as other posters have suggested, that the company is the subject of an approach or the management are preparing a buyout. However, in either case I would have expected an RNS.
01/3/2013
12:30
mudbath: SO,we can now buy at sub 4 pence. How long, I wonder,before the GNG share price descends into the terrible twos. Gravity,amongst other factors,seems to be beckoning in that direction.
24/11/2011
08:35
greek islander: Everytime over the last 3 years the GNG share price has risen by up to 3p it seems to have bounced back. It is a long time since we had a sustained rise (by that I mean into the 60p region) - on the basis that this is long overdue and with the current pe so pathetic, I have taken out another sizeable spreadbet today. Lots of positives on the horizon and few opportunities for GNG to shoot themselves in the foot. I like the idea of a share buyback to boost the share price Just for once could we see a positive move by management to give shareholder value. If you are reading this chaps could you please start a buyback programme to act as a catalyst for a share price increase.....would be very much appreciated. EDIT just bought another 8,028 shares to further top up - I intend to keep buying until the share price hits 40p and hopefully get my holding back to where it was.
11/11/2011
00:37
greek islander: The acquisition announcement which was expected to co-incide with the recent results is now looking less and less likely. Like Rivaldo, I feel that it is not so vital to the progress of GNG and I am happy if it has fallen through though a little upset at the costs generated by this failed attempt. Especially, when I suspect ironically the huge drop in the GNG share price brought about by the delays referred to above is what has caused the whole process to fail. This has now gone on long enough. If we are not to suffer another debacle and drop in the share price then let us finally see a sliver of decisivness from the Board. All this fannying about does not do them and GNG any favours!
10/10/2011
09:36
sir rational: Not forgetting the valuable point made by JTC: that nearly 70% of the accruals are with the bluest of blue chip clients who are hardly likely to default. 40% of the total will be collected from IBM alone. Masurenguy - 9 Oct'11 - 10:46 - 18450 of 18457 A week has now passed since the results were published and some tranquillity appears to have returned over the past few days. Having spoken to the company and the broker it is now probably an appropriate moment to review the current situation in order to determine a more rational perspective on the company, its future prospects and its current valuation. 1. Actual Results and Value Metrics The results that were announced just over a week ago on Sept 30th were virtually inline with the year end trading update that was issued on May 20th. *Turnover £11.3m (2010: £12.5m) - slightly ahead of Y/E TS *Gross margin up to 53% (2010: 46%) - slightly ahead of Y/E TS *SaaS revenue £2.9m (2010: £1.7m), representing 25% of the total revenues (2010: 14%) - very slightly below Y/E TS *Profit before tax £2.6m (2010: £2.3m) - not projected in the Y/E TS *Net cash £5.3mn (2010: £6.4m)- slightly higher than the Y/E TS *Order book £15m (2010: £14m) - as per Y/E TS *Accrued income £11.4m (2010: £8.4m) - 6% higher than Y/E TS estimate of £10.8m *Trade receivables £4.8m (2010: £4.7m) - as approx Y/E TS figure These results put the company on an historical PER of just 3.3 and an EVR of just 0.75 after deducting net cash ! When these results were flagged in the Y/E trading update last May the share price was 41p. After these results have been fully audited and published, with very minor variances just over 4 months later, the share price is 55% lower at 18.25p ! 2. Trading History In the 5 fiscal years since their June 2006 listing on AIM, Geong has consistently increased proprietary sales, profit and eps every year. £Prop Sales £TP Sales £PAT EPS £Y/E Cash OP/CF 2007 4.3 - 0.8 3.1p 0.50 0.3 2008 5.5 2.1 1.1 3.5p 2.00 (1.5) 2009 10.3 4.3 1.4 4.3p 3.60 1.0 2010 11.2 1.3 1.8 5.2p 6.40 0.6 2011 11.3 - 2.1 5.5p 5.30 (0.4) * Since listing on AIM in June 2006 the company has raised circa £5.5m (net) in 3 placings (06/06, 06/07 & 09/09). Their closing cash balance on 31/3/11 was £5.3m. Therefore, despite the escalating level of accruals and receivables over this 5 year period, the negative operating cash flow (OP/CF) has been a comparatively marginal factor in relation to their cash position (Y/E Cash) and working capital requirements. * Over the past 3 years the company has increased gross margins from 40.5% to 53.1% and has reduced annual operating expenses by £750K from £4.3m to £3.55m. * Forward order book (FOB) is £15m including recurring revenue of circa £6m. At 53%, the gross margin on the recurring revenue alone is £3.2m, which represents 89% of last years operating costs of £3.55m. Circa £10.5m, or 70% of the FOB, is projected to be recorded as revenue in the current financial year before adding any new business gained during this year. NB: Since the year end, the company has raised a further unsecured convertible loan of £2.5m in May (convertible within 3 years at 50p). This loan, together with Y/E cash of £5.3m plus the £5m EFF facility set up last year at 7.5%, furnishes them with over £12.5m to potentially fund the Adbeyond acquisition and provides sufficient working capital to expand their existing core IaaS & Saas business. 