$QPP.L – Quindell – a comment about cashflow

I have been finding the cashflow statements by Stockopedia to be particularly interesting, lately.

I took at look at QPP. Its operating cashflow for y/e Dec 2013 was actually negative, at £-8.9m. What you see is that accounts receivables have ballooned. Revenues have skyrocketed, but so have receivables. It is a big red flag. I note that it has raised £200m in an equity fundraising. Although I haven’t quite figured it out, I suspect that at least some of that money is going into keeping the company liquid.

The problem is, as the company expands, it will need to keep raising money. Even if capital markets are willing to play along, Stockopedia puts QPP’s PE at less than 2. So any efforts to expand are likely to be value-destructive. Receivables at the end of December were £328m. At the interim stage, they had increased to £561m.

How long can the wheels stay on the wagon?


138p. ASX 3452.

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My #Manga drawing for October

I haven’t been doing much drawing this month, on account of doing a lot of work on mathematics. I did a quick sketch the other day of some character, but unfortunately I don’t know who it is. I still have a long way to go, but I think it’s important to celebrate your victories.

The sketch I did was fairly quick. I think one of the hard things for artists to do is to let go of expectations. Maybe it’s just me. We of course want to produce good works that really capture our subject, but I find that brings a kind of performance anxiety, and takes away the fun of drawing.

Although my drawing does have some problems with proportions, I notice that my lines are getting “free-er”. Although I can’t quantify it, I feel that my technique is getting more “artistic”. I’m losing some of the “mechanicalness”, and breathing some “style” into my drawings. Characters seem to look more expressive, more emotional. I am thinking of buying the book “Drawing on the Right Side of the Brain”, to see if my drawing improves even more.


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Riding the Unicorn (#Ubuntu)

Ubuntu came out with its latest and greatest recently, so I was keen to upgrade. I have a quiet, small form-factor ASUS VivoPC which I use as a server for web, mail, but also do a lot of programming work on it. I also have a Dell slimline Vostro for desktop work. I quite like small form factors for their space-saving and aesthetic appeal.

The server upgrade went as smoothly as could be expected. The previous release was a Stable version, so Ubuntu does not tell you that a new release is available. I had to tweak some settings so that the new version was recognised. In my fstab, I had put in an entry for a removable drive. When I rebooted, I couldn’t ssh in, because the boot process had halted, asking me what to do about the missing drive. That was inconvenient, but purely my fault. After that was sorted, there was very little in the way of reconfiguration work that needed to be done. Mail and web servers required no tweaking. The ftp server, vsftpd, seemed to fail starting up. I decided to remove that package anyway, as I found that the Nginx web server offered me a better solution.

On my desktop, I can dual-boot Windows 7 and Ubuntu. I upgraded Ubuntu to 14.10 (Utopic Unicorn), and the process went without hitch. The only problem is that Grub now defaults to booting Ubuntu instead of Win 7. That’s something that I need to sort out.

Could I live with Linux as a full-time desktop? Probably not. I think it’s all about the webcam. DVDs, skyping and community chat sites just work better under Windows. There’s a dilema. Linux offers me a great developer environment, but fails in some media areas. Windows is the other way around. If I boot into Linux, I then run into problems in that there is something configured in Windows that I really need, so I have to reboot (please don’t offer me solutions to this, because I am aware of potential workarounds). The upshot is, I find it better just to boot into Windows.

I have tried other solutions in the past, like Virtualbox, but I never really stuck with it. Virtualbox seemed to keep borking the NTFS partition if you opted for a resizable drive. I also had a quick glance at coLinux and friends, which effectively allows you to run two operating systems simultaneously. coLinux seems something of a dead project, though, and too fiddly to set up. It’s an interesting idea, though.

An idea that I have hit upon recently is to have my server as my main Linux box, and then use VNC to remote into it. That is actually proving to be quite viable so far. Window’s Cygwin does have an X-server, but it’s fugly and inconvenient to use. VNC also seems to be faster. Sessions are ongoing, too, so I can shut down my desktop, and come back to what I was doing the next day. I am still experimenting with VNC. I tried TightVNC as a client, but the rendering is terrible. TigerVNC is much better.

