Morning Mumble: Dialight (DIA) almost cheery, Freeport-McMoran & Rio's Copper Confusion. The summer snow edition to finish on (with humour): RRL, AFPO's deal of the century & RRR? Phorm on Phorm

Good Morning,

In an admittance of just how bad things are, Dialight (DIA/DIRE) initiate a cost reductions. Having only sped through the RNS on the basis of having had the money and am unable to manage a position whilst on holiday, it’s surprising they haven't mentioned anything about their inventory. 

As a quick reminder, turnover up, cash down, profit down and in the absence of an effective cost management process, net debt is now around £10M. The market capitalisation is a smidge under £180M (550 pence/32.5M shares in issue). From previously having a modest dividend, this one has been torched. 

So today, they reduce the workforce near 12% (130 personnel) and incur a few costs as a result. Question being, what's taken so long to get to the consultation process? Are management so reactive to the company's position? We'll exclude save for Mr Sutsko from that having been in the position a short period of time. 

Why pay interest on debt when carrying inventory at levels near £36.5M, which raises the question of a goods/inventories impairment. We shall perhaps revisit Dialight post hols for a deeper look at these (date for diary October)...as there could just be some potential! 

Over to Dialight (bold is the addition,

Michael Sutsko, Group Chief Executive, said:

"I believe that we have a huge opportunity ahead and Dialight is well positioned to capture significant value in our rapidly growing markets. However, as sales continue to grow, the business has taken on excess costs which have resulted in our poor first half performance.

We firmly believe that our team can deliver continued growth with future resources being added in line with our strategy. This action is a key part of our plans to transform our business in the short term whilst realigning to deliver profitable growth going forward. As previously indicated, we will report back with the findings of our strategic review in October."

It’s confusing, the company didn't know its cost of sales went up disproportionately to revenue prior to Mr Sutsko's appointment? Finger on the pulse folks! This company may be in turnaround mode, but one has a suspicion there may be a requirement for some cash. The company reminded us they have significant headroom on banking covenants, maintaining financial flexibility, this maybe so, but there's also prudence. Leverage whilst struggling to maintain profits isn't always best, especially when carrying so much inventory as it's a road to ruin. 

We acknowledge the appointment of Michael Sutsko, who has only been in the hot seat 8 weeks, it’s certainly more than the board has done previously. Who'd have thought turning modestly positive, perhaps misguidedly on the hopes of a turnaround but time will tell. Mr Sutsko appears to have initiated more in 8 weeks than anything previously. This smacks of complacency on the part of the previous/current incumbents. 

One is finding it hard to balance the views within the copper industry, we have had FCX wanting to reduce higher cost production (Cost Reduction Plans for FCX), with further budget reductions in oil and gas already identified, albeit limited. Expect more in due course regarding their copper operations.

The problem is there appears to be a confusion/contradiction between what FCX are stating production cuts, to that of what Rio Tinto have inferred in terms of copper consensus and output (PDF Presentation and MP3 File of Presentation (both downloads and a must listen). Worth a note is the time of development including permitting to production around 40 mins circa in.

More is needed on this to go through the presentation including Rio's thoughts on Bauxite in Malaysia and Indonesia. Including the anomalies in Rio's costs, very similar to BHP Billiton's (BLT). Cost per tonne are circa $35-40/t, rely on the lower quoted in the results/presentation at your peril.

With enough depression in the commodities sector, Australia now get to debate the importance (or not) of Rio's assertions to expand Silvergrass. This has previously been delayed, so whether Rio are just teasing Twiggy (Andrew Forrest) or planning to ramp up a further 10mtpa. 

Interestingly, Rio mention in passing that Silvergrass is to maintain the quality of blended iron ore. Is the quality at Yandicoogina declining quicker than envisaged? Having expanded its current brownfield sites, Silvergrass's development might be needed sooner rather than later. 

As promised the summer ski edition, yesterday Range Resources (RRL) came up in conversation. Do people really "invest" in this company now? Today, they give a Trinidad update, having not had chance to follow this crap for some time, it was handy to be reminded of this EMC: Range Resources (December 2013). The chart makes for skiing and is a cautionary tale to all. Although they do assert they’re cashflow positive, at what level? At what stage does the market wake up and consider cashflow?

