Vanco Share Discussion Threads

[tommy25] 04/9/2007 11:38

i sold 520 shares at 810am today and still not showing. are MM trying to hide the sells???

[02bursar] 04/9/2007 09:08

New Group FD only just started 1st Sep. will be reporting on the half year with AT. Reason enough to me for a short delay.

Also, I mindful that one of those contracts was signed very soon after the half year end as mentioned in the update. At this stage, I have no reason to believe they will not be on target.

[mike456] 03/9/2007 20:31

I'm not too sure about that .... I'm wary about what the reasons might be for the delay in contract signings and the the timetable for reporting the 6 month results seems to have been pushed back a few weeks

There may be more to come out of the woodwork yet

[markycrispy] 03/9/2007 19:45

It looks clear blue sky back to £4 on the chart unless Fat Boy returns with his mates for a short!

[02bursar] 31/8/2007 14:23

M246

I remember them well; they weren't caused by the misjudgements by directors - they were fraudulent manipulations and deception veiled by complex, often inter-group, business transactions. I am old enough to go back further to the days before common accounting standards was mandatory and all the fallout in those days - where no fraud was involved but values were overstated; when R&D spend could be capitalised with no questions asked about the policy.

However, there is no comparison. Vanco is a single business. It buys a single commodity. It builds and manages a system to a specification. It's accounting is simple and transparent. It has just several hundred clients with whom it has a number of contracts of different size and scale. It's not rocket science to audit. It has certain risks attached about which judgements are made and any actions taken, just as any other business.

[02bursar] 31/8/2007 13:30

Just got back to the office.

[jaydeee] 31/8/2007 13:27

bursar02 - u there

[pugugly] 31/8/2007 13:05

O2B:- Correct but remember Enron and Maxwell to name but two. !!!

[02bursar] 31/8/2007 13:00

Jaydee - be pleased to if there is a way but how?

[02bursar] 31/8/2007 12:35

Message 240

When financil statements are prepared, judgements are inevitably made by those responsible for their preparation; ie the directors; that is their duty. If those judgements are not sound or are inconsistently applied then they fall foul of accounting regs and the independent auditors will give an unfavourable report; that is their duty. That's the time investors need to worry.

Those debtors [particularly the accrued income]are very 'material' and they extend. Deloittes would have been over them like a rash, enquired about them and tested them to the contracts. Any impairment would have been discovered and the carrying value adjusted accordingly.

[jaydeee] 31/8/2007 11:14

Pugugly - you almost hit the nail on the head here - Except in Vanco's case, its a legal contract, and your student pays in advance of the begining of the term, not once the term starts. In Vanco's school - if the student's fees are not paid by the start of the term, he will not be allowed into school!!
No service (education) is provided and if it were a mission critical network (like most networks are) that the business cannot live without, then they will have a problem running their business. They will also have a legal battle on their hands for beach of contract. Therefore the likelihood of a bad debt in minimal.
A better analogy is my business (property) rather than a school.
Its almost like rent on a shop. The first thing a retailer pays is his landlord (in advance). if he doesn't then the landlord will lock the shop and send in bailiffs.
Vanco service is business critical to the customer, so it is a priority payment that 99% is always made.

[hibberts] 31/8/2007 11:04

intraday reversal, hope it holds.

[pugugly] 31/8/2007 10:50

JD & O2B:> Thank you for your insight into the accounting methods used. I will have to study further.
O2B: Re debtor days and cash accounting I have found out the hard way that high debtor days quite often conceal non recoverables and subsequent write offs.

to put it simply. If you had a fee paying pupil with fees due at the start of the term and the student started without having paid at what stage would you account for the unpaid fees?

At the start of term possibly as Revenue but a debtor?
If not paid after 2 months still revenue and debtor?
If not paid by the end of term a write off? or would you terminate the contract earlier?

OK:- Not an exact comparable as I suspect most cost are marginal BUT if the non paying student is occupying a potentially paying space then a total loss - Similar to a no show in a 100% booked restaurant.

No I was not advocating a return to cash accounting only complete clarity in the accruals which is virually impossible as I have found very few finance managers (except in banks) aew are prepared to acknowledge/mske provision for bad debts unless they are forced to write them off.

[02bursar] 31/8/2007 10:07

Message 235 said
"It is (imo) useless to account for profit unless you have been paid."

That appears to be a plea for all businesses to adopt cash accounting principles rather than accrual accounting which has been the internationally accepted accounting principle for umpteen years. Fine if you are a supermarket and have paid cash for all your assets but do such enterprises pay their creditors immediately? Not much good for measuring profitability across the board.

Y/E drs were 141. Breakdown included Trade 15 [billed and o/s 25 days], Prepayments 20, Accrued Income 88 [typically initial work phase completed and partly contractually billable, of which 33 would be billable in 2007-08].

The counterpart to Accrued Income is Deferred Income where cash is contractually received in advance of work billed [particularly at the later development stage]. That cash is not recognised as income until billed and there was 39 in the balance sheet under creditors. Trade payables were 37 [up 6] but days o/s was similar to previous year 81 days. I'm not bothered about the days as the business is skewed to the second half.

Total debt did go up [39 v 24] and gearing was higher 62% v 47%, but debt repayable in 1 year was 5.3 v 4.5.

Of the debt, 7 was finance lease [likely to be fixed rate ] v 9.

Total facilities available 100 of which 6 is o/d facility. Interest between 1.25% and 1.75% above LIBOR.

What level of gross margin does the business earn?

Someone said the business has no assets. 1. What is the value of Oracle ERP now fully deployed to the business? Which ABC's are actively using Vanco's pricing system? Don't Deutsche Telecom, Swisscom, IBM etc etc ring any bells?

