Vianet Share Discussion Threads

[pj 1] 22/2/2013 14:54

paulypilot 22 Feb'13 - 14:42 - 233 of 233

Would be really interested in any points from your planned discussions with them today. I do hold but sat on the fence presently.

Pub business is now very low margin on Liquid sales, so surely and cost savings from idraught is a must med/ long term?

Maybe the lower end market calibre of Tenant/ Lease holder who are bailing out fail to see the benefits

Cheers

PJ

[paulypilot] 22/2/2013 14:42

Hi jamieline,

A week later, pah! That would be luxury!! It was two days after my note that the pr warn came out!!! Talk about Sod's Law. But there we go.

There's a lot of info in the trading update today, so I've put it into a table, which I'll include in my update note on VNET to be issued on Monday. But it basically splits it into two columns, positive & negative, and 5 rows, for the 4 divisions, and overall.

It's actually fairly balanced, i.e. each item has a positive & a negative. It all boils down to essentially delays in new contracts, and cost over-runs with a more ambitious expansion in the USA.

For the core business they say that no further erosion of the installed base (currently 18,000) is expected, and those are on long-term contracts, so it looks pretty solid to me.

Vending is under-performing purely because of a delayed "significant order".

Fuel has also had 2 significant delayed orders, but they confirmed these are starting in Mar & Apr, so a "strong start to 2013/14" is expected.

Finally, iDraught USA is extending beyond Colorado into 10 states, so there are additional start-up costs associated with that.


So when you work through the statement dispassionately, and weigh it all up, the negatives are nearly all just delays, which are temporary factors.

I think the market certainly over-reacted first thing (probably due to Spread Bet positions being automatically dumped by computers on stop losses), and that the shares are probably still good value.

The 5.7p full year dividend costs £1.6m in cash terms to pay. But that is twice covered by the reduced operating profits of £3.2m they are expecting for 2012/13. Bear in mind they are running on a nil tax charge due to b/fwd tax losses, then profits after tax will only differ from this marginally, due to interest cost (which will be very small, as they are paying ultra-low interest rates on their borrowings).

So there is clearly not any threat to the dividend, in my opinion.

This allows people to lock into an almost 6% dividend at the current price of just under a quid, twice covered from cashflow. And the growth is in for free.

I appreciate that it's always a case of jam tomorrow with this company, but I really feel people are massively over-reacting with some of the comments here.
But each to their own, everyone has different perspectives.

Regards, Paul.

[jamielein] 22/2/2013 13:48

Paul, I do really feel for you - your first note in your new company being VNET, and a profits warning a week later. It couldn't really be worse timing could it?

I'm still holding, but decided not to buy more as I was 50-50 whether to sell this morning. That was more due to where I thought the share would go short-term, rather than long-term prospects. I couldn't get over 100p for them, so I decided to hold.

There's no reason to believe the company isn't going to do well in the future. Obviously I'd have to reassess if there's any more disappointing news, but at the current price after the recent news, I think they're fair value.

If I didn't hold here, I probably wouldn't be buying yet. I'd wait for positive news.

[paulypilot] 22/2/2013 13:34

mechanical trader,

I'm not making excuses. You describe yourself as a trader, so perhaps you have a different outlook to me? I look at the business fundamentals, and invest with typically a 1-2 year horizon, sometimes longer.

It is normal for their to be bumps in the road with small caps, that's the way business is, in real life. Can you explain what you think is so terrible with VNET's profits warning today?

If you read it carefully, they are simply saying that there have been some contract delays, and that the USA expansion has incurred some extra costs. I fail to see why either of those are a disaster? Profits falling from £3.9m to £3.2m is disappointing, but when it's for specific reasons as they have explained, then I accept that.

The share price should go down about 15%, and it has.

From my perspective though, there is nothing in the announcement which worries me about the outlook - quite the opposite actually, in that they are upbeat about the future. Although it could be argued that they always sound upbeat, and always deliver delays, etc. Which is a valid point. They need to think more about under-promising & over-delivering.