RRL may, it may not, who really cares? Save for some random event, its unlikely to get any more air time. Although as a positive, apparently the writing style and commentary here has allegedly improved...be your own judge!

Staying with the skiing theme, trending was African potash's COMESA deal (AFPO) with some humour that this will be the Glencore 2.0, it has certainly grabbed attention. Even Chemicals Technology picked up the story, so on to hopes of being an AIM Goliath. The perfect opportunity for those in the last placing to exit swiftly. Whether this deal amounts to significant cashflow is another matter, await terms etc...High risk punts aren't always bad, and there may just be life in the old dog yet. With a proverbial piste of a share chart since IPO. 

Maybe COMESA's customers lost the number of their current suppliers or had not considered conducting a cooperative tender process? COMESA has sought deals since 2012 at various levels. They've certainly improved agriculture, including the launch of the Regional Payment and Settlement System (REPSS). The cooperative approach and expansion of COMESA could just be the big-brother AFPO need. Sometimes it’s fun to be on a rollercoaster?

Whilst typing, one cannot help but notice Red Rock Resources (RRR), motoring away. With the final thought in this special summer snow edition is, the Phorm fundraiser. Phorm have Phorm fundraiser. You have to give companies like this some phorm of credit for just keeping going. If there's ever an AIM TV, we may see adverts for "you can give just £500 a month" to feed this board or that board. 

Limited time to discuss the UK Mail (UKM) trading statement whose indications back in May that it was going to be bad and have become rather self-fulfilling (and worse). It’s wise to read UK Mail and acknowledge the issues. Profits expected to be 40% less compared to last year...despite "opportunities." Have UKM been conservative with the guidance? 

Happy Hols, Fraser

Morning Mumble: QE...the amateur simpletons view & WRN...+++Rio, BLT, Monitise, Fever tree and Euroscepticism.

Good Morning,

Its coming and the bets are on but with the Swiss National Banks (SNB) decisive actions on Friday the market is looking for something a bit more charged. Putin will be praying for a significant cold spell, perhaps even planning a late 2015 re-entry where he can obtain leverage. QE is likely to assist this conversely promoting inflows of investment (where possible). The markets are getting hooked on drama rather than consistent and solid performance (read as also investing in crap!) with common-sense being applied. 

Unlike America where the culture may have ranges (diversity) but similar agendas, the Eurozone does not have this luxury with contrasting voters and more so agendas of protectionism (read as Germany and France albeit not a united front). 

Without pretending nor even attempting to be all things Euro or Macro, it’s looking more and more like an inverted pyramid with Germany propping up the fragile economies of the Eurozone. When considering the outcome, the markets will be cooking on gas again until they're taken off the market welfare assistance (QE). The real risk is the incapable governments utilising excuses to justify their spending rather than address their budgetary needs quicker to re-correct the fundamental issues within their economies.

The sticking point is who will be responsible for each member states debt. Its ironic that in alleged harmony the wealthier members do not want to share the load (read as take the load). So whilst the finer print is muddled through one can't help but wonder if the EU is in for some re-branding, to European Disunion. 

The conflict of interest is disliking all things EU, with yet another tier of bureaucracy where if the costs of the EU were stripped out it would be a long-term form of QE anyway. For every country contributing there's a net benefit to 2 by their membership in the EU, its a wonder its lasted this long. The EU may or may not have a determination of strength in due course if QE does not work. 

The issues of high level unemployment (Circa 10%+*) are unlikely to be improved by the EU's bond purchases as greater focus on the issues within each country are needed. France has yet again (for the third time) asked for an extension to deal with its deficit. The French are notoriously difficult to deal with when they're doing something or not...(yes thought was put into the phrase). So in the absence of economical stimulus with a focused approached its unlikely to be as effective bar a few KPI's  (Key point indicators). These are likely to be superficial living standards and welfare claimants measures (distorted by in work benefits).

In the markets today, we had Worthington Group (WRN) (still suspended pending a prospectus which should have been out by now) update on CPS Energy Resources. The question should be, with the information (surely) to hand why was it not specifically excluded in in the Company's calculation of consolidated assets, profits, sectors or geographic locations announced on the 9th January 2015. After all the deal was announced back in October 2014. 