2. No assets? What is that accrued income then in debtors and what companies does it represent? Is it impaired? If it was, it wouldn't be as stated. Net current assets up 24 [70%]. Net assets up 13 [26%].

If the 'market' wants to value a business that retained 10m in the year and growing at 25% at just 169m then so be it. I'm an investor in this company. I work in education and have an accounting background of more than 35 years. I'm perfectly happy to hold and add. Thank heavens there are some out there who know what they are talking about and don't follow the herd.

[jaydeee] 31/8/2007 09:53

pugugly
I won't comment on the share price - it's way below value, but I can't see a quick recovery unfortunately. The company and their broker have mishandled this whole "Cash flow" situation. Cashflow is not an issue for the shareholders in this Company. It is not a dividend paying company, where cashflow impacts on dividends etc... It might be an issue for the Bankers, and if the Bankers are uncomfortable it becomes an issue for the Shareholders. But, up until now the Company has stated it has plenty of bank facilities in reserve and indeed when the net debt went up, there was no emergency rights issue or any panic. They just drew on their facilities. Bearing in mind they have £500m of contractual revenue on their books and debtors of over £177m, I would guess that the Banks are more than happy to lend Vanco money. So from that point of view it is not a problem.

Bad Debt has never been a problem and it has always been minimal (i forget the figure). I doubt very much they are hiding a bad debt.

The outflow of cash is simly because the Company is in growth mode and is taking on more contracts, for which the initial cost is up front. I am flummoxed why no one seems to understand this. In very simple terms, if Vanco sell a 5 year contract for £15,000 and get an even payment profile (i.e. £3,000 p.a) but the cost to set up the network is £5,000 (which is amortised over the same 5 years - i.e. £1,000 p.a). In their P&L, Vanco would show a profit of £2,000 p.a every year of the contract (note: they DO NOT book £15k in Year 1 and, correctly, do not account costs of £5,000 in Year 1 either).

However, on a cash flow basis they have an outlay (negative cashflow) of £2,000. If you multiply that by a few million, and the company grows approx 35% every year you can see what is happening.
At some point, when either the Company stops signing new contracts (not a good sign), or the contrsct base revenue is so high that it offsets the cost of the growth (a point which is meant to be happening in 2008), the cashflow will be positive.

I would hope when that point comes, all the doubters will disappear and the shares will go up again. Until then, unfortunately, we are in for a very rocky ride, and people like Evil take advantage by making observations which are "questionable", getting their friends to repeat these observations and hammering the shares. The top management of Vanco are apparently still novices when it comes to responding to these attacks on their shares and their house broker seems to be completely uninterested. But one day......

[pugugly] 31/8/2007 09:11

JD:- You are off course correct but debtors still have to be finaced from somewhere. Debtor days appear to be 281 which seems to me to be very high and there was a cash outlow forom the business in the year to 31/1/07 from the accounts of £9.1M.

I do not have comparables for debtor days in similar businesses (do you?) nor any idea if there are any bad debts being masked in the overall debtor days.

I agree that at some level the shares could be worth buying - But when? They are about £1 below the Bridgewell target and still appear to be in a downward trend.

[jaydeee] 30/8/2007 23:28

Pugugly - what accounting books have u been reading. you don't have to pay finance on your whole debtor unless your factoring your debts. Vanco don't factor debts. They have banking facilities secured against their debtor book. Last time I looked they had facilites (net debt) of approx £34m. Every 1% increase in borrowings is £340k, assuming its maxed out all the time. Somewhat different to £1.4m.
Problem here is there is very thin volumes and no buyers around. At some point some clever fellow will work out whats going on and make a killing.

[wipo1] 30/8/2007 20:40

As evil as pointed out, the balance sheet is not in good shape. Interest payments on debt is eating into profit. A bad idea ignoring what bears are saying when the price is keeping going down. We all make mistakes, keep your stop loss and stick to them.

[pugugly] 30/8/2007 16:38

Timing on profit recognition also appears to be a problem. It is (imo) useless to account for profit unless you have been paid. From the accounts debtors at 31st January 2007 were £141 Million. This is (imo) a lot to finance. Not sure what effect the current increase in short-term interest rates will have but every 1% incrase will cost £1.4 million in extra interest.

The Market does not seem to like them and the market is usually correct.

Views etc?

[02bursar] 30/8/2007 14:02

Cash burn is a worry if a company overstretches [excessive capex, long lead time of product development to market, overstocking] and has no headroom between facilities and c/f forecasts for f/c misses when timings don't play out to plan and little or no prospect of extending. According to the audited annual statements, that isn't the case here. There is strong visibility in future earnings due to the ever growing order book with facilities to match.

AT has always said in those statements that the company will grow in an orderly and sustainable way. Profit has not been distributed but reinvested in the business.

[livethedream] 30/8/2007 13:29

Worries related to cashflow and cash burn versus expectations triggered the initial fall I believe but this seems excessive in relation to the positive outlook at the last update.

[02bursar] 30/8/2007 13:14

What the heck is going on here?

The share price has fallen 58% in 15 months. Market is huge; brand awareness continues growing; clients mostly blue chip co's; customer retention 98%; continued growth in revenues and profitability; capex on software development over the past couple of years [Oracle ERP] reducing as the system has been deployed following successful pilot; capex on premises reducing as relocation of global HQ almaost completed.

Newsflow poor as H1 is historically weakest but had signififant contract signings early on in year etc, etc



Does anyone have an inkling?

[livethedream] 30/8/2007 12:47

Any ideas as to where we may get some support levels here guys ?

Seems well overdone !