3. Accruals and Receivables The level of accruals and receivables are an intrinsic factor of the Chinese payment culture and very specifically pronounced within the banking and financial services sector. There is one other Chinese company listed on AIM, Bluestar SecuTech (BSST), who service the same financial sector as Geong and they are affected by exactly the same trading conditions. In their July 20th results announcement for the year ending 31/3/2011, they made the following comment. "Our rise in accrued income is directly related to the Group working with banks and government security agencies projects and contracts which results in a lengthened working capital cycle. In addition, customers in the banking sector have been slow payers historically, and as such, it normally takes the Company several months to collect the receivables." http://www.advfn.com/p.php?pid=nmona&article=48503738&symbol=BSST BSST, whose accruals/receivables are equivalent to their annual revenues, are predominantly a hardware supplier (CCTV Systems) so they will have shorter contract installation and accrual timeframes than a software company like Geong has with all of the development, installation and testing phases that is applicable to each IaaS contract. Geong have always been completely transparent about this situation too: "The Group's successful strategy of targeting and winning large long-term contracts has led to extended payment terms with clients resulting in an unusually high level of debtor days." Results RNS 23/6/09 "Strong underlying trading, particularly in the IaaS business unit, saw a substantial increase in accrued income by 28% to £8.3m (2009:£6.5m) and trade receivables to £4.7m (2008: £4.3m). Our rise in accrued income is directly related to the Group working with IBM and our long-term clients and having taken on larger and longer contracts which results in a lengthened working capital cycle." Results RNS 01/07/10 "The Company commenced a number of new projects during the year, and there is therefore a greater proportion of amounts due from customers relating to work that has been done but not yet invoiced, and a greater amount of accrued income, than previously. Since the year end approximately £2.7m of the trade receivables has been received and £1.5m of the accrued income has been invoiced to customers." Results RNS 30/09/11 Nevertheless, it must be recognised and acknowledged that the very high level and continuing escalation of accruals and receivables gives natural rise to both cash flow concern and perceived bad debt risk among predominantly western shareholders who are used to a totally different set of credit risk and payment parameters in their more established developed economies. IaaS sales almost doubled from £5.5m to £10.3m between 2008 and 2009 and, in that year, accruals and receivables collectively doubled from £5.35m to 10.8m. Over the past 2 years the collective CAGR of accruals and receivables has been 22% from £10.8m in 2009 to £16.15m in 2011. In this context Geong are a victim of their own success since this is consequential to the growth in IaaS business and the average 18 month contractual timeframe. The growth of the SaaS component will start to have a significant impact upon accruals and receivables particularly when it reaches circa 45% of sales as the company have previously stated on several occasions. Last year it increased by 68% to represent 25% of total sales. It should be noted that the current growth in SaaS business is mainly a derivative of IaaS business already undertaken with existing customers. jonals - 2 Oct'11 - 18429: I was at the mello event earlier in the year and my notes have Amit saying accrued income would not start coming down until SaaS reached 45%-50% of sales. The results and announcements this year have been generally consistent with this However, the fact remains that these accruals and receivables have been thoroughly audited and no bad debts have been booked or provisions made. This audit process was previously confirmed by Geong at the Mello event earlier this year and was reconfirmed once again to me when I spoke to them last week. jonals - 3 Oct'11 - 18444: FD said at mello meeting in march that all milestones are signed off in triplicate - auditors, client, and geong. The quality of the accruals/receivables reflect the blue chip Geong customer base and their global partners who also account for a significant proportion of the outstanding debt. 4. RNS Announcements and the impact on the Share Price The closing share price on May 20th, following the publication of the year end trading update, was 41p. The share price then remained in a 40p – 43p range for the next 7 weeks until the first announcement of a delay in issuing the results was made on July 8th – postponing them from July 12th to mid August – as a consequence of having reached advanced negotiations with an unidentified acquisition target. The closing share price on that day was 43p. The share price remained above 40p and closed at 41p on July 18th the day before the more detailed announcement about the acquisition was made and the target company identified. While there was generally a positive reaction to the proposed acquisition there was clearly considerable concern and incredulity over a proposed further convertible CLS funding option for £5m. This CLS option, if invoked and subsequently repaid rather than converted into shares at a price of 50p after 2 years, would qualify for a guaranteed premium of 17.5% interest per annum – in addition to the 7.5% normal rate of interest. Consequently, this would providing the funder with a total return of 25% per annum, or 50%, over 2 years if they chose not to convert the loan into shares. Furthermore it was revealed that the prospective loan provider was an existing major customer. This immediately led some people to speculate that there was some sinister factor behind this proposal, such as some kind of offset agreement against a potential bad debt or billing dispute, despite the fact that it was made perfectly clear at that time that there was: "no certainty that the CLS will be issued. If CLS were to be issued, it will be conditional upon receipt of the Shareholders' approval because, as