Morning Mumble: AO World's warning & are their PR Tulchan Group novices? Anglo's further woes thanks to Kumba/Exxaro, IGG stab at the regulators regarding PLUS & Tim Howkins surprise departure.

Good Morning,

AO World's (AO.) there's nothing in the results to want to purchase the equity. The inference is AO. World are attempting to turnaround the pressures they've met over the last 12 months. AO. interim management statement (IMS) for the AGM suggests they knew that July was going to be good. At no point has there been a reference to July being the turnaround in sales or of strength to be noted.

Over to AO.:

As we communicated in February we expected sales growth in the first quarter of this financial year to be muted. We report revenue growth in the UK business for the 3 months ended 30 June 2015 was 6.5%, with our orders up 13.9%. AO.com experienced revenue growth of 11.2% year on year. This growth was delivered through a period of particularly intense competitive activity in the market, compounded by the uncertainty surrounding the general election.

Despite there being a general election house sales remained resilient as reported by Persimmon (PSN), Taylor Wimpy (TW.) (Pre-election update) neither did Dixons Carphone (DC.) report any woes. Further, house sales (exclude new builds) were not impacted massively either, down circa 3% in May. So have AO. merely benefited off their IPO hype, now normal market conditions apply?

AO. had some uncertainty...grasping at straws springs to mind. AO. is still over-priced compared to DC., even allowing for mobile phone sales. Expect some relief rally in the stock, the woes of going into the AGM/results with short positions in the current market. The IMS pretty much explains why the stock has been without support.

We'll ignore the restrictive practices of Tulchan Group regarding accessing the conference call. To note, AO will be holding a conference call for analysts and investors today, 21 July 2015 at 7.45am. To register and for dial-in details please contact ao@tulchangroup.com. 

Tulchan Group are so experienced with investors, instead of publishing the details they develop a restrictive practice or data / information harvesting, or is that a message to investors. The details of the dial in should have been published in the RNS or better still in the AGM Notice. Incompetence or oversight? Take note Tulchan in the event you're pitching for one specific upcoming IPO's where this will be raised. 

Kumba Iron Ore (JSE: KIO) had some relief on the back of taxation benefits. This is going to hurt Anglo American (AAL) over the longer-term as the axe has finally fallen on the dividend. Kumba have finally admitted what the market should have acknowledged, that "prices are expected to remain under pressure as Australian and Brazilian producers increase supply, and demand growth from China slows." Please note the later...

Kumba believe they get can their cash costs down to $45/t from near $65/t average for 2014. So like the majority of mining companies in South Africa, they're cutting jobs and reducing costs, trimming the fat on capital expenditure near $200M, in addition to reducing/removing support-services (watch the lost-time injury frequency rates). They hope to "reconfiguring mine plans," although this may be trickier than just typing it.

As a positive, the higher cost Thabazimbi mine is closing. From reading my Grandfather's diaries during WW2 I think this was one of the strategic assets. Has Kumba's spat with ArcelorMittal over the 20+% Sishen been resolved yet (See: Criminal)? The saga has been going on 2+ years. With the reduction and unemployment rates increasing in South Africa, when does this impact on the political stability? A good proportion (1/3rd) of earnings being a tax rebate, the outlook isn't looking great. 

The read across with the postponement (cancellation) of the interim dividend is negative for Exxaro Resources (JSE: EXX). JSE: EXX makes Kumba Iron Ore BEE (Black Ethnic Empowerment) compliant at Sishen Mine level. Anglo as 10% holders in EXX via a the web of South African ownership entities means with the assistance of Eyesizwe Mining, its more than likely they'll have to provide guarantees or funds to support JSE: EXX. 

From JSE: EXX's own Finance Director’s 1H2015 pre-close update:

3.4. Sishen Iron Ore Company (SIOC) The significant decline in the iron ore price during this reporting period is expected to translate into significantly lower equity-accounted income and dividends from SIOC. This has a direct impact on our cash flows, our ability to comply with financing covenants, as well as to continue to pay dividends. 

With a weaker rand against the U$D, any recapitalisation/rights issue/debt restructuring will at least be a little less sour. 