However, the fact remains that their core business is cash generative, on recurring long term contracts, so the divi should be safe, and locks in a near 6% yield buying at today's price. That is clearly attractive to income-seeking investors, with the icing on the cake being the growth.

It's not a time to think emotionally, profits warnings should just be a trigger to calmly reassess what has actually changed, and if the answer is "not much", as in this case, then potentially a sharp fall can be a buying opp, as it was when I topped up at 87.8p and 90p earlier this morning. That locked in a 6.5% yield, not something I'm making any excuses for!

Regards, Paul.

[cisk] 22/2/2013 12:30

Paul,

Reading between the lines could it be that the cash cow is less stable that originally thought?

'anticipated iDraughtTM installation programmes and reduced contribution from traditional beer monitoring solutions as a result of bottom end pub disposals and the uncertainty that accompanies the disposal process. In addition, there have been less favourable rates at contract renewal as a result of customers transferring some non-core support services back in-house'.

If it's as you say that the existing base remains stable (and would only grow by replacing with iDraught) then all well and good. If though the installed base is dropping (which it looks like what is happening), costs are increasing on expansion (which of course is required in order to grow) then they are being squeezed every which way. After all, all you ever hear is about pubs closing each day, not opening up.

If the contactless vending machine product were such a success last summer then customers would surely be falling over themselves to introduce such a product? Clearly the technology must be ready so what is the break on the uptake? Maybe the economics aren't there in terms of the cost versus the savings it generates.

For Fuel Solutions, my understanding (which could of course be wrong) is that once the product is in, it's installed so revenue flows. So how would poor trading impact this? Did petrol forecourts really sell that much less in those two months?

Finally the statement (which I understand you will discuss with them) 'Following several months of set-up activity, the full USA launch commenced in February with initial installations across ten states with several national USA retail chains, controlling over 2,000 bars' is very misleading and really the management should know better and have stated something less ambiguous.

So I think that they do have opportunities but their cash cow is galloping out of the field faster possibly than we thought. And the management should have flagged cost overruns earlier to the market - as a previous poster suggested, this could have easily be turned into a much more of a positive which could have even caused a rise in the share price.

I believe you have met the management before - would be interested on your views on them and their experience / professionalism, in regards to handling these types of matters.

Regards
Cisk

[mechanical trader] 22/2/2013 12:26

For gods sake Paul stop making excuses.

[paulypilot] 22/2/2013 12:08

Hi,

I can understand people being annoyed, as tempers always flare when any company warns on profits. My apologies to anyone who followed me into these shares at a higher price.

The way I see it though, all the factors are short-term issues. There have been some additional costs for the US roll-out. In the long run, so what? It's not huge amounts of money, just £400k. If that delivers a strong new growth market, as it looks as if it will, then it's surely money well-spent?

What's the alternative? Would people have wanted US expansion to be put on hold until April because they wanted to hit the 2012/13 forecasts??! That would have been ridiculous. Growth companies usually have additional costs & longer timescales to launch new products & markets, although I take the point that VNET have slipped repeatedly on timescales, and have had a tendency to over-promise in previous statements. Always better to keep your powder dry, and then trumpet successes when they are signed & sealed.

I will try to speak with management later, and put these points to them, clarifying the number of bars in the USA is a good point someone here made, so I'll follow up on that one.

I think people are panicking unnecessarily though. The core business is a cash cow, with long-term recurring contract revenues, on good margins. So that will continue chucking out reliable cashflows every year. There's no threat to that business. The timing & costs of the new business initiatives are really a side issue. What matters is whether they can deliver on the US growth, and the vending contracts, not precisely what earnings will be in the year when those things are being launched.

The dividend looks safe, and they've confirmed that. It's paid from recurring cashflows, which are intact. It gave me a great opportunity to lock into a 6.5% yield when I bought at 87.8p and 90p earlier. Often the first trades are spread betters dumping at any price, because they've been stopped out, so buying at about 8:10 can be very profitable generally at the moment.