described above, the Directors do not have sufficient share authority. In addition, having regard to the Group's strong cash position, it is also the Company's intention to have CLS conditional upon completion of the Acquisition." Following the acquisition RNS announcement with the controversial CLS proposal, the share price fell by 21% over the next 4 weeks to August 18th, from 41p to 32.25p. The price then dropped by a further 10% on August 26th when a further announcement was made that the results would be delayed again until the end of September. Over the next 6 weeks the price slowly drifted down by a further 14% to 25p as the uncertainty of what might be contained within those results developed, despite the fact that the company had reiterated on 8/7, 19/7 and 26/8 that: "the Board remains confident of reporting a net profit after tax (subject to audit), ahead of market expectations in the full year results." During the last week of September there were a couple of false starts from the broker indicating that results would be released by Thursday at the latest and then before the market opened on Friday. When this did not materialize fear and uncertainty clearly reached a peak. Understandably, concerns were being raised that the company would be in breach of AIM rules and likely to be suspended if results were not published that day. When the actual results were finally issued 10 minutes after the market opened, the shares fell sharply to close down by a further 26% at 18.5p with a trading volume of circa 750,000, or just under 2% of the shares in issue. This fall was inspite of the fact that the results largely reflected the year end trading statement issued over 4 months earlier on May 20th and reiterated on at least three subsequent occasions since then. 5. The Perfect Storm The share price has collapsed by 57% since July 8th when the first results delay was announced. However, the audited results that were subsequently published on September 30th validated the figures contained in the year end trading update on May 20th. Nothing has basically changed in relation to the fundamentals or the various metrics reported by the company over that 4 month period. So why was there such a major negative impact on the share price over that period. 5.1. Without doubt, the most significant reason were the two delays in publishing the results that were originally scheduled on July 12th, then deferred to mid August and then, some 10 days after the expected publication, delayed once more on August 26th until the end of September. Even then, the actual publication did not take place until after the markets were already open on the very last day that they could be published without breaching AIM rules and risking suspension. This was a totally absurd and avoidable situation. 5.2. The second significant factor that spooked the market was the very controversial CLS funding option that was revealed in the detail of the proposed terms of the Adbeyond acquisition announced on July 19th. The backstop premium interest rate guarantee on non conversion made no obvious commercial sense. The fact that a major customer was the potential source of the CLS funds also immediately led some people to draw the conclusion that there was some sinister quid pro quo issue to resolve a potential financial dispute or impending bad debt. The size of the outstanding accruals provided the potential ammunition to sustain this totally speculative allegation. 5.3. The volatile global market conditions that saw the FTSE drop 17% and the AIM index by 20% over August and September, which impacted most stocks. 5.4. The story on the alleged Chaoda fraud, impacting AIM listed Asian Citrus, and the breaking Bloomberg story on September 30th about the US Justice Department considering launching a fraud investigation into accounting irregularities that had emerged with a number of Chinese companies whose shares were traded in the US. A couple of posters sought to tar Geong with the same brush by implication although the wider market was already probably spooked by this news anyway 5.5. It is also very clear that a number of people do not understand the business model, the Chinese financial sector payment culture or the reason for the high level of accruals/receivables, and they immediately jumped upon this as some indication that the company's survival was at risk as a result of major cash flow problems and/or bad debt liabilities. The reality is that the accrual/receivables situation was only marginally different from what was originally reported in the May trading update and the margin, pre-tax profits and net cash were actually marginally ahead of the original estimates. The overwhelming reaction to the May trading update, both on and off this board was very positive, apart from a few niggles relating to the slight delay in releasing it (sounds familiar), and the fundamentals have hardly changed since then. While there is some £16m tied up in accruals/receivables, the company does not have a cash flow problem (as illustrated above) and has a solid balance sheet with net cash of over £7m. 6. The Reason why the 2011 Results were Delayed The preliminary results were originally scheduled for July 12th. Geong usually publish their prelims between mid June and mid July. On July 8th the results were rescheduled to mid August and then again on August 26th to end September. The delays were caused by two factors. First, many financial staff were redeployed onto DD activity with Adbeyond. Secondly, as a result of the proposed acquisition and further possible funding requirements related to it, the company was put through the most thorough and comprehensive audit that had been undertaken since their original IPO in 2006, which also involved a considerable amount of extra work for their comparatively small finance