TAN – some thoughts

TAN (Tanfield) makes “powered access platforms” – platforms that people stand on so that they can work at height.

It crossed my radar today because I see it is down 6.6% today. It seems to ring a bell from some of the value investors mentioning it. It issued an RNS on 24 Jul, where it announced “The proposed sale process of the Snorkel Aerial Work Platform division is ongoing, with a number of potential acquirers proceeding through due diligence and the negotiation of a Sale and Purchase Agreement.” From what I gather, the board overpaid for Snorkel, it didn’t make a profit, and now it wants to sell it.

The RNS, which is mercifully short, also says that “the Company requires the introduction of additional working capital to be able to return to sustained profitability.” I take the words “sustained profitability” as code for “avoid bankruptcy”. It also mentions that Smith Electric Vehicles Corporate, in which Tanfield holds 25%, “continues to extend its bridge financing. I take the words “bridge financing” to mean “outrageously expensive financing”.

The company reported revenues of £4.5m in 2002, which went up to £123.3m in 2007, and back down again to £45.1m when they reported recently. Meanwhile, the number of shares in issue has ballooned from 3.1m to 139.4m over a decade. The market cap started out at a measly £1m, grew to at least £440m at around 2007, and now stands at £20m.

So it looks like the company has made a rapid ascent on the back of acquisitions, only to have the whole thing backfire. The company has made losses for the last 5 years – fact that should concern investors. Inventory turnover has also worsened compared to the previous year, so it seems that things are getting worse. A Piotroski score of 3 bares this out, too.

The company had net cash outflows of £12.2m in its latest reported accounts, and net cash of £2m. It turns over its inventory less than twice a year. It has a z-score of -1.07. Although the company expects an increase in global demand for its products, it also notes an “extended cash-to-cash cycle of key markets in the Asia-Pacific region” means that this company must be sailing very close to the edge of insolvency.

It seems like an extraordinarily high-risk share, where you’d better hope that the Snorkel deal works out in a timely manner, assuming it works out at all. The company’s return on equity has been appalling over the last decade.

Cash call? Collapse? How lucky to you feel?

About mcturra2000

Computer programmer living in Scotland.
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