By Tom Winnifrith, The Sheriff of AIM | Monday 25 January 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.
AIM casino listed Servision (SEV) went public on New Year's Eve 2004 ad has been a serial disappointer ever since. More than eleven years on its shares have collapsed, more than $14.672 million has been sent to money heaven and the only commendation one can make is its consistency. It is always losses, more losses, more jam tomorrow and when's the placing? And it is that matter that needs addressing for the answer must be soon. Beware the ramp.
The past few months has seen Servision trumpet a few contract wins. It wants you to be excited becuase it knows that with a market cap of sub £5 million ( at 3.625p) this is a bucket shop only bailout and so needs to get the ramparoonie underway.
As it happens the contract wins appear both small and in one case with an existing customer. In other words it supplied some it last year and it supplies some this year. Who cares?
As at June 30 the company had a trainwreck of a balance sheet. Net assets were stated as $3.542 million but if one strips out intangibles ( capitalised R&D) that number becomes MINUS $1.207 million. Actually it could well be even worse because trade receivables are in at $1.341 million (c 6.5 months sales) but this company appears to report bad debts almost every single accounting period so if one assumes that some of its customers won't pay then real net tangible assets are likely to have been somewhere between MINUS $1.5 million and MINUS $2 million.
Current assets of $2.025 million are made up largely of those trade receivables plus inventory of $670,000 with cash at just $24,000. But let's be exceedingly chartitable and assume that this is all converted into cash. It is still not enough as trade payables were $1.635 million while short term borrowings - mainly bank overdraft - were $1.034 million meaning short term liabilities were $2.669 million. Long term liabilities were another $732,000 but I would not bank on this company having a long term so that is for another day.
Post period end, broker Beaufort managed to get away a £797,684 (gross) or £732,000 net placing at 3.5p so that is a $1.05 million cash injection. It then rasied another £400,000 gross - call it $540,000. But that will not be enough. In the first half Servision reported an operating cash outflow of $742,000. However it also reported purchases of property plant, equipment andintangible assets of $384,000. Given that P,P & E on the balance sheet stood at just $63,000 (down by $7,000 in six months) we can safely assume that this cash out is all on I. That is to say this is capitalisation of research costs which is an ongoing feature here. The bottom line is that Servision spunked $1.126 million in H1.
I am prepared to accept that H2 might be marginally better given the orders anounced but as it happens they add up to only around $650,000 ( H1 total sales were $1.2 million) and it is far from clear when the cash from those orders will be received. If that is the best Servision can announce it gives me little faith that H2 will, in fact, be any better than H1.
But once again I shall be an all round nice guy and be charitable and assume that H2 cashburn is about the same as the sums received from the first bailout placing (carried out at a 24% discount). That means that the year end balance sheet will - with placing 2 - show negative net current assets of at least $100,000 (probably more given the historic reluctance of some customers to pay) and an ongoing cashburn.
If this crock of shit is to get any sort of sign off from its auditors it needs another placing pronto. And that means a call to the bucket shops. On a 3.5-3.75p spread assuming a bigger discount than last time to reflect more non-delivery and weaker markets shall we say 2.5p at best?
On fundamtals this looks like a worthless POS. I would assume a Net Present value of less than zero and see no balance sheet value at all as a potential shell. So my fundamentals based target price is 0p but given how well Servision knows the bucket shops - and how much money they have made flipping placing after placing - another bailout funding will almost certainly be underway within weeks.
But until it concludes the shares are a slam dunk sell.
PS I see that the Sith Lord Zak Mir has tipped this dog twice ( at higher prices) which is a final kiss of death.
PPS Servuision has announced another contract today worth $518,750 -there is $100,000 up front with the rest spread over the rest of the year. That does not alter the maths in this article at all. A placing is needed urgently and this will not get the company anywhere near cash breakeven in 2016. It is however another sime of a pre-placing ramp. It adds to the sell case
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