department. The company came through this comprehensive audit, which included thorough client checks and validations of accruals and receivables, with flying colours and it is worth noting that no bad debts were booked nor were any provisions made. The quality of the blue chip customer base has always been a key factor in their business model and around 40% of the outstanding accruals/receivables relate to one of their global partners where they are effectively operating as a sub-contractor to the end user. Consequently a set of audited accounts was published on Sept 30th as opposed to preliminary accounts some 11 weeks earlier. The decision to defer the publication of preliminary accounts in July was a big mistake and management now both accept and acknowledge this to be the case. Despite the fact that they reiterated the same metrics from the May trading update on three subsequent separate occasions (and then delivered them on Sept 30th) the delays, in conjunction with the other factors listed under 'The Perfect Storm' above, created a climate of fear and uncertainty and provided fertile ground for the growth of all sorts of speculative theories and even malicious allegations. If prelims had been released in July then there is no reason to believe that there would have been any negative impact on the share price since the general response to the May year end update had been very positive. Of course the subsequent CLS controversy and other macro economic factors may have affected the share price over the past couple of months but it is extremely unlikely that it would have then plumbed the current depths where it stands at the moment. 7. The Terms of the Acquisition This is ongoing as stated in the Sept 30th results announcement. "Acquisition of Adbeyond (Group) Limited ("AdBeyond"), for a consideration of up to HK$120m (£9.6m), is in the process of completion" The final terms have yet to be clarified by the company. In their July 19th acquisition announcement they made the following comment. "If CLS were to be issued, it will be conditional upon receipt of the Shareholders' approval because the Directors do not have sufficient share authority" One might therefore assume that if the CLS, under the terms described in that announcement, was no longer to feature as part of the acquisition funding, there would be no need to obtain shareholders approval in relation to this particular issue. Obviously the company will make the appropriate announcements in this context when they are ready to do so. 8. Current Valuation The outstanding order book at 31/3/11 was £15m. This increased to £18.5m by the end of June as a result of "RMB36m (£3.5m) of contracts won up to June 2011." Recurring revenue on the forward order book continues to be circa 40%. That means it currently represents circa £7.4m and, at last years GP of 53%, that would yield a gross profit of circa £3.9m. Therefore the recurring revenue within the existing forward order book already more than offsets last years total operating expenses and overheads of £3.55m. Clearly expenses are likely to increase in the current year but it is certainly a very strong position to be in when the GP on recurring revenues already exceeds the operating costs for the prior year. The company's technology and service levels have been endorsed over the years not only by their own blue chip customer base but also through the ongoing partnerships that they have with major global players such as IBM, Oracle and SAP. This clearly helps to reinforce the barriers to entry for other Chinese competitors. The broker note, issued after the results on 30/9/11, made the following comments: "At 31 March 2011, Geong's backlog stood at £15m v £14m last year. Of this, circa £10.5m will be recorded as FY12 revenue, making it possible for Geong to reach our £15.8m FY 12 total revenue estimate. We believe these results confirm the soundness of Geong's current strategy. Moreover the plans to acquire Adbeyond remain on track which (once complete) should contribute substantially to Geong's net profit." There are currently 37,835,000 shares in issue so the year end cash position represented 14p per share. Accruals and cash totalled £16,161,000 which represented 42.7p per share. Consequently cash and cash equivalents represented 56.7p per share or just under £21.5m. This compares to the current share price of 18.25p and a market cap of £6.9m. The current share price therefore represents a 67.8% discount to cash & cash equivalents and the actual business, with an historic PER of just 3.4 and a blue chip customer base, is valued at zero. Management can justifiably be criticised for past laxity in meeting scheduled deadlines for publishing trading updates and actual results. Hopefully they have now truly understood the major credibility problem and negative sentiment that has dramatically resulted from this after viewing the share price trajectory over the past 3 months. Insiders hold over 30% of the shares so they are suffering the consequences too. My discussions with them indicate that they are very aware of this issue and that they will make every effort to ensure that this does not happen again in the future. There are enough hurdles to jump within the marketplace without handicapping yourself with unnecessary self-inflicted wounds too. However, aside from this, the company has a consistent record of transparency and congruity in their figures and trading updates and there has never been any reason so far to question their integrity. 9. Conclusion So there you have it. Unless you believe that there is some major unrealised problem with the outstanding accruals/receivables – and if so I would be interested to know what evidence any sceptic has to support such a view – then this must currently now be one of the most undervalued stocks on AIM today.