IG Group (IGG) came out with a little better than expected results. With the roll out of ETF's they're certainly covering the needs of investors. Although perhaps not the first port of call for some, their revenues are looking sustainable. 

CEO Retirement of Tim Howkins spooked the market, the preliminary results weren't bad when considering the CHF issues over circa £27M. The cursory statement to the regulator is important; At IG we take very seriously our regulatory and consumer responsibilities on appropriateness tests for prospective clients. This incident underlines the need for regulators to ensure that regulatory standards are applied robustly and consistently across the industry. 

Loads more but so little time! 

Atb Fraser

Morning Mumble: The not so-exclusive with humour: AO World (AO.)

Good Morning,

AO World's final results are out and so is the Christmas card list yet again! A loss after tax credits (£364K) of £2.517m. Richard Rose's share sale just after IPO is looking very shrewd indeed. 

Its that time when analysts (specific ones) should learn the difference between operating profit, cashflow and EBITDA. With the exception of Panmure Gordon, (Michael Stewart who had just switched camps from Shore Capital at the time), recognised most of the white good/domestic appliances woes of the UK industry. Admittedly, Canaccord Genuity weren't far off the pace but it was somewhat ruined by a hold rating when it should have been a blatant sell. 

The loyalty within the domestic appliances sector is fractured, more so the limited offerings for TV's that are questionable whether they are the latest. The margins for the debacle known as "black Friday" were far from positive for AO World. It’s interesting that AO are also operating an eBay branded store. Unlike others, we always like to go one step further, so here's AO World on Ebay. No wonder the margins are under pressure if you're discounting your brand or worse competing against yourself. 

Group Adjusted EBITDA was £8.5m (2014: £11.2m) is irrelevant here. With cash depleting to £37.9m from £48.7m (2014) despite a significant increase in sales from £384.9m (2014) to 23.8% to £476.7m. AO world band around that their UK NPS remains at its historically high level of over 80; AO.de higher still. Not only do the NPS figures contradict the need for a lower margin entity of eBay, but more show that the operating style is engrained by low price offering with hope of and add-on via warranties.

Exclusively (ha ha), what was is missed, is AO's absence of separating the sales between their own site and ebay. AO (perhaps cunningly) incorporate AO Website sales to include their eBay offerings. One would be wise to consider as 'via a third party' offering, as margins are impacted a further 1-3.6% average and still include their name plate 'free delivery.' In essence, explaining the margins and decrease by 1.1 percentage points can be explained simply! 

Some analysts that were bemused by my statement about "well it depends on what UK portal AO are selling the most through as this will significantly impact on margins." When this was raised at a lunch in January it was surprising to see the limited physical research of the company's offerings. 

Sales of UK Website sales are without a doubt up 35% ish to near £381.5m from £287.1m (2014). The question is, if you're already one of the cheapest offerings, why cannibalising your margins by a further 3.5% by competing against yourself on ebay (assuming fees etc...) and that excludes additional discounts.

Not only is there an issue with paying third party commissions, but more importantly pricing. So to keep the matter live its wise to compare the offerings, there is "sometimes" a further discount applied to AO's products on eBay. a example being below from today! 

Samsung offering by AO.com UE58H5200 Price £549

Samsung offering via eBay UE58H5200 Price 529

Admittedly a lot of prices are similar or the same but without a doubt there are additional discounts applied on some items as above near 3.6% percent in addition to site costs and paypal etc..etc... The electronic offering does not bode well for warranty sales either, as they are easily dismissed by the purchasers where secondary/follow up 'attempts' to insure ones purchase are limited. 

See the financial reviews some items added in bold italics to grasp the issue. 

Financial Review

Revenue

For the year ended 31 March 2015 total Group revenue increased by 23.8% to £476.7m (2014: £384.9m) despite the impact of slower than anticipated year-on-year sales growth experienced in our final quarter as we didn't experience the benefit from our heightened publicity surrounding our IPO as we had in the previous year.

