ZZZ – shares fall out of bed

ZZZ (Snoozebox) provides portable “hotels” and temporary accommodation.

Its shares have taken a hammering lately, and have continued to slide 10% today.

There has been a delay in releasing its accounts due to problems with revenue recognition. That can’t be good. FD Christopher Upton was, consequently, kicked out, and Lorcan O Murchu was appointed in his place. It appears that Numbers wasn’t Mr Upton’s strong suit: note 3 listed short-term trade and other payables of 8170k, loans of 1294k, for an alleged total of 2111k. No calculator is required to see that 8170 + 1294 != 2111. It looks like the 8170 should read 817. Then the numbers to add up. The same note also notes long-term trade/other payables of 1001k, but the total column is sated as 0. Sloppy. Very very sloppy.

Looking at the results, revenues have jumped from almost 0 for 9 m/e 31-Dec-2011 to £3.8m for 12 m/e 31-Dec-2012. You have to laugh at this comment from the accounts:

Revenue for the year was £3,780,000 (2011: £35,000), which was lower than had been anticipated due to uncertainties regarding the amount of revenue from Olympic-related contracts at Hainault that could be recognised in the year.

To my way of thinking, uncertainties arise in a business due to operational issues. Accounting policies, in and of themselves, should not be the subject of “uncertainties”. In note 4 of the accounts, “Segmental Analysis”, the directors report that a total of £2.9m of revenue derive from two customers. Given that they were for Olympic related contracts, I presume that the revenues are non-recurring.

During the year, the company raised £19.2m from equity (net of issue costs), and £3.5m in loan notes. It’s worthwhile noting what’s going on here. Although there appears to be demand for the company’s products, and they have plans for many more rooms, the finance to build them has to come from somewhere. You, in other words. So expect further dilutions. I also note that the company has a negative gross margin on its revenues. That can’t be good, either.

Whilst I have confidence that the new FD will bring in a calculator that works properly, in my mind there remains many question marks over the long-term profitability of this company and its ability to generate capital internally.

As the saying goes: Cannot Recommend A Purchase

About mcturra2000

Computer programmer living in Scotland.
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