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By Tom Winnifrith | Wednesday 12 September 2018
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.
No doubt Cynical Bear who has called Xeros Technology (XSG) superbly, as a sell, will be a smug fellow tomorrow as this Neil Woodford Dog announces its interim results. The share price action is telling you that folks already know the worst – shareholders have to bail it out again or it will be going down well before the Christmas decorations go up.
As a reminder, this Woodford howler has a the business model of revolutionising a world that needs no revolutionising, that is to say washing machines. Its sales in calendar 2017 were £2.3 million, a tad lower than in 2016 but well up on 2015 and 2014. This is no start up. But its cash burn… ouch
Luckily it raised £25 million at 225p last December. Thanks to that it ended the year with £25.1 million of cash, net trade payables of £2 million and inventories of three times sales at £6.3 million – I suggest it will be hard to turn them into cash fast despite one or two “green shoot” RNS statements of late. The cashburn, according to house broker Jeffries (which ludicrously reckons the shares are worth 349p, ho ho , ho) will be £2.2 million pcm in 2018. And that tells me that by now cash plus trade payables/receivables is down to less than three million quid. As Jeffries itself says, as it counts its fat retainer for publishing crap research, it could be “squeaky bum time”
So Xeros is almost tits up and that is why the shares have fallen fast ahead of the results to just 50p today.
Of course 60% of the shares are owned by Woodford, Invesco ( a Woodford legacy hospital pass) and Woodford’s pals at IP Group and the trio like spunking other folks cash to bail out dogs like Xeros. The problem will come when one of the trio refuses to stand its corner or has insufficient cash to stand its corner. Maybe we are there now.
Unless you value a business on a multiple of cash raised (and spunked) it is hard to justify the current £43 million market cap. If Woodford et al were doing their job properly they would either walk away completely or tell management that as the alternative is insolvency well before the Christmas lights go up, they need to accept a refinancing at 10p or less.; But those options would mean red faces all round and the bad PR is something Woodford cannot afford. So my guess is that the next placing will be at close to the current share price though God only knows why anyone other than the three stooges would back it.
More on this tomorrow…
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