Growth achieved during the year was polarised towards our AO Websites which experienced a strong increase of 32.9% to £381.5m (2014: £287.1m).  This was driven by the continued migration of consumers to the online channel as our commitment to exceptional levels of customer service continues to stimulate repeat business and attract new customers. The introduction of the AV category, broadening our product range added to this growth. Sales from our German website, AO.de, contributed £5.8m to our revenue.  AO Website Sales (which includes AO.com, AO.de and AO branded eBay shops) now account for 81.3% of total Group revenue (2014: 74.6%).

Year ended (£m)	31 March 2015				31 March 2014		Change
	UK	Europe	Total		UK	Total	UK	Total
AO Website Sales	381.5	5.8	387.4		287.1	287.1	32.9%	34.9%
Third-party Website Sales	70.3	-	70.3		79.3	79.3	-11.4%	-11.4%
Third-party Logistics Services	19.0	-	19.0		18.5	18.5	2.8%	2.9%
Revenue	470.8	5.8	476.7		384.9	384.9	22.3%	23.8%

During the reporting period, the total number of completed orders from AO Website Sales and Third-Party Website Sales increased by 26.4% to 1,348k (2014: 1,066k) and products per order increased slightly.

In the absence of further drivers/sales increases and margin improvements, its wise to consider AO world valued at around 125-135 pence, assuming some common-sense. 

Atb Fraser (more later)

Disclaimer.

Morning Mumble: If Boohoo (BOO) and ASOS (ASC) can do it...B(H)S and oil+shipping (as promised).

Good Morning, 

It wasn't so long ago in a meeting about 'where to invest' in a low oil price environment, I found myself recommending short oil/associated products including washing powders and the like, whilst longing holiday companies and retail leisure.

Next's validation will come shortly on Thursday (Preliminary full year results) with the "beat" being reported as a head of consensus. Perhaps not all blue sky as the market is becoming more active, expect margins after this quarter to go under-pressure again. Simply put, if BOO and ASC can do it, then NEXT should be staggering. 

The debacle of BHS, has no doubt been amusing for the sector pundits, but if the journo's don't have a clue, then we hope those fronting the company do. So whilst at the races, there was speculation from those in the industry that BHS has been acquired by a subsidiary of Iconix China Group and the daughter of Silas Chou, Veronica.

Whether Iconix or the Chou's are the reality behind BHS or not, its speculation based on Silas Chou/Veronica Chou alleged desire for a UK acquisition. For myself, if they're behind big brands, why own department stores? Those of you like I thinking,...who, what, where is Silas Chou, being swiftly told off on Friday, apparently they’re behind the IPO (2011) of Michael Kors and the purchase of Tommy Hilfiger in the late 80's, Karl Lagerfeld and Pepe Jeans. Clear as mud to I, but if I'm honest, not something I will be keeping an eye out for. 

Staying in retail, it looks like Richard Chase is exuding confidence in AO World (AO) stock slotting 5,583,475 shares  at £1.80.  John Roberts (Chief Executive Officer) assures the market John Roberts, Chief Executive Officer, said: "The share sale by Richard Rose follows the expiry of the post-IPO lock-up and will help to further increase liquidity and the number of shares in public hands. Richard remains committed to the Company, both as a shareholder and as its Chairman." 

If one thinks selling 85% (circa) of your stock (a sizeable holding) is commitment and confidence, then this week I shall spend a few hours applying for Chairman type positions of stocks that are stonking shorts. Richard Chase has unknowingly made the Christmas card list of every shorter in AO. 

Kefi, the amazing performing Gold stock, you'll note the sarcasm, gives an update on Tulu Kapi. KEFI are apparently only having to find $20m to obtain $100M in debt financing. They have a number of possible sources currently being assembled, including financing from contractors and equity at the project or parent company level. Over to the International Finance Corporation (IFC) to stump up sum (poor!)! if the equity is at the parent company level, one hopes the current shareholders (including yours truly) do not need a snorkel for the impending dilution! 

Ian was discussing his long in HOC (Hochschild Mining) over the weekend. Having spent so much time away from technology, its apparent he's incapable of differentiating between a long and a short. Today, with silver finding significant support its wise to close any shorts on HOC, not for fear of a change in trend but to lock in significant profits since the Christmas Silver bounce. They're also announcing their annual results on the Wednesday, and they might not be as bad as the market expects. One hopes there all in sustaining costs of circa $17/oz. is much better! The common-sense coverage of HOC via EMC from November 2014.