09/10/2011
10:46
masurenguy: A week has now passed since the results were published and some tranquillity appears to have returned over the past few days. Having spoken to the company and the broker it is now probably an appropriate moment to review the current situation in order to determine a more rational perspective on the company, its future prospects and its current valuation. 1. Actual Results and Value Metrics The results that were announced just over a week ago on Sept 30th were virtually inline with the year end trading update that was issued on May 20th. *Turnover £11.3m (2010: £12.5m) - slightly ahead of Y/E TS *Gross margin up to 53% (2010: 46%) - slightly ahead of Y/E TS *SaaS revenue £2.9m (2010: £1.7m), representing 25% of the total revenues (2010: 14%) - very slightly below Y/E TS *Profit before tax £2.6m (2010: £2.3m) - not projected in the Y/E TS *Net cash £5.3mn (2010: £6.4m)- slightly higher than the Y/E TS *Order book £15m (2010: £14m) - as per Y/E TS *Accrued income £11.4m (2010: £8.4m) - 6% higher than Y/E TS estimate of £10.8m *Trade receivables £4.8m (2010: £4.7m) - as approx Y/E TS figure These results put the company on an historical PER of just 3.3 and an EVR of just 0.75 after deducting net cash ! When these results were flagged in the Y/E trading update last May the share price was 41p. After these results have been fully audited and published, with very minor variances just over 4 months later, the share price is 55% lower at 18.25p ! 2. Trading History In the 5 fiscal years since their June 2006 listing on AIM, Geong has consistently increased proprietary sales, profit and eps every year. £Prop Sales £TP Sales £PAT EPS £Y/E Cash OP/CF 2007 4.3 - 0.8 3.1p 0.50 0.3 2008 5.5 2.1 1.1 3.5p 2.00 (1.5) 2009 10.3 4.3 1.4 4.3p 3.60 1.0 2010 11.2 1.3 1.8 5.2p 6.40 0.6 2011 11.3 - 2.1 5.5p 5.30 (0.4) * Since listing on AIM in June 2006 the company has raised circa £5.5m (net) in 3 placings (06/06, 06/07 & 09/09). Their closing cash balance on 31/3/11 was £5.3m. Therefore, despite the escalating level of accruals and receivables over this 5 year period, the negative operating cash flow (OP/CF) has been a comparatively marginal factor in relation to their cash position (Y/E Cash) and working capital requirements. * Over the past 3 years the company has increased gross margins from 40.5% to 53.1% and has reduced annual operating expenses by £750K from £4.3m to £3.55m. * Forward order book (FOB) is £15m including recurring revenue of circa £6m. At 53%, the gross margin on the recurring revenue alone is £3.2m, which represents 89% of last years operating costs of £3.55m. Circa £10.5m, or 70% of the FOB, is projected to be recorded as revenue in the current financial year before adding any new business gained during this year. NB: Since the year end, the company has raised a further unsecured convertible loan of £2.5m in May (convertible within 3 years at 50p). This loan, together with Y/E cash of £5.3m plus the £5m EFF facility set up last year at 7.5%, furnishes them with over £12.5m to potentially fund the Adbeyond acquisition and provides sufficient working capital to expand their existing core IaaS & Saas business. 3. Accruals and Receivables The level of accruals and receivables are an intrinsic factor of the Chinese payment culture and very specifically pronounced within the banking and financial services sector. There is one other Chinese company listed on AIM, Bluestar SecuTech (BSST), who service the same financial sector as Geong and they are affected by exactly the same trading conditions. In their July 20th results announcement for the year ending 31/3/2011, they made the following comment. "Our rise in accrued income is directly related to the Group working with banks and government security agencies projects and contracts which results in a lengthened working capital cycle. In addition, customers in the banking sector have been slow payers historically, and as such, it normally takes the Company several months to collect the receivables." http://www.advfn.com/p.php?pid=nmona&article=48503738&symbol=BSST BSST, whose accruals/receivables are equivalent to their annual revenues, are predominantly a hardware supplier (CCTV Systems) so they will have shorter contract installation and accrual timeframes than a software company like Geong has with all of the development, installation and testing phases that is applicable to each IaaS contract. Geong have always been completely transparent about this situation too: "The Group's successful strategy of targeting and winning large long-term contracts has led to extended payment terms with clients resulting in an unusually high level of debtor days." Results RNS 23/6/09 "Strong underlying trading, particularly in the IaaS business unit, saw a substantial increase in accrued income by 28% to £8.3m (2009:£6.5m) and trade receivables to £4.7m (2008: £4.3m). Our rise in accrued income is directly related to the Group working with IBM and our long-term clients and having taken on larger and longer contracts which results in a lengthened working capital cycle." Results RNS 01/07/10 "The Company commenced a number of new projects during the year, and there is therefore a greater proportion of amounts due from customers relating to work that has been done but not yet