Seeings as I wanted to use VNC, I wanted a light-weight desktop environment on my server. I tried jwm, flwm, icewm and awesomewm. I abandoned them for various reasons. The first three were somewhat primitive, and exceedingly ugly. Icewm was the best, but its menu layout wasn’t to my liking. I wasn’t in the mood for learning how to configure menus manually. It was also damn ugly. I think some of the problem is due to the font rendering engine. I have noticed similar problems when using Slackware. WARNING: what I am about to say is probably technically inaccurate … but my understanding is that Linux has a number of font rendering engines. Desktop Environments like Unity and KDE use a good one, but most of the others use the GTk one (??). What that results in are menu items that are oversized. The fonts aren’t “bad”, but are not “good”, either. They definitely look like a throwback from the 90’s. I have seen worse, so let me be generous and say “throwback from the LATE 90’s”. Awesomewm – no thanks. I didn’t install Englightenment, fluxbox, blackbox or WindowMaker. I’ve had past form with them, and I didn’t fancy them as windowing environments.

In the end, I opted for good old Xfce4. It takes a bit of fiddling to get it how I want it, but in the end, it comes closest to how I want a desktop environment to be. I also thing RazorQt has promise. i think they need to sort out some of their bugs, and introduce aerosnap.

Time for some ranting about desktop environments … Gnome. What can I say except: “have their developers all had lobotomies?” Usability has taken a retrograde step, and I didn’t like the blocky looking windows. Ubuntu’s Unity, the last time I saw it, has the most aesthetically pleasing environment that I have seen; and I’ve seen OS X! Too bad that it, too, takes a step back in terms of actual usability. KDE is “mostly harmless”, but it’s quite slow, has unecessary features, and is ugly in places.

My whole thinking on Desktop Environments is, I think, best summed up by Antoine de Saint-Exupery: “Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away”. DEs need to straddle the fine line between features, and a refined sense of simplicity, asthetics, and balance. For example, consider wallpaper backgrounds. Some of them are quite good, but will incorporate subtle colour gradients. To my mind, that is a bad idea. When it works, it can work well. The problem is, if rendered poorly then the gradients aren’t smooth, the gradations are “in your face”, making it look very bad. Window decorations is also another area in which designers seem to compete with each other as to who can produce the most atrocious look. LXDE seems a particularly egregious example. As far as I recall, Manjaro produced an LXDE theme that was actually very good. I would like to see LXDE adopt it as the default.

The gaffs don’t stop there, of course. For example: convention is that active windows whould be a shade darker colour than inactive windows. Not a different colour, and certainly not a lighter colour. The problem with using different colours is that if you have two windows on screen, but are unfamiliar with the colour scheme used by the window environment, then it is confusing to decide which window is active. If I recall, Linux Mint actually made the window border lighter. The windows title was also difficult to see because it was in the same colour as the border. What were they thinking? Keep the titles black, so that it contrasts with the border colour.

Also, do not use two colours in window title bars, or gradients. They just look ugly. Thankfully, Ubuntu has realised the error of its ways long ago. Also, put resizing buttons on the right of the window, not the left. Putting them on the left is just a gratuitous change for no reason. Also, they should be a X for closing, underscore for minimising, and overscore for maximising. It’s a perfect convention. Red, green and whatever else colour they decide upon is relatively meaningless.

What I’m saying is, the perfect desktop environment should look a lot like Windows 7. Forget Apple. Windows 7 is the closest I have seen to perfection. Xfce has a separate docker, for example. Well, that’s just a waste of space, because that could easily be accomodated in the task panel. Also, it should have the task panel at the botton, because that’s what Windows 7 has. I repeat: don’t introduce gratuitous breaks in conventions; unless you have a really good reason for doing so.

