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VET - Vocation Limited

Discussion in 'Stocks Q-Z' started by System, Nov 26, 2013.

  1. DeepState

    DeepState Multi-Strategy, Quant and Fundamental

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    Well, some upside.

    High/Low/Close over the last two sessions 19/7/12c. Pretty much in line on an EV basis. And it's re-listed whilst on oxygen and selling its organs to pay for it. It is in liquidation, just not quite in the hands of administrators, only the corporate advisory arm of some liquidators. After all, the company is having trouble hanging on to any management with each announcement made, so how are the liquidators supposed to get any to work this out. No mention of any candidates for CEO, I notice. Must still be auto-correcting their CVs.

    Buffett: “What’s the secret of a great marriage? It’s not looks, nor intelligence, nor money ”” it’s low expectations.”
    Apparently it works for stocks too.

    Taking a look. Can't stand to open my eyes actually.

    Here are some thoughts that will flow through my head looking for answers:
    1. What is left after the write-downs (A: it is the equivalent of Endeavour. Everything else is wiped)
    2. What's that worth? (A: not enough to cover the debt, actually. Nervous vendor: "So, 333 Capital, how many people have actually asked for the Section 32 from the 30 that took a brochure?")
    3. What's the value of all these new initiatives now that the old initiatives didn't work? (A: Uhhh)
    4. Will they be able to finance the whopping growth of fledgling initiatives without external finance? (A: Uhhh)
    5. What exactly is the valuation of the tables, chairs and overhead projectors? (A: eBay, Cash Converters, Local Kinder)

    On the upside, they still have $20m in cash. Who knows what's going on with working capital. Maybe the federal marshals haven't been able to get warrants organized yet to seize those assets.

    This is probably an option play with zero strike and negative underlying. Known prosaically as a long-shot, moon-shot, mars-shot, crap-shoot, lottery-ticket, punt, long term investment. If they recap, it is essentially a new company and should issue another Prospectus in the form of a Fully Underwritten non-renounceable Rights Issue, complete with all the paraphernalia. Any recap from how far underwater this looks right now better come with some really good and colorful slides and a very glossy document with lots of smiling students. It also has to come from a new CEO whose strategy for massive value creation has, strangely, not yet been formulated. Maybe it could come without a CEO. If only it did in the first place...by-gones.

    It's massively bullish (could be misspelled).
     
  2. skc

    skc Goldmember

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    Lol. Gold.
     
  3. TPI

    TPI

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    DeepState, are you still holding onto what's left of your holding or have you exited the position? I assume you did not average down into this freefall...
     
  4. DeepState

    DeepState Multi-Strategy, Quant and Fundamental

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    Have not moved pending investigation. Would be happy to accumulate if the analysis indicates that's the right thing to do. Would be happy to abandon too... We'll see.
     
  5. DeepState

    DeepState Multi-Strategy, Quant and Fundamental

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    I'm out. Sold my last parcel earlier today. Hard to move this stuff.

    To the best of my knowledge, this thing actually has a negative central case valuation. It is arguable that, given the lowest value that equity can take is 0 (forgetting about accounting and admin hassle) you are left with an option value in case some upside scenarios occur. I still think that option value looks expensive.

    Here are some features that swayed my thinking.

    They have written off $254m in g/w. To give you some idea of the magnitude, that was the float value of the IPO company. In reconciling the movement in g/w from FY14 plus Endeavour g/w on acquisition less this writedown, we are left with a positive g/w development over the period that doesn't seem well explained. This figure amounts to a newly created ~26m worth of g/w that materialised. In the prior reports, they are prepared to capitalise 'investments' into customer relationships and other such, incl value of course development IP (!!!)...I think they have done similarly in this period.

    The assumptions behind the g/w review include zero growth for VET forever beyond the next two years. That's what they think should go into the carrying value....zero. This is the part of the business they hope to turn around. They don't even think they can grow it beyond the hopeful turnaround in the near term.

