Stock analysis and other stuff: March 2015

Tuesday, 31 March 2015

Mitie (MTO) ... one of three?

Tuesday 31st March 2015

Palm to forehead (THWACK) for holders of Mitie this morning.

U woz warned ... my Mitie concerns ... Mystery company X

I reckon somewhere below 200 pennies beckons.

Mitie share price
Source: Bloomberg

Of course the bigger reveal will be from its prelims, due to be announced on 18 May 2015. I suspect investors will recoil in horror yet again as weak cash performance is likely laid bare and the receivables shoved in to long term, down the road kind of hopefulness is shown to have grown further still.

Below is a recap of where matters stood at the half year stage. And a reminder of how Connaught's long term receivables grew.

Mitie total amounts recoverable on contracts and other trade receivables classed as non-current assets, £m
Source: Mitie annual and interim reports

Connaught's amounts recoverable on contracts classed as non-current assets, £m
Source: Connaught annual reports

Mitie's free cash flow performance on half year basis and
Bloomberg consensus implied expectation for H2 2015 (March year end), £m
Source: Mitie annual and half year reports, Bloomberg

And another thing

They do say that profit warnings come in threes. I've always found this ring true.

I'm short Mitie.

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Tuesday, 17 March 2015

Exxon Mobil (XOM) ... if it ain't broke

Tuesday 17th March 2015

I've always found Exxon Mobil (XOM) to be a very reliable performer in the month or so following an oversold position.

Further, I note that despite the continued wobble in the oil price over recent days, that the major oilies are all looking like they may have found a floor. I'd reckon that bullish for oil and so see one - maybe two - more down days to oil before it gets a half decent bounce.

So greedily I bought a few XOM April $90 calls at 25 cents a lot and a few Royal Dutch Shell (RDSB) April £22 calls at 8.5 pence for good measure.

Exxon Mobil - one month performance post oversold position
Source: Bloomberg

Wednesday, 4 March 2015

Smith & Nephew (SN/) ... coldwater morning

Wednesday 4th March 2015

I've bought a wodge of Smith & Nephew (SN/ LN) at 1140p/shr and an 1100 put.

Yesterday's move by Stryker (SYK US), in announcing a $2 billion extension to its authorised buy back scheme, seems to me to be a mere attempt to pour cold water over S&N's potential purchase price. And so I reckon that suggests a bid could be imminent. North of 1350p/shr would be satisfactory.

Smith & Nephew share price
Source: Bloomberg

Stryker share price
Source: Bloomberg

Tuesday, 3 March 2015

Supply chain financing ... very few banks but a lot of buttons

Tuesday 3rd March 2015

Ariba is the biggest player in the e-invoicing market. According to its 17 February 2015 press release:

More than 1.7 million companies, including two-thirds of those on the 2014 Forbes Global 2000 list, are connected to Ariba Network. And a new company is added every 13 minutes. In 2014 alone, 200,000 selling organizations joined the network, where more than $700 billion in commerce is transacted on an annual basis.

Ariba is also tapping into the invoice discounting market. It's partnering with buyers to pay suppliers early. Supplier gets cash early. Buyer gets a better return than sight deposits. Ariba gets a cut.

Ariba Discount Management and Dynamic Discounting offering
Source: www.ariba.com

It would seem that from $700 billion in invoice value, Ariba saw $10 billion of invoices discounted in one year; or 1.4%.

From that $10 billion, Ariba's customers captured $150 million in discounts. This is not an insignificant sum but totals 1.5% of total discounted invoice value. That 1.5% looks like it went to the capital providers, i.e. the buyers.

As the broker/platform/service provider, I reckon Ariba probably receives a lesser cut than the underlying capital provider. Most likely something in the order of 0.25% to 0.5%. Twenty five to fifty basis points on $10 billion in discounted invoice value equates to $25 million to $50 million (c. £16 to £32 million).

Or put another way, Ariba's cut from early payment services might be something like 0.003% to 0.007% of the original $700 billion in invoice value flowing over its network.

Tungsten reported £117 billion in invoice value for 2014. You do the math.

Of course Ariba are not the only players in the market having a go at this invoice discounting malarkey.