TRB (Tribal) dropped 39.9% to 32.66p in early trading after releasing an RNS on its trading update (http://is.gd/ym729r). Apparently the company is a “provider of software and services that support the management of education”.
It’s the first that I have heard of the company. I only noticed it because I was looking through the list of risers and fallers for the All-Share.
Stockopedia is really an invaluable resource, and it allows you to gain a quick impression of the company. Here’s what stuck out immediately: looks like debt is high, does not pass any screen, has an average ROCE of 4.6%, negative net free cashflows for last year, and has a terrible momentum score of 8. Other sources reveal that its RS6m is -58%. Actually, if there’s one stat that I’d like Stockopedia to add is the RS6m.
Bear in mind that those statistics are as of yesterday, so you would have known this information already.
Offhand, it looks like a terrible company. I cannot see why you would want to buy it. Perhaps it is the low PE and dividend yield that lure people in. I know many people scoff at momentum, and admittedly momentum can reverse at any time. But when it has a momentum score in the single digits, you should take that as a huge red flag. The market was signalling a potential problem clearly, and we now know why.
The gist of their recent RNS is that there is a rights issue and a proposed move to AIM. Given the high debt levels, and the fact that the Z-score is hovering around the red region, we perhaps should not have been surprised that there would be a rights issue at some point. The RNS says that a “number of key customer contract milestones have moved into 2016”, and that their adjusted operating profits are likely to be significantly lower than anticipated.
Here’s a statement that I find almost unbelievable: “Under the terms of some of our larger contracts, invoicing and payments from customers are linked to customer programme milestones. In some cases, these milestones are not wholly within the Company’s control.” I cannot fathom why such purported terms exist. Surely, if you have delivered a good or service, and it has passed its acceptance test, then you are entitled to your money? If the customer wants to dither about after that then surely that’s their problem, not the suppliers?
To be honest, given the company’s poor track record of return on capital, I think investors are throwing good money after bad if they support the rights issue.
Not an actual fraud, just an awful company.