Thursday 30 July 2015

Dialight (DIA) ... three years in a row?

Thursday 30th July 2015

For the third consecutive year, I reckon Dialight has zero prospect of achieving full year consensus forecasts - even though they have already been sharply reduced on the back of this week's interims. 

And here's why ...

Bloomberg consensus envisages 8% YOY revenue growth to £173 million (2014: £160 million) for FY 2015. Moreover, consensus projects FY 2015 EBITDA to be £18 million (2014: £22.9 million). This implies a FY 2015 EBITDA margin of 10.4%. 

Dialight: semi-annual revenue and EBITDA
and implied H2 2015E revenue and EBITDA from consensus forecast
Source: DIA interim and annual reports, Bloomberg consensus
When considering the revenue slowdown and the sharp decline in EBITDA margin during H1 2015, then as per usual, this leaves a helluva lot of work to achieve FY consensus. Revenue growth was 13.7% YOY during H1 2015. Full year consensus implies H2 2015 revenue growth of 3.8% YOY. This is probably about right. However ...

The group's EBITDA margin dropped to its lowest level in six years during H1 2015; to 5.6% from 11.8% in H1 2014. For DIA to meet consensus forecast of £18 million in EBITDA for FY 2015, then this suggests that the group's EBITDA margin needs to rise back to 14.6% during H2 2015; or nearly 3x the level achieved during the first half. 

Dialight semi-annual revenue growth (%YOY) and EBITDA margin (%)
and implied H2 2015E revenue growth and EBITDA margin from consensus forecast
Source: DIA interim and annual reports, Bloomberg consensus
In terms of FY 2015 consensus EPS projections, then these look even further stretched. DIA reported 5.4 pence per share of EPS during H1 2015. Full year 2015 consensus expects 23 pence per share. This implies over a threefold increase of first half EPS during the second half; or 17.6pps in H2 2015. Second half earnings have historically been weighted and stronger than first half, but even so, over the past six years they have averaged 1.5 x higher than first half EPS ... not 3.2 x.     

On the basis of DIA's second half earnings rising inline with the historical 1.5 x uplift over first half earnings, that would suggest H2 2015 EPS of 8.1pps, or 13.5pps for FY 2015.

Dialight semi-annual EPS and implied H2 2015E EPS from consensus forecast
and H2 EPS as multiple of H1 EPS
Source: DIA interim and annual reports, Bloomberg consensus
A 13.5pps FY 2015 EPS outturn, would imply the shares are trading on 38x earnings. I reckon 20x would be generous, which implies a share price closer to 270p/shr. 

Dialight forward P/E and EV/EBITDA rating
Source: Bloomberg consensus
Dialight share price
Source: Bloomberg
I remain short. 

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

Monday 27 July 2015

Globo (GBO) ... a few piccies redux

Monday 27th July 2015

Back in October 2013, I posted a few charts on Globo (GBO, mkt cap £172m), the AIM listed software company currently seeking to raise c. $180 million by way of high yield debt. 

Here they are updated. I am short GBO. 

Source: Globo annual reports
The above chart and immediately below chart highlights the group's net cash received by way of share and debt issuance during the period 2007-14. It does not include the further $180 million the group is currently seeking to raise by way of a high yield bond. 

Source: Globo annual reports
Source: Globo annual reports
Source: Globo annual reports
Source: Globo annual reports
Source: Globo annual reports
Source: Globo annual reports
Source: Globo annual reports
Source: Globo annual reports
Source: Globo annual reports

Bonus charts

And here are the bonus charts on Globo Technologies ...

As a reminder, in December 2012, GBO sold 51% of its subsidiary, Globo Technologies (GT), to a company called, Zipersi Consulting, owned by GT’s management team. GT was sold for €11.2 million, although the sale was principally financed by the vendor, Globo, with deferred consideration due.

One may well ask why GBO elected to sell 51% of its stake in GT? If the business was bad, then why not sell all of it? If it was a good business, then why sell it at all, or even as much as 51%? Especially on preferential financing terms to the management team buyers?  

Nonetheless since December 2012 ...

Source: Globo Technologies annual reports
GT's 2014 trade receivables and revenue recognised under IAS 11 is now equivalent to 109% of revenue. This is up from 64% in 2012.

Source: Globo Technologies annual reports
Meanwhile, GT's net debt has ballooned from €0.780 million in 2012, to €20.036 million in 2014. 

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

Thursday 23 July 2015

Rocket Internet (RKET GY) ... The Imitation Game part III

Thursday 23rd July 2015

Some of the text in Rocket Internet's prospectus is pretty amusing. It sounds impressive but when one dwells on it for longer than a second, one appreciates its absurdity. 

Dafiti

Take for example the background information Rocket provides in its prospectus on Dafiti, the online clothing, shoe and accessory retailer in Brazil, Argentina, Chile, Colombia and Mexico:  

Dafiti brand recognition in Brazil
Source: Rocket Internet prospectus
As highlighted above, according to Rocket, by March 2014 the Dafiti brand was recognized by almost 90% of the Brazilian population. That's not bad going considering the brand was launched three years earlier in 2011 and probably puts it up there with Coca-Cola for brand awareness. 