    The discount rate for the HE component is too conservative for this situation.

    They are in a forced sale. The bankers have required an undisclosed liability reduction in a couple of months. There is no point charging punitive interest rates because they are in liquidation. There is no way they will get full value for Endeavour which they bought for $83m. There are already impairments to the value of their HE component...the jewel...that occured as part of the write-down and they represent a healthy chunk of the acquisition value. This is the only bit they can sell for something materially beyond taking chairs and tables to Stan Cash.

    Three major banks are in the syndicate. They will not lend to the carcass. It will be toxic. The fourth major bank, ANZ, was a major customer....can you believe it. They will not be able to finance growth via debt. Hence, it's massive dilution all the way from here to keep on going. Good luck with that.

    Here is another example of delusion:

    2015-03-03 21_02_31-20150302 - VET-AU H1 FY15 Media Release.PDF - Evernote.png

    What about the other businesses that were once core, Mark? This is the guy that is CEO leading into the divestments. The same guy who is prepared to give value to investments in customer relationships when there is no growth factored into their own VET g/w valuation. Who time and again said "all is pretty good" before ripping out more downgrades of enormous magnitude. I don't know how many strikes that makes it. It's a lot.

    This, from their auditor, who is not actually giving an audit opinion on this occasion but was nonetheless asked to write a note saying there is nothing he is aware of that would be untoward. The same guy whose accounts have now been subject to fairly hefty restatements.

    2015-03-03 21_03_14-20150302 - VET-AU H1 FY15[1].PDF - Adobe Reader.jpg

    At least he is covering his butt, despite this not being a qualifier to their position.

    ----

    This company is defunct. It is trading as if, after a sale of Endeavour as a whole, has a goodwill figure that is not far off the acquisition g/w of endeavour before everything fell apart. In other words, somewhere in this carcass is another Endeavour which has been fully priced. No way, Hose. VET is stuffed in the long term by their own reckoning. The HE component, already impaired, is discounted as if there was no issue. They are capitalising expenses as investments. Of course, you can then go to option value explanations to justify the premium. Do the math, it still looks high.

    Although closer to the truth, this picture is a truly ugly one whose true horror has not been revealed yet in black and white. Their 'we expect recovery' story doesn't wash. Their best assets will be sold or they will be shut down anyway. What is left is not worth the g/w of Endeavour in the current situation.

    I'm out. I feel fortunate to have taken the haircut that I got. Not bad given how much of this was fake when I bought in.
     
  6. McLovin

    McLovin

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    You lasted a while. I got out when it came back on the boards and the punters were piling in and pushed it up to 19c. Managed to get out for 16-17c, with a buy price at 18c, I think I just used up my get out of jail free card.

    I see Mayfair have recduced their shareholding today too.
     
  7. VSntchr

    VSntchr

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    Question for both of you, and don't feel obliged to respond...

    What stopped you from exiting on the open of the first morning?
    The open function provides a good liquidity view and I thought this would be where anyone with a pre-set intention of exiting based on the news provided would be selling.

    Sometimes (usually) stocks under these conditions open low, rally a bit then smash even lower...exactly what has happened with VET...but for me, I don't mind taking that opening price as I feel it becomes to psychologically difficult to hold while the price gyrates.
     
  8. galumay

    galumay learner

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    VS, i also have held since my entry, so maybe my perspective is relevant to your question above, although I got in very low so its a bit different. I took a small position at 19c prior to the suspension, my position size was relative to a believe that there was real catastrophe risk with the company, but that there was also some chance they might be able to salvage enough to see a move back up towards 50c over time.

    Given the small amount of capital, the speculative nature of the entry and the miniscule gain to be made by getting out at around 25c I held on to them.

    Now I just wait and see, if I get my play money back then I play somewhere else, if not I have to find a little more play money! I find it helps relieve the boredom of long term investing to have a little play every now and then.
     