invoiced, and a greater amount of accrued income, than previously. Since the year end approximately £2.7m of the trade receivables has been received and £1.5m of the accrued income has been invoiced to customers." Results RNS 30/09/11 Nevertheless, it must be recognised and acknowledged that the very high level and continuing escalation of accruals and receivables gives natural rise to both cash flow concern and perceived bad debt risk among predominantly western shareholders who are used to a totally different set of credit risk and payment parameters in their more established developed economies. IaaS sales almost doubled from £5.5m to £10.3m between 2008 and 2009 and, in that year, accruals and receivables collectively doubled from £5.35m to 10.8m. Over the past 2 years the collective CAGR of accruals and receivables has been 22% from £10.8m in 2009 to £16.15m in 2011. In this context Geong are a victim of their own success since this is consequential to the growth in IaaS business and the average 18 month contractual timeframe. The growth of the SaaS component will start to have a significant impact upon accruals and receivables particularly when it reaches circa 45% of sales as the company have previously stated on several occasions. Last year it increased by 68% to represent 25% of total sales. It should be noted that the current growth in SaaS business is mainly a derivative of IaaS business already undertaken with existing customers. jonals - 2 Oct'11 - 18429: I was at the mello event earlier in the year and my notes have Amit saying accrued income would not start coming down until SaaS reached 45%-50% of sales. The results and announcements this year have been generally consistent with this However, the fact remains that these accruals and receivables have been thoroughly audited and no bad debts have been booked or provisions made. This audit process was previously confirmed by Geong at the Mello event earlier this year and was reconfirmed once again to me when I spoke to them last week. jonals - 3 Oct'11 - 18444: FD said at mello meeting in march that all milestones are signed off in triplicate - auditors, client, and geong. The quality of the accruals/receivables reflect the blue chip Geong customer base and their global partners who also account for a significant proportion of the outstanding debt. 4. RNS Announcements and the impact on the Share Price The closing share price on May 20th, following the publication of the year end trading update, was 41p. The share price then remained in a 40p – 43p range for the next 7 weeks until the first announcement of a delay in issuing the results was made on July 8th – postponing them from July 12th to mid August – as a consequence of having reached advanced negotiations with an unidentified acquisition target. The closing share price on that day was 43p. The share price remained above 40p and closed at 41p on July 18th the day before the more detailed announcement about the acquisition was made and the target company identified. While there was generally a positive reaction to the proposed acquisition there was clearly considerable concern and incredulity over a proposed further convertible CLS funding option for £5m. This CLS option, if invoked and subsequently repaid rather than converted into shares at a price of 50p after 2 years, would qualify for a guaranteed premium of 17.5% interest per annum – in addition to the 7.5% normal rate of interest. Consequently, this would providing the funder with a total return of 25% per annum, or 50%, over 2 years if they chose not to convert the loan into shares. Furthermore it was revealed that the prospective loan provider was an existing major customer. This immediately led some people to speculate that there was some sinister factor behind this proposal, such as some kind of offset agreement against a potential bad debt or billing dispute, despite the fact that it was made perfectly clear at that time that there was: "no certainty that the CLS will be issued. If CLS were to be issued, it will be conditional upon receipt of the Shareholders' approval because, as described above, the Directors do not have sufficient share authority. In addition, having regard to the Group's strong cash position, it is also the Company's intention to have CLS conditional upon completion of the Acquisition." Following the acquisition RNS announcement with the controversial CLS proposal, the share price fell by 21% over the next 4 weeks to August 18th, from 41p to 32.25p. The price then dropped by a further 10% on August 26th when a further announcement was made that the results would be delayed again until the end of September. Over the next 6 weeks the price slowly drifted down by a further 14% to 25p as the uncertainty of what might be contained within those results developed, despite the fact that the company had reiterated on 8/7, 19/7 and 26/8 that: "the Board remains confident of reporting a net profit after tax (subject to audit), ahead of market expectations in the full year results." During the last week of September there were a couple of false starts from the broker indicating that results would be released by Thursday at the latest and then before the market opened on Friday. When this did not materialize fear and uncertainty clearly reached