Globo, RM and Tesla – what’s the connection? You will see.
Globo managed to get their name mentioned in the Financial Times yesterday as coming “under pressure after bloggers question cash flow”. This probably refers to comments from Paul Scott on Stockopedia where he writes a daily small cap report which covered Globo on the 17th October. Not only were those comments spread around on bulletin boards but he and other folks have said similar things in the past.
In essence what he said was that despite reporting profits, the company has historically had to raise money (such as via the recent placing) because profits did not turn into cash. Debtors were too high he suggested and he typically does not like capitalisation of software development costs. He also expressed concern that directors sold stock in the placing rather than participate.
Globo has been covered in past ShareSoc newsletters – for example in April 2012 when it was reviewed and the price then was about 25p. At the time of writing it is 67p after falling from a high of 83p. We have also reported on previous AGMs of this company as the author of this item holds the shares (and asked a question on revenue recognition at the last one).
There are undoubtedly valid concerns about the cash flow, but the situation was not helped apparently when Globo recently did a presentation for investors and overran their presentation time leaving no time for questions.
One of Globo’s key products is software to support “Bring your own device” (BYOD) in the corporate IT world. One announcement last week was from RM who sell IT products into the educational sector. It is closing down its sale of personal computing devices (mainly PCs) which will mean reducing staff by 300 and one-off costs of circa £10m in the current year. As Anthony Miller said in Techmarketview, “It really should come as no surprise – and really it should have happened years ago. But educational ICT and resources group RM has finally decided to throw in the towel on its PC sales activities and concentrate on software and services.”. (Editor: I definitely agree – it should have been done a long time ago as margins in hardware have been falling for years and it’s a commoditised sector. Why the previous Chairman, who briefly came in to restructure the business, did not take that step I do not know). Of course one of the reasons for this move is that schools are moving to a BYOD model – the kids take their own computing devices to school.
Also last week was the news that Tesla have opened a London showroom with a launch event (although you won’t be able to buy a right hand drive version until next year). The Tesla Model S is one of the few viable and successful all-electric cars, but at a price. It has been a great success in the USA where the company’s stock is now valued at over $20bn despite the fact that it’s still losing money (i.e. no profits and it’s on a multiple of over 15 times sales). Wealthy stock market investors who read this article (aren’t you all?) should certainly take a look at this vehicle. It would be ideal for London residents as it’s exempt from the Congestion Tax (a.k.a. Charge). The price you might have to pay for one is not totally clear but it might be in the range of £60,000 to £85,000 depending on options. Incidentally the car is of course named after Nikola Tesla who invented A.C. electric power and whose biography is well worth reading as a business story. Book your test drives now!
What’s the connection between Tesla and Globo? It’s that the Globo Chairman, Barry Ariko, owns a Tesla and gave a good report on it when I spoke to him at the Globo AGM (Mr Ariko lives in California where no doubt the vehicle is popular with the high tech crowd). It’s always interesting what you can learn from attending AGMs, as I keep on telling people.
Roger Lawson
Postscript: the day after the above blog entry was posted (first thing on Monday morning), the company announced it was to publish more information on working capital movements later in the week.