Of course according to the World Bank, 24% of the Brazilian population is 14 or under, while a further 7% is over the age of 64. So 90% brand recognition for an online clothing and shoe retailer amongst the entire Brazilian population (under 14's and over 65's included) within 3 years is a sterling effort.  

Lamoda   

Another example is, Lamoda, Rocket's online clothing, shoe and accessory retailer, this time focused on Russia, Kazakhstan and the Ukraine. Lamoda has also has gained impressive and rapid brand recognition: 

Lamoda brand recognition in Russia
Source: Rocket Internet prospectus
As highlighted above, according to Rocket, by March 2014 the Lamoda brand was among the most recognized fashion retail brands in the CIS, with an impressive 84% of the Russian population recognizing its brand. Lamoda was launched in 2011.

Jabong

A further example is Jabong, another online fashion company, operating in India:

Jabong's market opportunity
Source: Rocket Internet prospectus
In its prospectus, Rocket indicates that the Indian fashion retail market " ... is expected to amount to US$55 million in 2014."  This looks to be an innocent typo and more likely supposed to say US$55 billion instead. Especially as Rocket continues to suggest that it will grow "... to US$88 billion by 2018." This is a minor typo. What appears somewhat less straightforward is the commentary regarding internet penetration of India's fashion market.

Rocket indicates that "the online fashion penetration rate in India is expected to be a relatively low level of 0.8% of the overall fashion retail market compared to 11.3% in the United States in 2014." If that is the case, then on the basis of the overall fashion retail market amounting to some US$ 55 billion, that would suggest that the online fashion market was worth c. US$ 440 million in 2014. As Rocket highlights further up, Jabong reported "... INR 4,385.7 million in net revenues in fiscal 2013." This is c. $US 76 million at an average 58 USDINR exchange rate during 2013, which suggests that from a relatively quick start of a matter of a few years, Jabong had captured 17% of the online fashion retail market in India.

In its 2014 annual report, Rocket goes on to revise Jabong's 2013 revenue to INR 3,443 million or c. $US 59 million. But Jabong's 2014 revenue was reported to have risen to INR 8,114 million or c. $US 133 million at an average 61 USDINR exchange rate in 2014. On Rocket's information provided that would suggest that within a matter of a few years, Jabong had captured over 30% of India's online fashion market by 2014. Remarkable.        

Namshi

Rocket's online fashion offering to the Middle East, Namshi, has seemingly topped India's Jabong for market share gain. 
Namshi's market opportunity
Source: Rocket Internet prospectus
On Rocket's market information provided above of a $US 30 billion total fashion retail market but 0.4% online penetration by 2014, the online fashion market was worth $US 120 million in 2014. Hence with Rocket reporting net revenue of AED 53 million in 2013, rising to AED 168 million in 2014 or c. US$ 15 million and US$ 46 million respectively, this would imply 38% market share by 2014. Another remarkable result in a matter of two years since inception.

------------------------------------------------------------------------------------------------

In many cases the numbers provided are also as amusing.

Dafiti again ...

The table below is from Rocket's prospectus, highlighting Dafiti's key performance indicators, among which, unique visitors to Dafiti's site is included:
Dafiti's key performance indicators
Source: Rocket Internet prospectus
Rocket indicates that the Dafiti website received 208 million unique visitors in 2013, which was up from 167 million unique visitors in 2012. That's a lot of visits for a website that didn't exist a few years prior. In fact ...

Dafiti is targeted at Brazil, Argentina, Chile, Colombia and Mexico. According to the IMF, in 2013 these countries populations were:

Brazil ................. c. 201 million
Argentina ........... c. 42 million
Chile .................. c. 47 million
Colombia ........... c. 18 million
Mexico ............... c. 118 million

A combined population of c. 426 million.

Populations of Dafiti's markets in 2013 (million)
Source: Rocket Internet, IMF for population data
According to the World Bank, in 2013 the number of persons per 100 with access to the internet in each of these countries were:

Brazil ................. 51.6 (per 100)
Argentina ........... 59.6 (per 100)
Chile .................. 66.5 (per 100)
Colombia ........... 51.7 (per 100)
Mexico ............... 43.5 (per 100)

Internet users per 100 in Dafiti's markets in 2013
Source: Rocket Internet, World Bank for internet users
Hence, if Brazil's population in 2013 was c. 201 million and 51.6% of the population had access to the internet then that would suggest c. 104 million Brazilians had access to the internet in 2013.

On a similar basis the others work out as follows:

Brazil ................. c. 104 million
Argentina ........... c. 25 million
Chile .................. c. 31 million
Colombia ........... c. 9 million
Mexico ............... c. 52 million

A combined population of c. 220 million with access to the internet in Dafiti's markets.

Now Rocket reckons Dafiti had 208 million unique visitors to its website in 2013. Which is commonly understood to mean, the number of distinct individuals requesting pages from the website during 2013, regardless of how often they visit. I.e. 208 million individual sets of eye balls looked at Dafiti's website in 2013. So if Dafiti's markets have c. 220 million individuals with access to the internet, then practically 95% of them went onto Dafiti's website at some point during 2013? Of course some eyeballs may have inadvertently oggled the website from other countries but even so, most of the traffic must surely come from Brazil, Argentina, Chile, Colombia and Mexico.

