Fusionex Share Discussion Threads

[simon gordon] 31/1/2016 13:22

162,

Yes, it is good too debate and sharpen thought, cheers!

Looking at the chart I'd be hoping it first gets back to an historic old trading range between 230p and 250p, then from there to 300p, not sure how long it will take to manifest, could be days, weeks, months or years.

[1628386] 31/1/2016 13:13

Simon

I think it's your use of traditional metrics as P/E which I disagree with.

This is not a good metric to use with a high growth company where there is a large upfront cost investment in the years you are forecasting.

Also, you are disregarding the cash sitting on the balance sheet (which will deplete somewhat but not massively)

Low debt of £4m

I do appreciate the discussion though, it's very healthy to challenge each other's thoughts.

What's your valuation and rationale for it?

[simon gordon] 31/1/2016 11:18

162,

I am slightly confused, in a previous post you stated that the Fundies would have known at the time of the capital raising that FXI would be loss making as they invested for turnover growth. Now you suggest that large investors are annoyed and that a BoD roadshow will settle this and help get FXI re-rated.

If say FXI did 10p in 2018, and utilised most of their cash for expansion, that would put them on a p/e of 50x to make your 500p target in 2016. That's an incredibly rich rating for a company that was on a lower rating prior to the warning. How do you square this peg?

A big share price boost would come if someone wanted to take them over, that's the wild card that could get them toward 320p+, about where they were before the profits warning.

[1628386] 31/1/2016 10:12

Simon

At this point in time, I'm much more interested in the underlying growth of the company rather than headline PBT. Now that's going to sound odd, so let me explain...

They raised £14m to fund the growth so IMO have taken off the table, the requirement to fund growth organically. I will be much more focussed on what's happening top line so long as margins are maintained ensuring the profitability model is intact.

In answer to your question, I believe the market will also be focussed on this once the company completes its roadshows. Part of the market reaction was that this update came from the house broker not the company and that needs to change as it suggests investors are not in the communication loop - especially large investors and that annoys them.

Your comment "Forwards on T/O but backwards on profitability" is correct but the "backwards on profitability" element is only due to investment not bad stuff like margin erosion etc.

This is entirely acceptable in this sector and the market needs to re-evaluate based on a growth model not a P/E metric (in the short term) IMO.

I see the journey to £5 this year with all the roadshows and positive updates.

[muffster] 31/1/2016 09:29

Great post-16

[1628386] 31/1/2016 08:57

Current position....


In all the research I've completed including contact with the company, there appears to be three reasons why the share price fell sharply.

1. The increase in receivables within the year end report spooked the market as it appeared to suggest there was an issue with collecting money owed to them.
2. Panmure Gordon then put out an update which was actually meant as an upgrade to 744p from 722p. However the analyst forecast that the company's expansion plans will lead to a loss in 2016
3. Because of point 2, a large investor (Inflection Point Investments) was not happy at all and decided to sell out. They had 2m shares and to shift and clearly needed to drop their sell price substantially to generate enough buying.

So where are we now?

Point 1 (above) was cleared up with an RNS from management confirming that they have collected 80% of the receivables since year end so that clears that up.

Point 2 & 3 caused the damage and therefore leaving us at 155p now Inflexion Point have sold out.

155p values the company at £72.8m, a massive drop from the £155m it was worth the day before the results (an £82m drop to be precise!)

To expose how irrational this is, let's say 2016 profit was forecast at £5.5m before the analyst took out the red pen....

Is a loss of £5.5m profit in one year really worth knocking £82m of the market value of the company? They raised £14m in October last year at £3.25 per share to fund the growth so they are adequately financed and they currently have £27m cash in the bank! They've been about as prudent as you could get. Did investors think the £14m was raised just to sit in the bank? It was raised to invest in a hugely growing market.

The reason of the loss is because the company is growing very quickly and operating costs of investment in 2016 will increase as they open new offices and hire staff. The future years profit (post 2016) will clearly benefit from this. This is not a loss due to a declining business or margin erosion... It's a loss caused by huge growth and one of confidence in a massively growing market. You only have to read the CEO & Chairmans forecast to see how optimistic they are. The analyst himself upgraded the share price forecast to £7.44.

Once Inflection Point have sold out, we are left with dented investor confidence as the share price fell so quickly. Some shareholders will have panicked and sold, others are bruised. To support the recovery period and repair the damage, the company have hinted the CEO will embark on a series of roadshows with investors aimed at restoring confidence (remember he owns 47% of the company so he's down £41m himself on the share price drop) Also, confidence will improve when the contract wins are announced and new products such as GIANT V2 are rolled out. The deal with Dell will also lead to the announcement of contract wins. All this regular positive newsflow to come.