Windows 7 isn’t perfect. The task panel is transparent, which can cause some readability problems when windows are below it. They could have done some things better with the clock. So it’s not perfect. I would like to see desktop environment designers take the Windows 7 design as a base, and tweak it so that it’s even better. Also, what I find, which is difficult to define what I mean exactly, is that Windows 7 tends to have a better “feel” to it as regards to windows movement and placement.

Anyway, that’s enough ranting about usability design for now.

I have done a lot of distro-hopping in the past, but feel that Ubuntu is right for me. It’s a little bloated. I do like apt-get systems, so it’s a toss-up between Debian and Ubuntu. Ubuntu seems more up-to-date, so is a better choice for me. I think Ubuntu is good as both a desktop and server. I wouldn’t use Ubuntu as a production server. For that, I would probably choose Slackware. And not one of the *BSDs. I hear that Red Hat is used a lot on production servers, although I don’t really know what its advantages are. Whenever I’ve used RPM-based package managers, I’ve never been that impressed. The only thing I can think of is that corporations like Red Hat because they like the idea of support hand-holding.

I am also not a fan of rolling releases. Too much breakage. I tried Arch Linux. It has bleeding edge software, but I found I spent too much time mopping up my own blood from the carpet. And Gentoo – what is that – some kind of OS-equivalent of bitcoin?

So, in summary, my choice is governed by the following:
* Debian too outdated, even in Testing
* Slackware rock-solid, and great in principle, but just a little too much manual configuration (I still rate it as my second-most favourite distro) * Slackware derivatives – no point, just don’t install all the software
* RPM-based distros – kinda slow, and I never figured out their advantages over apt-get systems * rolling releases – no, too prone to breakage
* manual-build distros (Gentoo, etc) – hell no

No doubt I’ll try other distros in the future, but for now, I like Ubuntu. It was worth upgrading for me, because I do like shiny new software. I do like stability, too, and Ubuntu offers me the best compromise, I believe. Other people’s mileage will definitely vary, of course.

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$WAND.L – Wandisco overbought

Software company WAND (Wandisco) has been performing well. Its 2014Q3 explains why: booking have increased by 56% and 21% on prior year, and announces it has been selected by a Fortune 100 tech company.

I have been bearish on WAND ever since I heard of it. WAND does things like host repositories. I’ve always held that this is a commodity. Places like Github offer free hosting accountings. There are many other similar offerings. The way I see it, the big problem with WAND is that anyone who is technically competent – which is every user (because they’ll all be software developers) – could set up a similar thing on their own infrastructure.

Analysts are forecasting revenues of £12m for 2015, but this may be on the low side given the recent announcement. Typical margins for the sector are about 7%, so you’ve basically got a company that is expected to have an operating profit of less than £1m trading at £92m on the stock exchange. That’s a lot of growth baked into the price.

A lot of growth stocks have come off the boil this year, and WAND is down an eyewatering 69% YTD. It’s difficult to think it will get much interest as a momentum stock. Markets can be fickle beasts, of course, and what was off can suddenly go back on again under the right circumstances. The stock now has an RSI of 70%, which is technically overbought.

So, although there’s no telling how how this will or wont go, let’s just say that I wouldn’t buy in at this point. Some of my readers like trading ideas, so they might want to consider a short.

On 17 October, Investec reiterated a buy rating, with a target price of 1275p. I’ve no idea where they got that price from. It seems laughable to me. Still, kudos to them for going out on a limb.

Conclusion: a speculative AIM company that has yet to prove itself. Their capital requirements and ongoing development seems like it will be substantial. It has yet to demonstrate that it can earn meaningful returns on capital. The company’s valuation is far too high, in my opinion, and its loss of price momentum is unlikely to entice momentum investors into the game. Avoid.

We’ll see. I’ll do a follow-up in 6 months time to see how accurate I was or was not.

384p. ASX 3419

Update 22-Oct-2014: I have a communication from David Richards, CEO, president and co-founder of WAND, (Twitter) advising me that my understanding that the service they offer in terms of git and data availability was a little narrow. What WAND offer is reliability, which is much more difficult to replicate. I’m sure we’ve all had instances where Github went down. David pointed me to a list of patents, which I’ve had a skim read through, but have yet to get my heads around. The gist of at least some of them, as far as my limited reading has lead me, is that it allows machines to communicate as to what the “state” should be. To re-iterate their recent RNS, a Fortune 100 tech company has selected WANdisco’s Big Data technology, so there’s obviously confidence by big players that the company can deliver. WAND is still a small company, and as such, it will be interesting to see how they cope with scaling. The likes of Yahoo and Google are hardly inexperienced when it comes to scaling data.

I have retracted my comment of “typical AIM nonsense”, and replaced it with a more considered opinion.

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Mathematical diversion: the ladder problem

This is a mathematical diversion to while away some time, and stim-
ulate your brain. Try solving it before looking at the paper, as it states
some basic equations and approaches quickly. The problem is stated be-
There is a vertical wall, and a horizontal floor. A box, measuring 1m
x 1m x 1m lies on the floor, and is flush against the wall and the floor.
The problem is actually in 2D, so you can ignore depth. Suppose there
is a ladder, of length c, which is propped so that the top of the ladder
touches the wall, the bottom touches the floor, and somewhere along its
length it touches the corner of the box. The question is: determine
b, the horizontal distance from the bottom of the box to the point at which the
ladder meets the floor. You may assume c= 3 if that helps. There are no
tricks in the statement of this problem.
To read the full article (which has mathy stuff in it so I can’t type it here): http://pdf.markcarter.me.uk/ladder.pdf
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$ASC.L – ASOS – a quick’n’ dirty valuation

ASC (ASOS) finals are out today, prompting Paul Scott to tweet: “Lousy figures from ASOS. Is this co really any good? Have my doubts. Op margin only 5%. Profits down”. The market response was very positive, though, sending the shares up 16.4% to 2263p, as at the time of writing.

The shares are down 62.9% YTD, and down nearly 69% from their all-time high of 7195p. When high growth, high momentum shares stall, they do so with fanfare. I had written in the past that I valued ASC at about £20 per share. To my amazement, the shares actually reached that level. It just goes to show: if you wait long enough, then you will often find that things go your way.

A number of incidents happened to ASC since that valuation, and I said that it would probably need to be revised downwards. I thought it might be worth trying to value ASC again. I am being lazy, so I will use the application that I just published as a two-phase growth model. Here’s what the screenshot looks like:


I have been really sloppy as regards cost of capital, and so-forth. I just simply wanted a quick estimate. As you can see, the company looks to be worth about £1200m, or 1440pps, which is significantly below its current market cap of £1900m.

A better model would use a three-phase growth model, which would make it much more valuable than the figures I have suggested. Work would also need to be done on the assumptions about the cost of capital and terminal figures.

Nevertheless, I think you’d have to put in some pretty wacky assumptions to reach Barclay’s former share target of 8000p. I am completely puzzled as to how they came out with that figure. Even using a three-phase model with robust growth assumptions, I did not come out with anything like their valuation. It’s also difficult to see what pricing models they might have been using. Seriously, I think much of the time analyst’s target prices make no sense. They mostly seem to be anchored on prevailing share prices, tweaked with momentum expectations. I don’t see how else they can do it.

It will be interesting to see what happens from here.

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Two-phase growth model app available

Last week I posted an article of Stocks showing at least 50% upside using a DCF model. I have now made an application which uses the most interesting parts of the model. You can download it using this link. Here is a screenshot:


The application is quite small, and requires no extra libraries, as far as I know. It is for any Windows platform. It’s all pretty self-explanatory, really. You enter in operating profit, dividend cover, etc., press the Calculate button, and out pops the intrinsic value for the value of common stock using DCF.

The model assumes that operating profits grow at a rate of ROCE*(1-1/DCOV), where DCOV is the dividend cover, for the next 5 years. It then assumes market returns for the terminal stage. If you are lazy, then you can leave the terminal cost of capital, terminal growth, cost of capital, and even tax rate, alone.  Operating profit, dividend cover, ROCE and net cash are the numbers you are likely to want to play with first.

Have fun.

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