Tag: TCN

  • Tricorn (TCN)

    Between the lines

    I've sold out of my entire holding of Tricorn today, as a poor trading update pushed the price down about 35%, closing the day on 20-ish pence. I got out slightly better - at 23p (the bid at my time of selling this morning) - but the transaction still represents one of the portfolio's relatively few losses (about 10% on my buy price of 25p, pre costs). Looking back slightly wistfully on my last report on Tricorn, in December, I note that I thought about - but did not take - the opportunity to sell the shares at 42p a few months prior. Still, it's easy to look back and beat yourself up as information reveals itself - we are always more informed than we were yesterday, and it's what you do with the information you have available to you at the time. So what of the update?

    I jumped out of Tricorn fairly quickly. Both the content of the trading update and the way it's presented concern me. I'll quote snippets here, and you can find the note in its entirety here.

    Having seen further softening of demand since the Company's announcement of its interim results which were released on 3 December 2013, the Board's current view is that second half revenue, for ongoing businesses, will be approximately 15% lower than for the first half of the current financial year.

     I raised my eyebrow on this paragraph; a 15% drop is material and worrying. The group has been ramping up capacity and purchasing/setting up new businesses - so incurring higher fixed costs and charges - and needs increasing revenue to contribute to these overheads. The scale of the fall is such that, if they perform at that 15% drop, revenues will still sit lower than the first half of last year. Looking at their operating costs, it then looks likely that they'll make a pre-exceptional operating loss this year, with possible further exceptional charges on top of that. (more…)

  • Tricorn (TCN)

    Foreign affairs

    I've held Tricorn in my portfolio since May of this year, and the shares spiked at a price about 70% above my buying price in late September. I had a look and decided to continue to hold then; a decision I might come to regret as the shares drifted down from that week-long peak, and dropped further upon the release of their results this week. They now sit at 28p. As ever, then, the question is how to interpret the drop and results; is it an attractive entry point forged by market misunderstanding, a worrying turn of events, or - and this should always be the default option - the market pricing in the news.

    Having spoken to Tricorn's management before, I got an email from their nominated adviser and broker asking if I wanted to have a brief chat once again (prior to the results, I should note), which sounded, as always, like a nice chance to get their take on events. I'll present this post as a sort of two-parter, then; I'll briefly talk about my gut, immediate reaction to the results, and then talk about what management said by way of explanation.

    The results

    There's not really any escaping the fact that the headline figures are pretty bad; net debt is up to £3.6m (when I first talked about them I pondered what they were going to do with a £3m cash pile!). Revenue is up 15%, and gross profits are up with that, but a far higher level of operating costs means that the company posted a £.281m operating loss and a £.324m loss before tax in the first half of the year. This is a non-trivial loss for a group with a market cap of sub £20m and net tangible assets of about £6.5m. It's also over £1m worse than last year's figures.  (more…)

  • Tricorn (TCN)

    Full year results

    Tricorn, a member of the portfolio for a few weeks now - and rather happily up ~15% in that time, though that statistic isn't worth much given the absurd volatility of shares this small - released their preliminary results for 2013 yesterday. It's probably fair to say the results were slightly better than expected, beating forecasts by a decent amount; make of that what you will. In more absolute terms, revenue declined by 12% while underlying operating profit stayed roughly the same, at £1.7m. I've updated the graph on the right to show the new figures, and also the valuation box beneath.

    In many ways, these results in themselves are sort of less interesting than they might usually be; we look at results to tell us about what has happened with the business over the last year, to try and figure out where things are going and if they are performing as they have done historically. Given the amount of change that's happened at Tricorn, though, this is less the case here. The US acquisition relatively late in the year, as well as the expansion into a Chinese manufacturing facility that was ongoing means that the real crunch time is the next couple of years, not this one. This morning I spoke to Mike Wellburn and Phil Lee, CEO and FD, about the figures and that sort of theme - of a changing business - was something Mike was rather keen to emphasise. He was very much talking about the US and China as being transformational and talking about the effect that will have on the business in the near future.

    This is still clearly true, though it's obvious that that strategy doesn't come without risk. I note that this year's revenues don't fully reflect the loss of that significant Rolls-Royce contract in November, and given that revenues are already down 10%, that's more of an obvious headwind for the UK bits of the business as well. The company did well to maintain operating profit given that revenue fall, though, and the directors attributed that to (and noted they were continuing with)  the usual 'rightsizing', keeping costs in line etc. I say usual since it's a bit of a universal management cliche, but more often than not it's a failed endeavour, so success here makes a pleasant change. (more…)

  • Tricorn (TCN)

    Synergy and strategy

    Call with management

    It's not often I speak with the management of the small cap companies I cover on my blog, but last week I was contacted by Tricorn IR and scheduled a call with CEO Mike Wellburn and Finance Director Phil Lee. As readers might guess, I'm still undecided about whether speaking to management adds much value in most cases - they are inherently biased parties - but in this case, given how much has happened at Tricorn since their last annual report - and my self-professed ignorance of what it was exactly that Tricorn did - it seemed like a good opportunity to hear straight from the horses' mouths what was going on.