I would prefer to see more delivery, and less talk of exciting potential from VNET going forwards. But for me, the investing case is unchanged - namely that it's an each way bet on strong, secure cashflows from the core Brulines business, and growth stuff thrown in for free. And a 6% divi while we wait.

Regards, Paul.

[daneswooddynamo] 22/2/2013 11:45

indeed and we all have different reasons/time horizons for investing. No doubt that the update is disappointing in the context of a much more positive announcement in december and the time line is a little disconcerting. However my investment here is driven by growth prospects in US and realistically its going to take 6-12 months to see if they can deliver. If they do earnings will obviously increase but more importantly the market will attach a substantially higher multiple to earnings.

[mechanical trader] 22/2/2013 11:26

Paul you dont have to defend yourself

we all make our own decisions .

Like most Ive lost out here today
and flogged them.

Take note of what went wrong
then move on.

Dont keep thinking about it.

If you are its your own personal
ego that you are playing with.

Move on and make money elsewhere.

[davydoo] 22/2/2013 09:23

Market makers must be loving all the activity this morning, they're taking 4% on the spread.

[cfro] 22/2/2013 09:19

Nice post Mas, very well put.

It is for me managements credibillity that is on the line which is why im better off out for now and watch from the sidelines. Idraught roll-out in the US does look very promising tho, so worth keeping VNET on my watchlist.

[jeffian] 22/2/2013 09:18

I agree with adam (211). EPS is based on profit post tax.

[valhamos] 22/2/2013 09:14

I'm looking at this company for the first time to see if there's any value here after the price drop this morning.

Last year eps was 8p (9.93p pre-exceptionals). Profits will be lower this year. At the interim stage eps was 4.47p (5.26 pre-exceptionals).

So we seem to be having the same level of exceptionals this year as last year. Therefore my start point for eps for this year post exceptionals has to be just under 8p which suggests at currently 100p to buy it is not cheap.

Has anyone got information on why these 'exceptionals' keep on reoccurring? I've looked back a couple of years and it's the same picture. Always suspicious of this, so when I suspect exceptionals are a permanent feature I concentrate on the post-exceptional eps. Unfortunate therefore that in the statement today they talked only of operating profit before exceptionals, whereas the information I need is profit after exceptionals.

[sir leonardo] 22/2/2013 09:12

WELL WELL WELL!!!!!!!!!!!!!!!

SIR ARCHIBALD SAYS SELL MORE BAD NEWS TO COME !!!!!!!!!!FFS

DO MANAGEMENT UNDERSTAND HOW TO HANDLE US GROWTH??????????

[woodcutter] 22/2/2013 09:12

I agree with your comments mas but management credabilty is a key issue with me for retaining my investment in the business and after giving due consideration to all the points i've just sold my small holding albeit at a loss. If you can't predict your business sales/profits going forward, as they haven't, from early decemeber to mid february then either you're not in control or the business, or sales revenues are too erratic to predict, either way not good.

Woody

[jamielein] 22/2/2013 09:11

I continue to hold.

I was considering selling this morning, but only if I could do so for 100p+. I feel that anything lower than this is worth holding, as I do believe it is just a timing issue and the business model is intact.

I won't be buying more (although when the offer was 93p I did consider it!) as it's now higher risk than before. There's always the risk that they don't deliver or there are further delays, or the dividend is cut.

There are unlikely to be any positive catalysts to the share price in the coming months, so there's not going to be a huge amount of buying pressure.

Unfortunately I'm making a 25% loss at these levels, however I think they're a fair price at the moment, at around 100p, until further news is released.

[masurenguy] 22/2/2013 08:57

Whilst this update is very disappointing I'm inclined to agree with Paul that the business model remains in tact and these two key factors "cash generation remains strong and the Board expects to maintain the final dividend at 4p, which would give a total dividend for the year of 5.7p." tend to corroborate this.

