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Watchstone Group, Thoughts on a Daft Proposal from Edi Truell’s Tantalum Corporation
By Lucian Miers | Thursday 21 April 2016
Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
I was amused to see my suspicions confirmed today by the Telegraph (TW Note only 24 hours after me in bearcast) that the “draft proposal” received by Watchstone Group PLC (WTG) did indeed emanate from Edi Truell and Tantalum, his telematics vehicle. I shorted some Watchstone at 230p as, all things being equal, the shares should revert to where they were before the announcement once it is confirmed that the blundering Truell has nothing to offer.
Having recently been shown the door by Tungsten Corporation (TUNG) for a similar daft proposal, Truell is now sniffing around Watchstone’s telematics assets for the second time. The problem is that Tantalum is a corporate train wreck. In an undated review of 2014, Disruptive Capital, Truell’s private equity vehicle stated that “Tantalum has now reached profitability”. But the company’s 2014 accounts signed off by the Leeds office of Deloitte on 7th September 2015 shows that this is completely untrue.
The company made losses of £7.6 million in the 18 months to Dec 2014. It had net current liabilities of £2.3m and the auditors opinion as to its ability to continue as a going concern was qualified.
My point is that Tantalum is flirting with bankruptcy and in no position to contribute anything whatsoever to the shareholders of Watchstone Group. Truell’s abject performance with Tungsten means that his ability to raise funds for anything is likely to be severely compromised. The rise in Watchstone’s share price in this regard was therefore misguided.
As to whether Watchstone, which is what remains of the Quindell fraud, is a long term bear remains to be seen. At first glance it looks cheap. It started the year with about 200p per share in cash with a further 120p cash held in escrow “in respect of the customary warranties given to Slater and Gordon (S&G)” and due to be released in December this year. Then there is 85p potentially due in further earn outs from S&G. That’s a potential 200p hard cash plus 205p potential cash against a share price of 230p with the telematics business thrown in for free.
Unfortunately, as is now well known, the acquisition of Quindell’s fraudulent legal services division has all but ruined S&G and I suspect that attempts to retrieve the £50 million held in escrow will involve costly and unpredictable litigation with S&Gs creditors. The chances of any further earn out are as near to zero as you can get.
So that leaves what in left of £95 million cash from the beginning of the year and a collection of telematics business cobbled together by a soon-to-be-convicted fraudster which lost £35 million at the operating level in half a year to June 2015. Throw in an extremely dodgy and easily gamed management incentive scheme and a pending law suit from former shareholders that could cost £9.4 million plus costs and I would certainly rather be short than long. I will report back when the 2015 accounts arrive.
Meanwhile I remain short of Tungsten because it remains Truell’s creation and legacy despite the fact that he has been fired, and it is the only way I can think of to gain short exposure to this idiot.
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