There is good news and bad from Telit (TCM), but overall the company founded by mortgage fraudster & fugitive from US justice Uzi Katz, who is under FCA investigation and still pulling the strings, remains a stonking sell. The good news is that the sale of the auto division to HK-based TUS seems to be on track. We are told that TUS has published details of a placing and subscription (most of the cash coming from a connected party) and so the deal should go through by January 31. That will bring in c$105 million gross (call it $90 million net). The bad news is that this will be very much needed...
Telit says that sales (i.e. vanity) in calendar 2018 will come in at the top end of previous guidance at approximately $427 million, representing revenue growth of 14%. But now to reality. We are told that: The Group delivered a positive 'profit in cash' for the second half with adjusted EBITDA for the full year expected to be in line with previous guidance at between $30-$35 million (2017: $18.1 million). But that: Net debt at 31 December 2018 was approximately $34.5 million (2017: $30.2 million).
So hang on Henry… there was a positive profit in cash in H2 but net debt actually jumped from $25 million to $34.5 million over the same period. Whatever… EBITDA or bullsh*t earnings ignore interest costs (heavy as we know that period end net debts are far from reflective of peak net debts during the cycle) and big sums for capitalised costs, and ongoing capex to match the D number. The bottom line is that Telit is still burning cash and the disposal of the profitable auto division is not going to help that. Moreover the proceeds from auto will probably mean that, at the low points of the working capital cycle, Telit still has need of bank debt. Will the banks provide that or will they say “thanks but we are off” once the auto cash arrives?
There are of course still many unknowns in terms of other liabilities: FCA enquiries into the puppetmaster Katz, former CEO & FD Yosi Fait (insider dealing) and into nailed down securities fraud in 2017 and the Italian authorities are still trying to claw back material sums as well. And yet, a business burning cash is still valued at £168 million ( $220 million). That is a joke. But it is not as funny as the statement by Paolo Dal Pino, Executive Chairman: "The Board has changed significantly during the course of the year and I believe that the strategic and governance leadership of the Group is now in place to deliver upon our true potential.” Yup there are no mortgage fraudsters or insider dealers on the board any more (as far as we know) but Uzi is still pulling all the strings. That is not the sort of corporate gvovernance a decent Nomad would tolerate. Luckily Telit employs Finncrap (FCAP) so that is not a problem. But with a very real risk that the banks will walk once the auto cash arrives so meaning that Telit faces another cash crunch in 2019 this remains a stonking sell.
Filed under: Telit, UK Oil & Gas, Horse Hill, NetScientific, Neil Woodford disaster, Altona, Headlam, gold
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