a peak. Understandably, concerns were being raised that the company would be in breach of AIM rules and likely to be suspended if results were not published that day. When the actual results were finally issued 10 minutes after the market opened, the shares fell sharply to close down by a further 26% at 18.5p with a trading volume of circa 750,000, or just under 2% of the shares in issue. This fall was inspite of the fact that the results largely reflected the year end trading statement issued over 4 months earlier on May 20th and reiterated on at least three subsequent occasions since then. 5. The Perfect Storm The share price has collapsed by 57% since July 8th when the first results delay was announced. However, the audited results that were subsequently published on September 30th validated the figures contained in the year end trading update on May 20th. Nothing has basically changed in relation to the fundamentals or the various metrics reported by the company over that 4 month period. So why was there such a major negative impact on the share price over that period. 5.1. Without doubt, the most significant reason were the two delays in publishing the results that were originally scheduled on July 12th, then deferred to mid August and then, some 10 days after the expected publication, delayed once more on August 26th until the end of September. Even then, the actual publication did not take place until after the markets were already open on the very last day that they could be published without breaching AIM rules and risking suspension. This was a totally absurd and avoidable situation. 5.2. The second significant factor that spooked the market was the very controversial CLS funding option that was revealed in the detail of the proposed terms of the Adbeyond acquisition announced on July 19th. The backstop premium interest rate guarantee on non conversion made no obvious commercial sense. The fact that a major customer was the potential source of the CLS funds also immediately led some people to draw the conclusion that there was some sinister quid pro quo issue to resolve a potential financial dispute or impending bad debt. The size of the outstanding accruals provided the potential ammunition to sustain this totally speculative allegation. 5.3. The volatile global market conditions that saw the FTSE drop 17% and the AIM index by 20% over August and September, which impacted most stocks. 5.4. The story on the alleged Chaoda fraud, impacting AIM listed Asian Citrus, and the breaking Bloomberg story on September 30th about the US Justice Department considering launching a fraud investigation into accounting irregularities that had emerged with a number of Chinese companies whose shares were traded in the US. A couple of posters sought to tar Geong with the same brush by implication although the wider market was already probably spooked by this news anyway 5.5. It is also very clear that a number of people do not understand the business model, the Chinese financial sector payment culture or the reason for the high level of accruals/receivables, and they immediately jumped upon this as some indication that the company's survival was at risk as a result of major cash flow problems and/or bad debt liabilities. The reality is that the accrual/receivables situation was only marginally different from what was originally reported in the May trading update and the margin, pre-tax profits and net cash were actually marginally ahead of the original estimates. The overwhelming reaction to the May trading update, both on and off this board was very positive, apart from a few niggles relating to the slight delay in releasing it (sounds familiar), and the fundamentals have hardly changed since then. While there is some £16m tied up in accruals/receivables, the company does not have a cash flow problem (as illustrated above) and has a solid balance sheet with net cash of over £7m. 6. The Reason why the 2011 Results were Delayed The preliminary results were originally scheduled for July 12th. Geong usually publish their prelims between mid June and mid July. On July 8th the results were rescheduled to mid August and then again on August 26th to end September. The delays were caused by two factors. First, many financial staff were redeployed onto DD activity with Adbeyond. Secondly, as a result of the proposed acquisition and further possible funding requirements related to it, the company was put through the most thorough and comprehensive audit that had been undertaken since their original IPO in 2006, which also involved a considerable amount of extra work for their comparatively small finance department. The company came through this comprehensive audit, which included thorough client checks and validations of accruals and receivables, with flying colours and it is worth noting that no bad debts were booked nor were any provisions made. The quality of the blue chip customer base has always been a key factor in their business model and around 40% of the outstanding accruals/receivables relate to one of their global partners where they are effectively operating as a sub-contractor to the end user. Consequently a set of audited accounts was published on Sept 30th as opposed to preliminary accounts some 11 weeks earlier. The decision to