Vanco Share Discussion Threads

[02bursar] 08/10/2007 12:36

Pugugly

"OK I know directors are buying but they may be too close to the company"

They may be but the new group FD wouldn't be.

[pugugly] 08/10/2007 10:12

jonwig:- Excellent in trying to help us drill down through the accounts. The more I dig into them the more confused I become as it appears that within certain broad parameters revenue can be recognised when the directors so please and if it does not meet their expectations the revenue shortfall is taken as impairment to goodwill

"If the revised estimated profit at 31 January 2008 was 10 per cent lower than
management's estimates at 31 January 2007, the Group would have recognised an
impairment against goodwill of £1.3 million." 2006 AR p 57

Another point is that bank loans are linked to libor (which is normal)

The bank loan incurs interest at rates of between 1.25% and 1.75% above LIBOR.
Interest payable also includes amounts in respect of undrawn facility fees and other interest management charges.2


Given the massive increases in LIBOR as a result of the sub prime problems


they will have taken a further hit on interest payable on their some £70 million of bank loans (loans ex interim reports) there appears to have been an increase (as reported on the web site) of at least 35 basis points. annualised this could mean another £250,000 odd in interest charges.

all in all I am finding it virtually impossible (as apparently have many Brokers Analysts) to make a fair guess as to when the company will be cash generative and when if ever the shareholders can expect to see some cash flow in the form of dividends or an increase in share price.

OK I know directors are buying but they may be too close to the company -

Any other help gratefully received.

[caram] 08/10/2007 09:47

I think you will find that "Net cash from financing activities £10,068,959" is recieved from the financing company which allows customers to finance the purchase of the Vanco service. Not sure, but don't think this is part of the 33m accruals.

[jonwig] 06/10/2007 11:44

Jimelson,

I'm already fairly sure that the main problem is that they aren't generating cash, because of the revenue structure of their contracts.
In that, I think posters here with more experience of the company (mine being zero...) would broadly agree.

Where I have my doubts about this coming right is that new business might simply grow too fast for the positive cash flow from mature contracts. This would impact debt levels and hence interest payments.
Interest cover is already very low.
I know they've said this won't happen, but the temptation to overtrade might be hard to resist.

This, from the Interims, is a teaser (underlinings mine):


A review of period end procedures has concluded that the Company has focused on
the achievement of short term specific cash targets at the expense of long term contract margins. The Directors have therefore taken the decision to avoid cash management actions in the future which excessively impact gross margins. The adoption of this approach will result in a one-off detrimental impact to free cash flow in the current financial year of approximately £20m. Year end net debt will now more closely reflect the underlying net debt during the year and provide a more accurate reflection of the capital requirements of the business. Accordingly, the Directors now expect net debt as at 31 January 2008 will be approximately £45m. The normalised free cash flow absorption (excluding non-recurring items) from trading in the first half amounts to £3m.

It reads very much as though they've been offering discounts for early payment, thereby sacrificing gross margins.
And I'm not sure why this should be "one-off" if all future business is conducted on the new terms.

Another poser: in the June explanation of their accounting practices, they said that the £33m of accruals on the balance sheet would be converted to cash by the year end.
Now that would be a significant boost to cashflow, but none of it seems to have happened at H1 stage, unless this is it:

Net cash from financing activities £10,068,959

and they don't seem to have referred to it again when drawing up the outlook.

Between 5 June and 25 September, they appear to have altered their views on these (and no doubt other) matters. Or maybe their new FD is imposing his writ on the accounts!

I suppose other companies are guilty of the same things - making statements and not cross-checking later statements against them. This is exactly the sort of thing the new Director of Corporate Communications should be focusing on.

[ccnp] 06/10/2007 09:35

who are the major accounts who abandoned them ? These guys depend on successful referrals and its been a big brag that they haven't lost a client

[jimelson] 06/10/2007 08:35

Any more news Jonwig on your analysis. I have been studying their accounts and all I think will be good long term, but just think maybe I'm missing something.

Jim

[hybrasil] 04/10/2007 21:29

Yes I bought more again today

[london calling] 04/10/2007 21:23

I dipped my toe in today at £1.46. I get the impression that this may now have bottomed out.

[caram] 04/10/2007 11:39

i think the bounce could take time, I would love to buy at 120p if it retested lows. Probably won't happen though.

[jonwig] 04/10/2007 11:25

Well, Caram, I've already decided that it's decent value around these levels, but I want to see what the full year brings.
A drop back to 140-ish might tempt me.

Obviously I could miss a substantial bounce, which might be happening today!

[caram] 04/10/2007 09:51

keep at it jonwig, I will be interested to hear the results of your work.

[jonwig] 04/10/2007 09:19

Decisive action, Hybrasil ... meanwhile I'm too busy deconstructing the accounts - wood for trees, etc.

[hybrasil] 04/10/2007 09:09

I bought into this yesterday. I dont normally follow director buys but I did in this and cattles ctt.

[jonwig] 03/10/2007 16:57

Unless there is something disastrous hidden ..."

No, as I said earlier, directors wouldn't have bought 150,000 if something had been hidden.
I think it's all there to be seen in the accounts: not very pretty, but if H1 was a 'kitchen sink', FY should have no new surprises.

[caram] 03/10/2007 16:16

Yes Jonwig, I think they have decided to stop trying to please the City by getting cash in before the period end (by offering discounts if clients sign quickly) in favour of keeping margins intact. bottom line is whilst cash flow positive is doubtful for yr end it is coming soon. Unless there is something disastrous hidden (which I very much doubt) this is very cheap...

[jonwig] 03/10/2007 14:36

Caram,

on the subject of being cashflow positive, that's what they said in their "Additional Financial Info" RNS of 5 June - ie. by the end of the year.

As far as I can find, they didn't repeat this statement in their Interims - if you can find it I'll be grateful, but the nature of the H1 results suggests they've shelved that idea in favour of a longer-term aspiration.

That said, I'm marginally nearer now to the idea of buying some than I was yesterday!

[caram] 03/10/2007 13:43

I think that is a bit hopeful BigBob, but over the next few months you could easily see 250 IMHO, and over the next 18 months to 3 years 700p.

[bigbobjoylove] 03/10/2007 09:41

only MMs on the sell side in the book, this will get to around 170p today looking at the order book.

[oohrogerpalmer] 03/10/2007 09:25

If this stays above the opening price today it will be the second day running. Could be the turning point at last ??

[caram] 03/10/2007 09:19

Jonwig, you should have a closer look at the numbers, they are very good. The Company's growth strategy will not come unstuck they have plenty of financing in place and they are soon to turn very cash positive (from exisitng profitable contracts). If growth stalls then they won't need the financing and they are still very profitable. They are absolutely NOTHING LIKE NRK. Aas Buffett points out in an inflationary environment you wnat grwoing businesses without big capex spend (replacement of kit costs more), VAN is asset light and profitable, £24m EBITDA last yr. on 183m sales.

[bigbobjoylove] 03/10/2007 08:59

bear squeeze day. Rumours management talking to PE about taking this private.

[jonwig] 02/10/2007 18:51

I'm not too impressed by the argument that VAN must be OK or directors wouldn't be buying, etc.
What the director buys do say is that there are no skeletons in the cupboard.
They also say that the directors believe in the business model and in the future of their company.
Having met a few company directors, this evangelism is about the one thing they all have in common.

So whatever is driving down the company's share price must be in the public domain - ie. in the accounts.

Having looked (OK, only a bit) I can only think it's the belief that debt servicing will rise faster than cashflow, so the company's growth strategy will come unstuck (big time) if the growth rate stalls and/or if the cost of debt rises substantially.
If either of these happens, the future profitability could evaporate. Like NRK it could go from Hero to Zero in no time at all.

I've no position here, and I think a lot more research is needed for me to check out the numbers before I think of taking the plunge (long, not short).

[finess] 02/10/2007 18:17

Shares can go down as well as up, Sad aint it :-)

8op sounds a bit harsh with Christmas coming, Back to selling the Big Issue.