    A quick recap on what I've written and what has happened so far, then: my first post on Tricorn was back in January. I was rather in two minds - the company had fairly recently lost a large contract with Rolls-Royce (representing 11% of group revenues), which struck me as particularly bad timing given that the rolling stone of international expansion was picking up pace - the group had long had links with suppliers in China, but was going a step further and setting up a separate company and factory there. I also posted a couple of weeks ago, after the announcement that the group was acquiring some US assets at a discount to net asset value. The size of this acquisition was clearly materially significant for the group, at ~£2m, and explained my queries about the cash pile in the original post. Since that post, we've had one more bit of news - a trading update from the company, and it's notably positive - the Chinese factory is up and running, the US acquisition seems to be moving quickly and management say full year (pre-exceptional) PBT will be roughly the same as last year.

    Mike first explained the finer details of what it is they actually do, then, with a few examples for my rather nontechnical mind. Essentially, they sit in the supply chain of OEMs (in which they aim at the larger companies), mostly producing pipes used in engines for the transferal of air/water/fuel. He was keen to stress the elements that make their business less commoditised than one might expect - some proprietary equipment for producing pipes that don't require welding, for instance, and the general principle of working with the supplier that enables Tricorn to embed itself in a supply chain by adding value to its customers. It might sound like box ticking, but Tricorn do indeed earn better returns than one might expect from a commoditised manufacturer. Having good relationships with suppliers because they add value might be a reason for that. He also noted that historically the market was geographically rather fragmented, with smaller regional suppliers. That leads us neatly on to strategy. (more…)

  • Fyffes, Tricorn, Expansys

    Quick-fire thoughts

    Looking at interesting companies and then hitting a roadblock is always a bit disappointing, but perhaps there's something to be said for being extra prudent with your money when the market has risen lots. A rising tide lifts all boats, as they say, and some of those boats are liable to sink rather more quickly than the marker might expect. Since I've spent the last couple of hours looking at three companies, then, I thought I might as well go through where I got to.

    Expansys

    Expansys popped up in my screen as it's now trading at what is, apparently, a discount to its tangible assets. The online retailer and SIM card distributor now trades at 0.48p, about a quarter of where it sat a year ago, and significantly under the 14p per share it reached in 2010. The latest cliff the share price dropped off of came about because of a trading update on the 21st of March, noting that trading had been significantly below expectations, with the usual chatter about cost saving initiatives being implemented and a strategic review being undertaken. I was a bit confused by this:

    The Board is undertaking a strategic review in order to accelerate its objective of becoming an end-to-end solutions provider to MNOs, MVNOs and OEMs. This is not currently envisaged to involve a sale of the Company.

    My understanding of the business was that a large chunk of their revenues, as well as their previous capital expenditure, has gone on the retail side of things - their expansys.com website and the regional operations. Their previous half yearly report was talking about double digit growth rates. Is being involved in retail a part of being a 'end-to-end solutions provider to (hang on while I google these) Mobile Network Operations, Mobile Virtual Network Operators and Original Equipment Manufacturers'? There's also potential legal trouble in the SIM card segment, apparently with O2.

    I just don't really get it. Management's narrative confuses me - which may very well be my own fault by being too easily confused - but I can't help but feel there's far too much stuff I'm missing that's relevant to the valuation. I'm pretty sceptical of online retail businesses anyway given the way Amazon seem to operate. If they're shifting into other segments for that reason, fine - but I don't want to pay ~1.5 times net assets for that. I value simplicity. I know I probably miss good opportunities because of a lack of drive to 'get to the bottom' of situations like this one, but at the moment I don't feel confident or comfortable enough to do that, so my time is better spent elsewhere. (more…)

  • Tricorn (TCN)

    Losing ground, gaining value

    Tricorn are the future of global tubular solutions. That's according to their last annual report, anyway, but it was eye catching enough to get me interested. Any business on the cutting edge of any solution, let alone tubular ones, has me curious already. I jest slightly, but the next line in their annual reports is slightly more informative; ' the holding company for a group of companies that develop and manufacture pipe solutions to a growing and increasingly international customer base.'. So they make pipes! I have no aversion to small, component, niche industries. Indeed, I think being the king of a niche is an excellent way to freeze out competitors and ensure a good return - though whether that's possible in Tricorn's case remains to be seen. They list three main markets - energy & utilities, transportation, and aerospace. Essentially it's all the sort of stuff that gets used in engines and machinery.

    This makes it sound like an industry with a future. I'm not in the business of making predictions - thank God - but I would hazard a guess that engines and machinery will still be seeing a bit of use going forward. Probably a growth industry but, like Volex, that doesn't really mean that much given all the other factors involved. (more…)