OPTS – poor interims

OPTS (Optos) published its interims on the 16th, sending its share price down 23% on the week. Revenues fell by 15% against comps, and it reported an operating loss before exceptionals.

This reflected the inherent difficulty in forecasting growth trajectories and timing of sales during the initial launch of a new product such as Daytona; and lower than expected sales due to macro-economic factors, notably in Europe.

I always get a bit twitchy when the macro is blamed for poor company performance. That, and the weather.

OPTS is a company that I had invested in the past, but bailed out on in Jan 2013 at around 195p at a small loss – certainly much smaller loss than if I had held on. It shows that you shouldn’t be afraid of cutting and running if you think you’ve got it wrong. In investing, mistakes happen.

It’s a pity really, because OPTS was one of those great-sounding companies that somehow fail to live up to expectations. The company produces devices that take “optomaps” – pictures of the eyes’ retinas. They are unique in the amount of surface they cover. There’s an interesting on Youtube on what they look like, and the kind of diseases they can detect, some of which has no relationship to the eyes themselves. They can detect diabetes and malanomas, for example.

OPTS is on a forward PER of 8.3, which is hardly racy. I think there are easier companies to have a crack at, though. I suspect that the share price will drift now, and will need further news to give it new direction for better or worse.

On Twitter, @PaulBai123 noted:

specsavers Newark never heard of them (poss unfair if franchsed, no choice of equip?) plus x2 local. i sold 2012

and

Strange they have great products, but no opticians in UK know about them. Sales strategy incorrect?

I myself had noted that the share price action had been rather mediocre since 2011.

I had asked my opticians about Optos, and she said that she was aware of the company and their devices, and had used them for a trial period. She didn’t stick with them, though, because she said she found it hard to interpret the images, as they were unfamiliar compared with her standard methods.

122.25p

HIBU – assume the crash position

I see that on Google Finance and Investegate, HIBU were scheduled to announce their finals on 21 May. A poster on ADVFN points to the HIBU website, where it states that the results are “to be advised in due course”. It would appear that HIBU will delay their results. It seems probable, therefore, that results will be far worse than expected.

0.400p

market commentary

Do you like my new product concept? I call it the “Loozebox”

ZZZ (Snoozebox) ended the day at 26p, down a monstrous 27% over the previous close. It issued an update stating that it will require additional capital to exploit its current pipeline of opportunities. My regular readers may remember that this was one my main concerns, along with its seeming inability to generate gross profit. ZZZ has decided to withdraw from two events where the prospective returns appear inadequate. Paul Scott has written about ZZZ today, far more intelligently than I ever could. It appears that he is quite interested in the business model. My own view is that the idea seems to “unorthodox” to be the real deal. ZZZ hasn’t been floated for very long, either, adding to my scepticism. The company has a long way to go before it sorts out its credibility, and ability to generate acceptable returns on its own capital.

OCDO (Ocado) ended the day at 266.43p, up 32% on the day, after it announced a tie-up with Morrisons. Shorters are being well and truly burnt here, proving that a heavily-shorted stock with momentum and a good story is a recipe for shorts getting squeezed by the technicals. You likey? – I made that one up myself. MRW (Morrisons) has a market cap of £6.7b, OCDO has a market cap of £1.7b – a ratio of 3.9. MRW has revenues of£18.1b, against OCDO of £0.7b – a ratio of 25.9. Clearly, there’s something of a valuation mismatch there.

QPP finished the day at 9.42p, down 4% on the day. I tweeted yesterday that momentum seemed to be slowing, and that we were perhaps topping out, despite bullishness on the Boards. I heard that the full financial statements were available today, although on a cursory glance I haven’t been able to locate them. I am bearish on QPP, and believe it will “do a Cupid”, where the share price irregularly declines over the subsequent period. The share price has been in decline since Jan 2013, and there is resistance at about 10p. The bulls cite a low PE and high growth rate as a reason to buy, but I am unconvinced. Its shares are lowly-rated, making further growth by acquisition through further share issues an expensive proposition.

CUP (Cupid) finished the day at 64.48p, down nearly 1% on the day. I’m interested to see if it manages to go sub-60p.

DXNS (Dixons) ended the day at 42.06p, up 5.1% today, extending substantial gains from yesterday. I hold these shares, so naturally I am well-pleased. John Rosier wrote about them today. He also wrote about SMWH (WH Smith), which is also owned by Jeff Lam, who has it as his entry in the NFSC.

THT (Thorntons) ended the day at 93p, up 4.5%. This is another good retailing share – which, again, I hold. It’s on its next leg up in a breakout, where it presumably settle down in a sideways range at some point.

LAM (Lamprell) ended the day at 170p, down 5%. I hold these. It issued an IMS today, basically reiterating what the market already knew.

There have been plenty of other interesting things happening in the market today, but that’s all I’ll comment on for now. Happy investing, all.

QPP director buys

RNS issued today announced director buys yesterday.

Robert Terry, Chairman and Group Chief Executive, bought 1m shares at 8p (£80k)
Laurence Moorse, Group Finance Director, bought 250k shares at 8p (£20k)

The board originally said that they would not be able to buy shares until 17 May, due to the fact that th company was in a closed period. The RNS states that they have been advised that they were no longer in a closed period and that permission had been received to make the purchases.

Solicitors, Swan Turton, who are unconnected with this, have a webpage with clarifies the AIM close period rule (emphasis added):

“Close period” is generally the period of two months prior to publication of the company’s annual results.

AIM Regulation has commented that directors’ dealings are sometimes taking place ahead of the publication of annual accounts, with the practice of some companies following the assumption that the two month close period ends on the publication of preliminary results. However, not all preliminary results contain the key information that would be submitted in the annual accounts.

AIM Regulation has confirmed that a close period is interpreted as being the two months preceding the publication of annual accounts in accordance with Rule 19, namely when the annual audited accounts are published and sent to shareholders without delay. Alternatively, under Rule 26, if a company follows the electronic communication provisions and publishes its annual accounts on its website then, provided this fact and the key information relating to those accounts have been notified to the market, a Nomad can consider the close period to be ended.

Dealings before then, including after publication of the preliminary results, will only be permitted if a company’s Nomad obtains a derogation from AIM Regulation. In the case of preliminary results being published, although the AIM rules do not require particular information to be contained in the preliminary results, it is expected that a derogation will only be granted where the preliminary results contain all the information necessary to enable investors to form a full understanding of the company’s financial position, including its assets and liabilities.

This is interesting, because it seems that the directors are “pushing the envelope” on this one.

I assume that the shares will go up today, at least partly due to the director purchases. Some posters have referred to the purchases as only token, though.

QPP – revenue/earnings anomaly

Year-on-year revenue for QPP has increased tenfold (£13.7m to £137.6m). Adjusted earnings per share has “only” doubled, though (0.66p to 1.39).

I consider that to be troubling.

QPP – loan clarification – it looks bad!

ShareProphets released an article today, which goes some way to explaining the unusual £17m loan.

It basically seems to work like this: QPP needed working capital to the tune of £17m. It entered into an agreement with “Yorkville”. In return for issuing 97,142,857 ordinary shares at 17.5p to Yorkvillle, Yorkville will sell off the shares into the market over the course of a year, apparently in monthly tranches, and give the proceeds to QPP. Presumably Yorkville were paid a fee for this, and have the discretion to retain the shares for their own account if they believe the shares are undervalued. They’ll still have to remit an equivalent amount to QPP.

Now we can see where the problem is; and some of my analysis in previous posts appears to have been correct. If the share price declines, QPP will get less money. That explains why QPP tweeted extensively trying to get the price up. They wanted as much money as possible. It also explains the “loss” on the derivatives contract – it’s basically a write-down of money they wont receive due to the decline in share price.

This is a big problem, because, with the reduction in share price, the placing may now not provide QPP with sufficient working capital. So my presumption previously was correct: if shorters can engineer a very low share price, then the company may have liquidity problems, further playing into the shorter’s hands.

Furthermore, in previous posts, I speculated that Yorkville take no risk when they sell shares on the market, and are therefore free to dump them indiscriminately. This now appears to be a correct presumption. Such an action may actually benefit Yorkville if they wish to retain a proportion of the shares, because the lower the price, the less the cost to them. QPP seem to have come to an arrangement recently for Yorkville to stop this process for now.

There’s more! By stopping the sales process, how will QPP finance its working capital requirements? No share sales, no money; but any share sales they do make will likely be on decreasingly attractive terms.

I can only guess that QPP will need to raise more funds in the near future in order to make up the shortfall in their working capital. Seeings as the funding arrangement was, in the first place, a method of last resort, raising more money will presumably be even more problematical. How will they raise funds? Through a bank, or by another placing? Both options look like they are going to be expensive, assuming that they could even get such funding. What’s more, any fundraising seems likely to be perceived by the Market as very desperate. The Market is already unhappy with the level of fundraising as it is.

This could get really interesting! No wonder Simon Cawkwell is short.

 

Edit: corrected share price

gizzard squeezing

GAH up 8.4%, continuing its recent convincing breakout.

LAM up 0.3% after a convincing breakout yesterday.

OCDO down 6.5% today, giving the shorters a little reprieve. The shares are up nearly 40% over 1 month, demonstrating the dangers of shorting momentum stocks. ValueWalk reports that Jim Chanos reduced his short on Friday. It notes: “Ocado Group PLC (LON:OCDO), a shortsellers’ favorite in the U.K., has been surrounded by a bunch of conflicting news. The online grocer, a short bet of notable investors like Jim Chanos and Tiger cub John Griffin, fell as much as 13 percent in the London Stock Exchange after bad news broke about a prospective deal with another retailer.”

SGP down 0.8% today to 729p. It’s really bumping up against a lot of resistance at around 732p. Volume is above average, but an RNS out today shows that former director Theofolis (“Theo”) Karpathios has reduced his stake further. He seems determined to offload it as of late. The price action might depend critically on how keen he is to offload, versus the latent demand for the stock. The market seems to be absorbing his sells very well so far.

SID down 4.7% to 15.25p, and is now testing a support level. We should shortly know if that support is sustained or broken. Volume has been weak, which will weaken any conclusion we might draw.