Lastly, to build confidence you generally need to look at track record. Just read the RNS's since flotation in 2012, the track record is there for all to see. The company was on a 32% growth rate BEFORE the fully funded expansion plans! The trajectory is huge.

That's why I'm very confident we will see a return to £3 and then a push on towards £5. Panmure remember are forecasting £7.44

[treeshake] 30/1/2016 21:56

Just look at the chart ! Just beginning

[tallprawn] 30/1/2016 20:03

Plenty of upside here... Get in early Monday - I see this rising to 200 over the next couple of weeks.

[zcaprd7] 30/1/2016 17:05

Nuts. Was watching this on Thursday. Too late to join the party? Was waiting for some money to free up...

[deadly] 29/1/2016 21:35

would be even better if you could spell "spelled".....

[1628386] 29/1/2016 21:29

I have a corporate banking background and have no objections with EBITDA. I just don't take it in isolation, I look it it as another piece of information within the context of the full picture.

[treeshake] 29/1/2016 20:44

Be better if i spelt it correctly tho !

[treeshake] 29/1/2016 20:43

Bought yesterday myself - the only thing I hate is when ebdita is mentioned - ever since the days of Breith at COMS

[1628386] 29/1/2016 16:40

This is just the start. The seller has cleared off (most probably a disgruntled II) and we now refer back to fundamentals.

Here's a reminder why I have invested and will not sell until £5. They should easily move back to £3 in the short term.

NB Prices based on 120p a share:

Thought I'd share some thoughts on why I like this company.

First of all, the growth is clearly accelerating and they are winning contracts in key markets.

They now have a Macp of £52m and the P/E ratio has dropped from 39 x 2015 earnings to 13 x 2015 earnings.

They have £10m cash in the bank plus a further £14m from the placing and have collected a further £3.8m of receivables since end Sept. Totalling approx £27.8m cash

Debt is under £5m, they pay a dividend.

In 2015, they grew revenue by 35% and EBITDA by 29% and then plan to 'significantly increase the growth of the company' beyond these growth rates with the recent proceeds of the fundraise.

They have raised £14m at £3.25 per share only 3 months ago! Standard Life increased their holdings as part of this.

On the downside, analysts say 2016 will be marginally loss making to fund the huge planned growth before a return to profitability in 2017. But surely that was a known back in October when institutions such as Standard Life came on board. They would have been briefed within the forecasts of due diligence in the prospectus and meetings with the company. Also, isn't that what the fundraise was for ... To embark on a plan to 'significantly increase the growth of the Company compared to current market expectations'

If they didn't plan to go negative in 2016 then they wouldn't have required the placing cash and just funded the growth organically.

The CEO is ultra bullish... These are his comments last week:

"2015 saw Fusionex starting to leverage the foundations laid to deliver better than expected growth and we anticipate this trend accelerating in 2016....."

"The new financial year has started on a very strong note with good new wins already secured for GIANT, as announced, coupled with a very strong pipeline, and therefore the outlook for 2016 and beyond is very positive and exciting for Fusionex."

So, in summary we have a high growth company valued at £52m with £28m in the bank, and the CEO is ultra bullish and excited. We raised money from institutions 3 months ago at £3.25 (who would have completed their DD) and nothing has changed since.

We are now able to buy a share in the same company just 3 months later at a 66% discount than the institutions.

For me it's an outstanding buy and I will tuck these away and hold on with a tight grip.

[gucci] 29/1/2016 15:32

possible Rabito79

might get a mention in weekend press

[rabito79] 29/1/2016 15:29

Seller cleared?

[gucci] 29/1/2016 15:25

great to see it moving up now

[gucci] 29/1/2016 15:02

Interesting 1 million trade

[betelgeuse1] 29/1/2016 10:20

200p target for me

[1628386] 29/1/2016 10:19

This is just the start of the journey back as far as I'm concerned.

If we really think about this, the CEO owns 47% of the company and has therefore lost £50m on paper in a week.

This is mainly down to interpretation of the growth plans and impact on profits and an institution reacting negatively to those plans.

IMO he will soon be on a plane to the UK to build a PR campaign to restore confidence, because underneath, nothing has changed. This is a huge growth company now priced as a utility.

I love a company where the CEO has massive skin in the game

This is a massive opportunity to get in cheaply on a quality company

[gucci] 29/1/2016 08:23

Nice tick up

[henchard] 28/1/2016 22:02

... or perhaps Inflection have liquidity issues, maybe needing cash if there have been client redemptions in these "risk-off" times?

In addition to Fusionex, Inflection has also been reducing its holdings recently in EAGLE EYE SOLUTIONS ("The SaaS technology company that validates and redeems digital promotions in real-time for the grocery, retail and hospitality industries") and XL MEDIA ("a global digital publisher and marketing company which attracts paying users from different online channels and directs them to online gambling operators".