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…)