The £0.7m, or 18%, reduction in profit seems to be entirely due to two factors. First, the additional start up costs for iDraught in the US "across ten states with several national USA retail chains, controlling over 2,000 bars." instead of the original plan in Colorado only. Secondly, poor trading over the Dec/Jan period and the delay in obtaining two significant FSD contracts now due to commence in March/ April.

The biggest issue emanating from todays update is the hit to management credibility. At the interims in early December, they confidently stated that " The Board expects this progress to result in further profitable growth and increased earnings over the full year to 31 March 2013 consistent with market expectations." but just 11 weeks later this position has suddenly changed.

The more extensive lauch of iDraught in the US, and the addirional costs associated with this, must have been known internally for sometime and yet they failed to announce this previously. A positive RNS, stating that they were engaged in a much larger US roll out programme than originally planned, with associated additional costs likely to result in a short term reduction in profits, would have softened market reaction
and could have been presented as a positive development. Instead this has damaged management credibility, a key factor in small caps especially, which they will now have a more uphill battle to regain.

I will hold my position here as I think that this is a timing issue more than anything else but management credibility has now become an issue and this is the main negative that emerges from todays announcement. When I first invested here last month I stated that "potential is one thing and managements vision and competence to successfully exploit it is another." (post #82) and this remains the biggest issue for me!

[sir leonardo] 22/2/2013 08:42

SIR DOES NOT LIKE THIS SELL SELL SELL THIS DOG!!!!!!!!!FFS


BEWARE THE BULLS YOU MUG PUNTERS!!!!!!!!FFS

[daneswooddynamo] 22/2/2013 08:40

interesting to see if the chairman picks any up here

[canteatvalue] 22/2/2013 08:33

Don't have any position here or anything, but am a bit confused by Shanklin's comments:

"They don't comment on PBT, just on operating profit which is circa £0.7m lower than last year. Clearly PBT will be lower than that. Always seems bit gutless to me to issue a profits warning and then not give shareholders some idea of what PBT is likely to be."

AFAIK Operating profit always refers to EBIT - Earnings before Interest and taxes. PBT is obviously Earnings before taxes... so you're saying you want to know the interest charge?

[adam] 22/2/2013 08:33

pp - Surely EPS after tax?

The £3.2m is pre-exceptional/amortisation for FY, but H1 was £1.87m, thus implies H2 £1.33m or, by extension, without growth, £2.66m for a full year. Versus m/cap of £25m. No net tangible assets.

OK divis a sop, but should you run a private business like that? Surely the company could utilise that cash better themselves if there are expansion possibilities?

At this price reasonable value but sold out most of my holding at £1 as felt there are better opportunities elsewhere. Not selling the remainder at these levels. I bought prior to paulys tip so not made a loss (or profit) but looking at the trading prior to this warning I am kicking myself for not selling out on the obvious (with Harry Hindsight) insider trading.

They have launched in over 2000 bars in 10 States

They didn't say that. If you look carefully at the wording...

"initial installations across ten states with several national USA retail chains, controlling over 2,000 bars"

They obviously have some pilot installations, but not 2,000 as the intentionally misleading wording implies.

[cockneyrebel] 22/2/2013 08:32

PP "outlook for 2014 remains promising".

Isn't the same as we remain confident - Turkish Delight was full of Eastern 'Promise' - always disappointing to eat tho.

It's the wording, the way it was announced, the selling into rallies that has happened and will there be 'exceptionals' in the results or a cut to the divi going fwd? They say they will maintain it but gpoing fwd it's a major attraction that a cut would damage the price hugely.

I think I'm best out and do a wait and see. Even at 11p eps they aren't that cheap for an AIM co that's warning of big misses imo.

Better stuff to chase for me, rather like IND I prefer to be out and watch - can alwas return later if I'm wrong.

All imo - obviously others can do what they feel is best for them.

CR