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog.

Tuesday 7 July 2015

Rocket Internet (RKET GY) ... The Imitation Game part II

Tuesday 7th July 2015

Below is a copy of a presentation that the German business publication, Manager Magazin, posted in April 2013. The presentation itself is in English but I've used Google's translate function to translate Manager Magazin's accompanying text into English. The original German version may be found via the link above.  

Manager Magazin - on Rocket Internet presentation to investors
Source: http://www.manager-magazin.de/
It's reportedly a presentation used by Rocket Internet in marketing itself to potential investors in January 2013. I assume this presentation is not some sort of spoof and that it is the actual material used by Rocket Internet, which at the time would have been a private concern. If it is a spoof, then I'd be surprised - as Germans aren't renowned for pulling legs - but if it is then you may as well disregard the rest of this post.  

Manager Magazin - on Rocket Internet presentation to investors - January 2013
Source: http://www.manager-magazin.de/
Clearly, January 2013 is some time ago. However, if I'd been on the receiving end of this pitch, then in hindsight I'd be a touch disgruntled and left with a feeling I'd been somewhat misled. And here's why ... 

On the final page of the presentation, it highlights the revenue run rates for the major companies in Rocket's portfolio, based on November 2012 trading. Given that most of these companies had been established in less than 24 months prior, this is a great way to leave would be investors positively purring at the prospect of a bite at - not one - but eight incredibly rapidly growing online businesses.

Manager Magazin - on Rocket Internet presentation to investors -
revenue run rates of leading portfolio companies
Source: http://www.manager-magazin.de/

The big five: Lamoda, Dafiti, Home 24, Zalora and Lazada

As of January 2013, it would appear that Rocket presented its top five revenue generating businesses to investors as achieving run rate revenue based on November 2012 annualized run rates as follows:
  • Lamoda, founded two years prior in 2010, was achieving €233 million in run rate revenue.
  • Dafiti, also founded in 2010, was achieving €225 million in run rate revenue.
  • Home 24, founded in 2009, was achieving €151 million in run rate revenue.
  • Zalora, founded one year prior in 2011, was achieving €97 million in run rate revenue.
  • Lazada, founded two years prior in 2010, was achieving €42 million in run rate revenue. 
Rocket Internet annualised run rate revenue based on November 2012 trading
Source: Manager Magazin, 19 April 2013
These are truly remarkable revenue run rates for businesses which had only been in operation for between one to two years. In my prior post I highlighted how much longer it had taken ASOS to grow its revenue base (as compared to Zalora) whereby ASOS was targeting richer nations with significantly higher internet penetration rates: The Imitation Game

Skipping forward to Rocket's IPO documentation from September 2014, and there are some sizeable differences between the suggested revenue run rates that were marketed to potential investors in January 2013 and the actual revenue out-turns for 2013. 

For example: 
  • Lamoda's revenue was reported to be RUB 5,150 million for 2013, or c. €122 million at annual average EURRUB rates for 2013. This is 48% below the run rate indicated to potential investors in January 2013. 
  • Dafiti's revenue was reported to be BRL 419 million for 2013, or c. €146 million at annual average EURBRL rates for 2013. This is 35% below the run rate indicated to potential investors in January 2013.
  • Home 24's revenue was reported to be €93 million for 2013. This is 38% below the run rate indicated to potential investors in January 2013.
  • Zalora's revenue was reported to be €69 million for 2013. This is 29% below the run rate indicated to potential investors in January 2013. 
  • Lazada's revenue was reported to be €57 million for 2013. This is 15% below the run rate indicated to potential investors in January 2013. 
In fact only the smaller revenue generating companies from the presentation: Jabong and Linio achieved 2013 revenue that was actually in line with that of the run rate presented to potential investors in January 2013.

Rocket Internet annualised run rate revenue
based on November 2012 trading as compared to 2013 full year revenue
Source: Manager Magazin, 19 April 2013, and Rocket Internet IPO Prospectus
On a cumulative basis, while as at January 2013 Rocket's management were implying total run rate revenue for the combined businesses of €855 million, in the event the out-turn for full year 2013 was 32% less, at €579 million.

Rocket Internet annualised run rate revenue based
on November 2012 trading as compared to 2013 full year revenue

Source: Manager Magazin, 19 April 2013, and Rocket Internet IPO Prospectus
As I mentioned prior, had I invested at a private investing round in January 2013 on the back of that presentation, I might feel a bit miffed. As there are sizable losses and an accompanying large cash burn pretty much across all of Rocket's portfolio, which have only continued to increase since, Rocket must be valued on some sort of revenue multiple. And yet the revenues fell short of what may have been expected from the run rates indicated from November 2012.

Maybe Rocket's big five just had a blitzing November 2012 in the run up to that marketing round in January 2013?

Of course the silver lining for any 2013 investor is that Rocket's valuation has rocketed higher since then, while revenues have also risen dramatically into 2014. More on each later ...  

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog.