Tricorn Share Discussion Threads

[pugugly] 11/2/2014 07:44

Very poor trading update . MM's already gapped bid down by 20% (6p) Could well imo drop further as could well be seeing margin calls and stop losses amongst recent purchasers from the Faraday note of 11th Dec and stale holders.

Looks as though those who felt the recent geographical diversification could have spread management too thin were right.

Question:_ How long will it take for managment to get back on track (if at all) and how far could the share price fall.

Mr Market tends to be very unforgiving with this type of profit warning in relativly unliquid stocks.


EDITED AT 7:45 pre market. MM's gapped further down now 22/23 (almost >30% mark down)

Could the bid drop below 20p today ???

EDITED at 8:12 am Bid now 18p

[alter ego] 09/2/2014 15:19

emmo, I had a reply from Mike Welburn, CEO, which said

"At present we have no relationship with Bombardier Derby operating in the rail sector although our business development team are investigating possible opportunities there."

I'm sure he would not object to me passing it on.

[emmo1210] 09/2/2014 15:03

Thanks for the update Alter ego. Did the company itself suggest the possible opportunity or your own thoughts?

[alter ego] 07/2/2014 07:44

contacted company, existing customer is Bombardier Short so aerospace not rail but perhaps an opportunity here.

[alter ego] 06/2/2014 13:57

Ah, thanks. I see why. Am sure I read on this board about Bombardier work in the past. Perhaps just aircraft?

[meijiman] 06/2/2014 13:51

A quoted plc

[alter ego] 06/2/2014 13:23

who or what is Lpa?

[meijiman] 06/2/2014 13:04

Ur thinking Lpa

[alter ego] 06/2/2014 12:35

Bombardier awarded £1bn contract for Crossrail

www.bbc.co.uk/news/business-26063121

My recollection is that they are an established customer of TCN - maybe some revenue implications?

[apad] 16/12/2013 13:48

Interesting to note that immediately post-news PIs were selling at 28p in droves, and they would now have to pay 32p to get back in. Hell of a swing.
apad

[apad] 13/12/2013 17:43

P
The thing that kept me holding on is the experience of the management in the industry (interestingly one of them commented that RR wanted them to work for nothing). However, I agree with you about the risk.
The investor herd is very impatient :-)
apad

[pugugly] 13/12/2013 10:40

APAD:> Thanks for that balanced view. As I have posted above my major worry (apart from being cash rich to now having (what I consider to be) significant debt, is thst with operations on 3 continents management may have spread themselves too thin.

Declaration:- I used to hold but sold out in 2 tranches (with hindsight possibly too early) but a profit is a profit. now on the side as the risk profile (for me) has changed big time.

[harry the haddock] 12/12/2013 10:42

interesting - thank you apad,.have had small stake in these for a year or so.was abit worried after the results but the excellent essay has helped settle my nerves.will continue to hold

[apad] 11/12/2013 18:10

Expecting Value has it pat:
Sunday, Dec 08 2013 by ExpectingValue 1 comment
2
I've held Tricorn (LON:TCN) in my portfolio since May of this year, and the shares spiked at a price about 70% above my buying price in late September. I had a look and decided to continue to hold then; a decision I might come to regret as the shares drifted down from that week-long peak, and dropped further upon the release of their results this week. They now sit at 28p. As ever, then, the question is how to interpret the drop and results; is it an attractive entry point forged by market misunderstanding, a worrying turn of events, or - and this should always be the default option - the market pricing in the news.

Having spoken to Tricorn's management before, I got an email from their nominated adviser and broker asking if I wanted to have a brief chat once again (prior to the results, I should note), which sounded, as always, like a nice chance to get their take on events. I'll present this post as a sort of two-parter, then; I'll briefly talk about my gut, immediate reaction to the results, and then talk about what management said by way of explanation.

The results
There's not really any escaping the fact that the headline figures are pretty bad; net debt is up to £3.6m (when I first talked about them I pondered what they were going to do with a £3m cash pile!). Revenue is up 15%, and gross profits are up with that, but a far higher level of operating costs means that the company posted a £.281m operating loss and a £.324m loss before tax in the first half of the year. This is a non-trivial loss for a group with a market cap of sub £20m and net tangible assets of about £6.5m. It's also over £1m worse than last year's figures.

That's first glance, then. What are potential mitigating factors? In essence, when looking at a company which has just posted figures below market expectations, the question you want to ask is the nature of the disappointment. Does it call into question the structure of the business, the way it operates, or its potential future cashflows - or is it just a temporary blip because of one-off factors? The latter is annoying but hopefully transient. The former should make you seriously rethink your valuation.

Well, there's two obvious ones against last year's comparative figures. First is the enormous expansion the company has seen in that time period. The company has widened out its burgeoning operations in China, and they also completed a large acquisition - out of administration - of an American business in the same line of work. Expansion generally has a short-term drag on operating profits, as costs exceed revenues while the business is setting up; you have to get the structure in place before you can ramp up to a profitable level of production. The second drag, an expected one, is the loss of the contract which kicked the company's share price down to the level I bought at in the first place; the aerospace division lost £111k this year, against a profit of £121k last year.