It would be rude not to consider oil and shipping rates, WTI at $44.26/bbl, and Brent at $54.20/bbl. these prices are likely to impact on shipping rates as speculators exit their floating storage rates. These rates have continued under pressure with Suezmax Tanker Spot Rates into Q1 2015, dropping near 20% from the start of the quarter having peaked at $80K+/day down to $47K/day, Aframax Tanker rates fairing much better at circa $38K/day. LR2 Tankers rates at $26k/day. All classes all (excluding Suezmax) are near 50% above the rates of 2013/2014 and Suezmax up near 100% on 2013/14). 

The industry men describe the current rates as very strong. Based on the oil price being low, with continued strong demand (Asia from Arabia) and stockpiling (surely there can't be much more), and the rates benefiting from the storage speculation (albeit reducing). The market has missed the reduction in Russian export duties (circa 40% lower), where oil producers/exporters delayed shipments to save a few $$. So more oil out of the Black Sea, Mediterranean and Baltic! The weather is impacting on the Turkish straits, delays near 6-8 days. 

With the maintenance schedules coming up at refineries around the globe, this will push higher inventories and impact further on the prices. Will the trend in rates encourage speculation in fleet growth depressing the industry? Oh yes, tanker/shipping rates are likely to come under significant pressure end 2016 into 2017. 

There's been contracts placed on around 49 long-term Very Large Crude Carrier (VLCC) and Ultra Large Crude Carrier (ULCC) in the past two weeks, giving a floor to the rates and removing excess capacity from the market. All boding well for the tanker market rates but limiting the spot market delivery capabilities. 

Afren (AFR) down another 20% today, perhaps holders have smelt the roses? Don't be silly...over to GKP! 

Atb Fraser

Morning Mumble: I CU all the way...BLT pushing with expansion, and CAML hitting the mark!

Am I missing something with AIM? Admittedly it makes no difference to me, but what are companies doing awarding themselves 4%+ of the company based on??? Tower Resources PLC Grant of Options and Exercise of Warrants Only 75M shares at the placing price from Tower Resources PLC Placing, Acquisition and Preliminary Results from the week before. Where else in the world can you get the ability to buy stock at last week’s prices? It would appear the board room of Tower Resources is one of those places! 

The company wants to be very careful, as its these sort of things shareholders are looking at. Imagine if the placees were told...we've got a brilliant company that needs cash, are you interested? Were they at any stage informed that a significant percentage of those monies would be diluted to award "options." to Directors. The event is so material of the mind-set of the company parties would be wise to flip the stock and go elsewhere.

So back to the markets: BHP Billiton's results  are obviously bullish with the 10% headline increase in production. 

So the race is on to force companies out of the market place not only with Iron Ore but Coal as well, with an additional 2Mt's hitting the market despite it being so dire. The fittest companies will survive, but certainly not those overwhelmed with debt. Copper increasing and I suspect revised guidance upwards is on its way with expansion plans. With RIO and BLT's dividend one would be wise to hold them in a long portfolio. 

BLT's news bodes well for RIO (as they weren't as bullish as BLT in their announcement yesterday). In addition to the news from Mongolia that things are progressing at Rio’s Turquoise Hill Says Parties to Seek OT Funding Extension is the Government finally giving clarity on Royalty, Taxes and the like. Turquoise can then be taken out by Rio, the 1700 workers reemployed and everyone's happy in the bliss that is Oyu Tolgoi. We knew back in March that AMEC were advertising for workers, so one assumes this process is further along than the press realise?

We all must welcome Polypipe (PLP) to the market with Admission to Trading on the London Stock Exchange. Will the founders/PE backers run to the door quickly? A quick look over the market shoulder at the Appliance Online (AO.) share price is positive for me. Will they have to change their name to "Insurance Online?" 

So with Fresnillo and Hochschild's announcing yesterday would you be holding silver stocks long? We have Fresnillo coming out with production inline however its higher cost sector friend Hochschild's results yesterday don't elude to much in the way of any positives nor is there much commentary of the Silver Price down 20% on average over the last 12 months, costs will be key and HOC are now limited in their savings. 