Is this one for the regulatory team of AIM...even as far as the FCA. The company made no exemption for CPS in their calculation of the net asset value for mining, oil and gas within the announcement on the Friday 09 January, 2015. Today, in the RNS only four areas are now included: property, litigation claims, new economy and emerging markets, yet 13 days previously it includes oil, gas or energy, oops and also mining now! If you hold the stock it would be wise to call an EGM and force disclosure of everything including the prospectus. Actually why bother, if you own this stock don't read on, close the page!

Copper woke up this morning, I suspect with some draw from gold and the dollar weakening. Iron ore minnows were getting a kicking, whereas Rio and BLT shrugged off the obvious and went on an easy trading run. In the absence of traders and pension funds would Rio and BLT be circa 2,500 and 985 pence respectively? Although there’s starting to be a good argument for near bottom of cycle buying that I disagree with. Rio's ramp up and inventory sales support their thesis on expansion, will it continue?!

BLT having further issues with Manganese as Roger Bade pointed out, prices down circa 10%. Over to the Atlas Iron (ASX: AGO) whom had opportunity to get out considerably higher thanks to the DCE (Dalian Commodity Exchange) extension in trading hours. Gold and silver both stabilising and awaiting the next indicators its over to ECB QE. Oil likely to benefit as well with the steady appreciation continuing, appreciating to circa $55/bbl give of take 3% drift between WTI and Brent.

AB Foods (ABF) finally giving in to common-sense with significant selling. Does it really take that long to digest the results? EMC view January 15, 2015, who'd have thought it and time to quote myself: "With little upside on the current SP, it’s wise not to carry profits much past the news. Under review for the short, now January 2015 has arrived." Will a DRIP (Dividend re-investment plan) assist? I doubt it...

Hulme Capital had a few issues this morning with the 'wording', for which having wanted to find out more had some diplomatic clarification from two companies in RNS REM & UKOG after this morning's Dismissal of Adviser REM & UKOG. By sheer coincidence both with a related party associated to both companies, Mr David Lenigas.

Monitise's (MONI) trading update & initiation of strategic review, informs us its up for sale with the price reacting in the right manner. With UK Mail (UKM) coming out the reporting starting blocks 10 days ago Royal Mail (RMG) Nine Months Trading Update had little in the way of surprises and was the long to the news. With little commentary (in fact none) on fuel cost benefits, RMG have missed an opportunity to promote their own stock, improving margins and energy costs reducing. 

Limited time for some, including Tullow (TLW) and Gulf Keystone (GKP) but to my left eye Malcy has saved myself via his blog today. Fever Tree (FEVR) pre-close update come with no surprises from a quality label. FEVR are the Carlsberg of tonics in my view! Having been drinking FEVR tonic for a good time, its about the only additive to gin I can differentiate in taste save for Hendricks Gin and Adnams Copperhouse Gin after one.

Atb Fraser

*Unemployment stats: Greece 25%, Spain 23%, Cyprus 16%, Croatia 16%, Portugal 14%, Italy 13%, Slovakia 12%, Bulgaria 11%, Ireland 10%, Latvia 10%, France 10%....all 17 others sub 10% with an average of circa 10%. 

Morning Mumble: (PM Edition) For those following Blur Group (BLUR)

I suspect the Board of Blur Group are perplexed by the lack of support for the stock and will no doubt have a sense of relief as most people were closing out over this week on the stock. For myself, I need more information to be sure fire negative on the stock now so have closed my CFD and spreadbet shorts. Fear not, I shall be returning to it in due course, but my gut says "there's something afoot" but I'm not prepared to follow that conviction.

For long only in BLUR if you haven't sold now, you should be asking yourself why! This is not to gloat but the writing has been on the wall for definitely four months, if not longer. For those interested in yet another top performing short, I'd look at the business model to understand why the majority of analysts got yet another wrong. 

Royal Mail Group (RMG), will there be any support? It appears not currently...

Having read an article about Tangiers which clearly means you bought on a ramp, I'd disagree (edited changed from Disappear). Having now read the article, you'd be a mug to buy in on those figures. Perhaps common-sense is required to be pointed out to everyone (*addition: but it does not remove the high risk / reward punt prospects). What next? Someone advising of some serious issues with a company 'that's currently a darling?' Glass houses and all that!

Have a good weekend!

Atb Fraser