Hss Hire Share Discussion Threads

[effortless cool] 24/9/2015 09:29

New thread, all welcome.

[effortless cool] 24/9/2015 09:28

HSS is a business that seems to have a chronic cash flow problem. I am SHORT at an average of 55.9p (so down just now) and looking to add if things develop as I expect.

I first became aware of HSS through Matt Earl’s write-up, found at the link below, which I thought presented a compelling short proposition. As a result, I decided to review the numbers in detail.



In their interims, HSS indicated that they anticipated 2015 revenue to show 8-11% growth over 2014. July had met expectations but August had fallen short, hence I have assumed 8%, which gives H2 revenue of £160.9m. I think the risk here is to the downside.

Assuming costs versus revenue are in a similar range to past experience and adjusting out the exceptional administration and finance costs in the historical data, HSS could even turn a profit in 2015 H2. I have a PTP of £4.4m, versus a £14.1m loss in 2014 H2.

I admit, this hardly seems a strong basis for a short, but HSS’s problem arises when you look at cash flow.

They have extremely high borrowings - £173.0m at the half-year stage. At the same point in time, their undrawn committed facilities were just £17.6m, down from £37.7m just six months earlier. Even assuming they cut cap ex drastically (as indicated in the interims), I have negative cash flow through each of the next three half years, with undrawn borrowing facilities being exhausted during the final quarter of 2015.

In short, I believe that HSS will need to raise more cash before the year-end. The business cannot tolerate any more debt, so this is likely to take the form of a deeply discounted equity issue. That is the basis of my short position.

All constructive comments welcome, from long or short perspectives.

======================
Update 4 December 2015
======================

The 25 November trading update was better than I had projected in all key aspects. Revenue was a bit higher, EIBTDA was a bit higher (even after adjusting for the revenue overshoot), and cash flow was a bit better, although still materially negative. They have also given themselves more headroom on debt through increased finance lease facilities.

As a result, I closed my short at 49.12 and reversed into a long position. However, having subsequently updated my projections fully, I am still projecting negative cash flow for this half year and the next two.

Overall, I still consider HSS a poorly managed company with a toxic balance sheet, and certainly do not believe that one set of less bad figures means it is out of the woods yet. I have therefore taken advantage of today's rise to close my long position at 54.86.

I feel HSS is walking a survival tightrope and, when it does move, will move dramatically. I'm just not sure whether this will be up or down and present, and intend to watch from the sidelines until I get the full year figures to work with.

[jonwig] 23/9/2015 14:35

tsmith2 "Graphing suggesting this is Defo turning" ... isn't there something in charting which says that if a graph wobbles about with no progress for a while, it will eventually break out?

In this case, though, which direction? We're hardly in a bull market, so that's my answer!

[effortless cool] 15/9/2015 15:59

Thanks kingston78 - not used to seeing notes on the cash line.

[kingston78] 15/9/2015 15:52

Effortless Cool,
You will find from Note 11 of the Published Accounts which shows a Cash at Bank position of £3,949k, netted off by Bank Overdraft balance of (£8,879), in arriving at £(4,930k).

[tsmith2] 15/9/2015 14:11

Graphing suggesting this is Defo turning

[effortless cool] 15/9/2015 13:12

I'm puzzled by the accounts.

The balance sheet shows cash of £3,949k, whereas the cash flow statement shows cash at end of period of -£4,930k.

The whole point of the cash flow is to show how the balance sheet position has come about - both numbers should be the same. I have never seen them different before.

Anyone got any thoughts on this?

[nw99] 14/9/2015 16:11

Made a few new shorts on Friday happy to run them

[mikeh30] 14/9/2015 15:45

Yeh sold today at break even. Not feeling it. Will keep on watch list

[nw99] 14/9/2015 15:34

Slipping away again

[nw99] 11/9/2015 22:14

Feel away sharply during the day

[mikeh30] 11/9/2015 13:19

That's my thinking.Short squeeze and the lunatic brigade may show up too

[dealy] 11/9/2015 13:13

It might not be that easy to cover a large short position here. Free float is quite small. Could we have a short squeeze soon?

[tsmith2] 11/9/2015 09:56

Starting to look v promising

[tsmith2] 11/9/2015 07:37

Let's see if the turn up continues today, definitely feels like overhang has cleared

[tsmith2] 10/9/2015 12:00

Would agree this has now turned?

[tsmith2] 10/9/2015 08:55

Also these have turned

[tsmith2] 10/9/2015 08:31

ThanksChunk of cash, No debt, seller wanting out any price...Tad shy of 3pWish me luck

[deanroberthunt] 10/9/2015 07:25

tsmith2

wish you well with MONI, but crikey what a punt...not for widows, orphans or those of nervous disposition !

[mikeh30] 09/9/2015 17:36

Bought some today.Bounce to 65

[tsmith2] 09/9/2015 16:53

Some large sells and price held up well

[nw99] 09/9/2015 15:25

Nice bounce to short into