HOC announced in March that their costs were around $18.6 per ounce and that was during a year of "savings/costs focus", with the current silver price not leaving much headroom and after the $27+M annualised interest costs on their Senior Notes, there's little left for shareholders. If you're in profit at HOC, you'd be wise to sell up or switch to FRES with costs around the $5.6 per ounce all in, significantly better than HOC. 

Now who'd have thought Tesco would have been cooking on gas today? Would you have been short going into results final results. Tesco have some relief, but it takes no rocket science to realise the three companies have to transform their pricing perception and offerings in light of significant competition. Asda clearly are winning, albeit all appear to be losing between 4-6% of their turnover to the lower priced offerings of Aldi and Lidl. 

The final thought for the day goes to Central Asian Metals 2013 Full Year Results, with 100% of the Kounrad Copper Mine income being attributable from now going forth, the earnings are set to benefit further. With 9 pence per share final dividend, there are not many around AIM doing what they say! The costs per pound are spot on, albeit I see some increase in these going forward at around 5%, the dividend coverage is more than affordable. Currently in at a fully inclusive cost in Kazakhstan is $1.13/lb albeit last year was $0.98/lb (2012).

Atb Fraser

Morning Mumble: Appliance Online (AO) what next? A short piece...and the week.

For those following the story of Appliance Online, it listed at a massive valuation compared to its profit from the previous year. Appliance Online do just that...white goods and small appliances only. Well my figures do not stack up on that valuation and it comes as no surprise, having modelled the company, that is the reason why I am short. 

The important part that needs to be considered is the expanding offerings from AO. AO, with the "marketing concept" and heavy push means they have to start offering other electrical items within 5 weeks to keep the psychology of the model moving forward. This needs to be continued, almost akin to "Shake and Vac" marketing, for those that know about that advertising benefits of that brand that had astronomical results when advertised at regular intervals...

Its likely within this new offering of TV's that Appliance Online will sell a unique brand as well; say from a company that already produces components and parts for larger and well known manufacturers such as Samsung and Panasonic. So I envisage AO offering a new line called HiSense or similar. They're already selling under that brand in the US and a limited degree in the UK, but I expect them to do some form of quality launch with exclusivity for AO.com leveraging off the back of manufacturing parts for other more well-known companies. 

Whatever appliance online do, in the short-to-mid-term it won't justify the stupid valuation it currently has. Profits are a must and it's not just "about cashflow", shareholders want more, or at least should. It will be interesting to see if the psychology of the AO model means the launch will happen within the 5 week window to keep "the news beat consistent" and maintain people's interest. Only time will tell, but due to the nature of the market, its my a risk I have to factor into the shorts. 

The concept, of warranties must underpin AO more so than any other brand. A dishwasher has a "lifetime warranty" for only £6.95 a month for Dishwashers... that's  £83.40 a year. It's a lifetime warranty so when you cancel you cannot renew it (fear) but more importantly with the average white goods costs being around 450 you're paying for a new one every five years ish. Interesting concept, buy one pay for two just in case on breaks down/has a fault. I won't debate the statutory rights a customer has under the Sale of Goods Act here, but you get the idea. So for now I remain short...but am wary of news so will be looking to close down at points prior to my five week deadline. 

To elaborate further on Friday's commentary, its rumoured there is going to be an APR Energy and Aggreko tie up (I'd give it the caveat of a significant BS Rating). Some, including myself, cannot see the benefits save for the additional savings in one set of group costs. Would the brands be able to hold their share as one entity? Hmmm...A lot of gossip at the moment but time will tell, the main difference could be that APR use gas and Aggreko's main set uses oil a positive when combined in terms of offerings. 

For the shorters than don't just focus myopically on one area it should have been a very good week, in fact exceptional and some stocks benefiting from parties buying back (closing their shorts). There's a renewed negativity in the market that for some strange reason a lot of funds have started to reduce their risks exposure on a very predictable format but as a herd; the outcome is obvious is it not? The question is, what took them so long to realise? Perhaps someone can enlighten me on the situation, but the situation does not look good for the longs, save for the rumblings of MRW being taken private. 

Atb Fraser