An SBM Conviction Short idea - ADVFN
ADVFN TABLE 3
“It is very apparent to us that the business is consuming cash, and with the Group down to their last £1.4m - a drop of £1m in their cash and equivalent resources in 1 year, you will see why any analyst worth their salt would be expecting a cash raising soon in the absence of a material change in profitability.” Valuation At the current market capitalisation, ADVFN is valued at a whisker under £30m. This for a business that has not been able to produce any meaningful profits for a good number of years (more often losses) is a consumer of cash and that, adjusting for goodwill, has a net book value of £3m. That’s right £3m. This even includes the intangibles that we believe should be in there given the technologically focused nature of the business, but that the auditors and directors value at £2.1m. In essence, the “market” is saying that ADVFN’s registrant (NOT subscriber) base is worth £27m or its position in the marketplace is unique and the brand is worth a sum running up to £27m. We personally don’t see it. The company discloses in its accounts that “a large proportion of its overheads are fixed costs”. This means that it has high operational gearing — a downturn in revenues hits their P&L disproportionately although it’s fair to say that, in theory, a large uplift should flow through to the bottom line, exponentially; some software companies have benefited from this and some have found that the capacity they thought they had was illusory...
February 2013
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