The company identifies £528k of non-underlying items for exemption. I don't really have the problem with the classification of any of these except for share based payment, which I'd rather add back in as I think it's simply another form of remuneration. This brings adjusted operating profit to about £.22m for the half against £.783m last year. It's not great, but it's not as bad as at first glance.

What management say
The tone I got from management - from the call and from the statement - was rather matter-of-fact, actually. In that I mean the concern about the operating loss (and outlook) - which was undeniably a good amount below market expectations - seems minimal. It is for investors to decipher whether management confidence in the execution of their strategy, regardless of what they likely to consider are temporary blips, is well-placed or not.

They put the operating loss down predominantly to a poor performance in the UK. The contract loss was a drag that was expected, but perhaps not so expected was an energy & utilities segment which continues to run considerably below its historic level both in terms of revenue and in terms of management expectations. Economic uncertainty, they believed, meant their customers were producing significantly below 'normal' levels of engines/generators/assorted end products. Key here is your judgement on this; if management are right regarding the segment's potential figures in a more normal environment, given operating leverage, the contribution the segment makes to group profits is at a level many multiples higher than the current one. This has been the case in the past. If they're being overly optimistic, or the trend continues downwards, the UK looks a lot more precarious; given the aerospace contract loss and inferring figures on the transportation segment (their one other segment, which includes a huge chunk of US revenue), returns on capital have dropped significantly.

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The really interesting stuff is still regarding the US and China; manufacturing facilities which combined have more sq. feet than the entire UK operations and currently make a far smaller contribution to group revenue. The US operations bought out of administration are operating about break-even at a profit before tax level, they said, which strikes me as a pretty creditable performance given the disruption administration causes. Notably easier than building from scratch, but buying out of administration suggests at least some operational problems, and also suggests prior customer relationships will sustain some spillover damage.

The China operations are losing money at the moment as they ramp up. Again, the specifics of manufacturing something like this are not an area of any competence of mine, so I struggle to pass informed judgement. Management weave a very good story from a strategic perspective, though; again they noted that the growing Chinese operations will grow as more and more of their end users migrate manufacturing over there; the vast majority of their product end destination is overseas, though intermediate stages are perhaps in the UK or Europe. There is a clear benefit in localising supply chains.

Net debt, they said, was more or less at a peak level, since the bulk of investment was now behind us. I don't find £3.6m hugely concerning.

A judgement
The bull case, then, comes from lots of different angles. The UK operations can pull back to levels of historic profitability, most obviously. The US operations growing and meeting management's expectation of similar margins to the UK in 3 years would also do the trick, particularly if revenues grow significantly as they have potential to. Finally, the Chinese story is probably the most open ended. Management believe they have a sort of first mover advantage in their production in China vis-a-vis their competitors, which could prove advantageous if the trends they're banking on do turn out.

In exchange for that potential, there's evidently more risk. When I first looked at the company, it was a UK based manufacturer with a small Chinese operation and £3m of net cash. It now has sizable operations on 3 continents and £3.6m of debt. There is clearly execution risk here given the speed of the change, and there is potential for funding to become a constraint if things either take a downturn or significant further investment is required for whatever reason.

I think my first glance was overly harsh. I hate the phrase 'transformational' period, but I think it's reasonable here. My best judgement is that the balance of risks is still favourable at the current, sub GBP 10m market price.

[meijiman] 11/12/2013 09:09

Ive found Faraday -a share tipping service. It looks as though they have successfuly traded TCN in previous years and made money. The shares still look good value in terms of forward multiples so I'm happy to stick with it. If the US works out as expected we could be off to the races.

[daz] 11/12/2013 09:03

I would guess that it's been tipped somewhere as a number of small trades have gone through today right from the open.

[meijiman] 11/12/2013 08:58

Thanks. Who is Faraday please? Broker or tipsheet.......

[pugugly] 11/12/2013 08:55

Tipped by Faraday this morning - but I agree with Salpara111 psot 1480. Great caution necessary (imo)

[the shuffle man] 11/12/2013 08:24

Anyone know the reason for the sudden rise this morning ?

[salpara111] 03/12/2013 13:31

Have been following this one for a little while but was kicking myself as I watched it rise from 25p to over 40p.
I would agree that it does seem to be quite ambitious for a a tiny company to spread itself across 3 continents so for me the risk/reward ratio is not attractive enough but will keep it on my watch list for a few more months.

[charo] 03/12/2013 12:40

sales mean nothing without profit.

[emmo1210] 03/12/2013 11:44

There is massive execution risk here but on this instance revenue from USA and China offset the poor numbers in the UK, so probably a help to some degree

[apad] 03/12/2013 09:26

I'm a touch more confident of the management's technical pedigree (hence judgement about the market) than riv/pug.
Doesn't affect their comments about debt though.
However, they can pay the bills and the debt ceiling is OK.
Cash flow statement not as bad as it seems at first glance.
They are priced low and so iff the orders come through the effect on the share price could be spectacular.
I guess we won't hear if orders increase piecemeal so "solid evidence" would be something like RR coming back (this won't happen until RR have screwed AVG).
2014 could be a boring year:-)
apad

[pugugly] 03/12/2013 08:40

rivaldo:> Agreed - I sold too early but now back to my selling price. I have a horrible feeling that managment may be spreading themselves too globally for a £10m cap coy. Still need to crunch the number going forward ex Redman.