defer the publication of preliminary accounts in July was a big mistake and management now both accept and acknowledge this to be the case. Despite the fact that they reiterated the same metrics from the May trading update on three subsequent separate occasions (and then delivered them on Sept 30th) the delays, in conjunction with the other factors listed under 'The Perfect Storm' above, created a climate of fear and uncertainty and provided fertile ground for the growth of all sorts of speculative theories and even malicious allegations. If prelims had been released in July then there is no reason to believe that there would have been any negative impact on the share price since the general response to the May year end update had been very positive. Of course the subsequent CLS controversy and other macro economic factors may have affected the share price over the past couple of months but it is extremely unlikely that it would have then plumbed the current depths where it stands at the moment. 7. The Terms of the Acquisition This is ongoing as stated in the Sept 30th results announcement. "Acquisition of Adbeyond (Group) Limited ("AdBeyond"), for a consideration of up to HK$120m (£9.6m), is in the process of completion" The final terms have yet to be clarified by the company. In their July 19th acquisition announcement they made the following comment. "If CLS were to be issued, it will be conditional upon receipt of the Shareholders' approval because the Directors do not have sufficient share authority" One might therefore assume that if the CLS, under the terms described in that announcement, was no longer to feature as part of the acquisition funding, there would be no need to obtain shareholders approval in relation to this particular issue. Obviously the company will make the appropriate announcements in this context when they are ready to do so. 8. Current Valuation The outstanding order book at 31/3/11 was £15m. This increased to £18.5m by the end of June as a result of "RMB36m (£3.5m) of contracts won up to June 2011." Recurring revenue on the forward order book continues to be circa 40%. That means it currently represents circa £7.4m and, at last years GP of 53%, that would yield a gross profit of circa £3.9m. Therefore the recurring revenue within the existing forward order book already more than offsets last years total operating expenses and overheads of £3.55m. Clearly expenses are likely to increase in the current year but it is certainly a very strong position to be in when the GP on recurring revenues already exceeds the operating costs for the prior year. The company's technology and service levels have been endorsed over the years not only by their own blue chip customer base but also through the ongoing partnerships that they have with major global players such as IBM, Oracle and SAP. This clearly helps to reinforce the barriers to entry for other Chinese competitors. The broker note, issued after the results on 30/9/11, made the following comments: "At 31 March 2011, Geong's backlog stood at £15m v £14m last year. Of this, circa £10.5m will be recorded as FY12 revenue, making it possible for Geong to reach our £15.8m FY 12 total revenue estimate. We believe these results confirm the soundness of Geong's current strategy. Moreover the plans to acquire Adbeyond remain on track which (once complete) should contribute substantially to Geong's net profit." There are currently 37,835,000 shares in issue so the year end cash position represented 14p per share. Accruals and cash totalled £16,161,000 which represented 42.7p per share. Consequently cash and cash equivalents represented 56.7p per share or just under £21.5m. This compares to the current share price of 18.25p and a market cap of £6.9m. The current share price therefore represents a 67.8% discount to cash & cash equivalents and the actual business, with an historic PER of just 3.4 and a blue chip customer base, is valued at zero. Management can justifiably be criticised for past laxity in meeting scheduled deadlines for publishing trading updates and actual results. Hopefully they have now truly understood the major credibility problem and negative sentiment that has dramatically resulted from this after viewing the share price trajectory over the past 3 months. Insiders hold over 30% of the shares so they are suffering the consequences too. My discussions with them indicate that they are very aware of this issue and that they will make every effort to ensure that this does not happen again in the future. There are enough hurdles to jump within the marketplace without handicapping yourself with unnecessary self-inflicted wounds too. However, aside from this, the company has a consistent record of transparency and congruity in their figures and trading updates and there has never been any reason so far to question their integrity. 9. Conclusion So there you have it. Unless you believe that there is some major unrealised problem with the outstanding accruals/receivables – and if so I would be interested to know what evidence any sceptic has to support such a view – then this must currently now be one of the most undervalued stocks on AIM today.
Geong share price data is direct from the London Stock Exchange
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