Here is a belated report on (breaking my rule on writing before trading here) for the sale of Tungsten in London Stamps.
Tungsten is an invoicing network that processes supplier invoices for blue chip companies. The processing network is barely break-even and the business model was to make money on value added services, notably invoice discounting (factoring). It’s a fair idea, and goes well with the theme of banking disintermediation which I think will be relevant for some years to come. The problem here was that the approach was full of hubris, which fell flat so far.
The company has now re-framed its ambitions and management: same business model, less hubris. Perhaps not the time to sell, but it’s still materially loss making, and the market hostile. Break even is probably at least two years away, with probably a fundraising or two in the pipeline, so more one for the watchlist, to revisit in 2017, maybe. The market will forget having been burnt, but in the next few years the memory will probably cap the upside. Basically I think it’s highly likely to get cheaper before it gets better, and that some years away.
I probably shouldn’t have invested in hubris, though my rationale was that they only needed to achieve 20% of what they promised to justify their valuation.
But hubris is costly. For instance, reading between the lines of the latest update one guesses they structured the deal with their financing partner so that it paid off above high volume thresholds, so modest but real factoring volume produces zero income…
The proceeds were reinvested in Toumaz, doubling down an existing position back to median weight. I’m still confident the new health products have a chance of success. Liking the product range, I’m happy to give it a chance longer term.
Losing the bulk
Interbulk, the dry bulk business will soon leave the portfolio as the company is being taken over. This was a bet on their market turning from cyclical lows. The company was heavily indebted but with cash flow just enough to fund the cost, and backed by large logistics company who are the controlling shareholders who could support it through bad times, it did not seem too likely to go bankrupt.
Obviously someone else will get the full upside (if any), but as a 30% profit above cost, and a large premium on the recent share price, I can’t complain. The risk the controlling shareholders would not be nice to the minority was also a potential issue.