  9. DeepState

    DeepState Multi-Strategy, Quant and Fundamental

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    --

    1. I try not to act unless I have the facts to hand and have had a chance to ballpark what's going on. Despite my tone, a company is not a stock. The company can suck a#se and be a good stock. I (try to) act on the basis of assessed value relative to price. I had no idea what the value was on re-list so trading on open would, in my view, would have been trading uninformed on a position that is not a killer for me. Hence, the bias is not to trade as the only certainty is cost.

    I have never traded short term price action (maybe I should). With the price shooting from 7.1c at re-list to a reasonable distance above my best prior guess on re-list (topped at 19c), I also felt that I was missing something in the pricing anyway. I am not the smartest guy in the room by default, so someone took the opportunity to profit from panic sellers. What did they know that I do not? When the price moves outside of my expectations, I assume that it is me that is missing something as a starting point. So I look at this with the freshest eyes I can bring to it. Also, if I dumped during normal trading, I would have had a noticeable impact on the price, so I could not scalp. This thing is bloody illiquid for sellers.

    I've never looked at the general experience of companies which re-list like this on a systematic manner and am not aware that they behave as you describe as a statistically valid strategy. Do you have something that is systematic research in orientation to this and are prepared to share? I do not know what would drive price action of the type you describe which would not be gamed out pretty quickly.

    To me, the swings in price in the immediate period post listing are a crap shoot which I just cannot capitalize on without knowing what I am supposed to be capitalizing on. You could have pulled the trigger at any time during the first three days and been a hero or an idiot. You could have day traded and made or lost a small fortune. My recorded open price on re-list was 7.1c. That would have been a bad outcome if I dumped at open. I also try hard to forget anything about my buy-in price. It doesn't matter after the trigger is pulled. For me, what generally matters is whether what you know makes the current price a level which is good to hold or not. I would hold a stock if it got trashed but fell below my assessed value post the bad news that caused the thrashing. I would buy it too, if there was a significant margin in it. Every decision is nil-all at the start of every day. That said, the decision process should be reviewed as outcomes develop to test whether it has any validity.

    --

    2. I started selling not long after the re-list announcement (after my post of 24 Feb) and left some in the bag for the HY as it was an important information point. It turned out to be negative when scrutinized, but my certainty about this was much higher than on the pre-list release.

    --

    Overall, your call for reflection gives me this:

    I am happy not to have acted without analysis. It saved me from getting out at the worst point. However, it did not give me any reason to get out at the best point. With my knowledge of trading dynamics on this type of situation (less than yours, evidently), there was no reason for me to trade just because it listed well below the pre-delist price, or then rebounded to well above Open or only a relatively small cut relative to the de-list price. There is just nothing in that information.

    I ignore the price I got in at as not relevant as there is no impact on my liquidity etc. I am super-close to risk neutral on that. It's just anchoring. I guess this is an area of difference between an investment and trading mindset. I think both are valid depending on context.

    The delay in trading, including keeping some for the H1 announcement with the benefit of hindsight, cost me around 10% of the purchase value relative to close on Day 1. Given what was going on at the time, I do not view it as an ex ante error. Pre-releases of info going into an earnings announcement usually wash out the worst news, from my observations.

    An ex ante error would be not knowing that this is how stocks in this situation trade as a systematic pattern which is sustainably tradable. Have I made this error?

    --

    I neglected to add that the assessed central case value being negative made no allowance for outcomes of the class actions which are pretty assured given they re-stated accounts. Who knows what they figure is. However, it cannot be less than zero.

    If the company remains viable after all this fire sale process, as they hope, it will remain a target to be fried. Fry it almost certainly will.
     
  10. McLovin

    McLovin

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    That's pretty much what I did, but at 6-7c I thought there'd be a bit of support as the "value" investors chased it, and if there wasn't I didn't have much to lose. Sure enough there was. I consider myself lucky on it.
     
  11. VSntchr

    VSntchr

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    Thanks for the responses lads :xyxthumbs
     
  12. galumay

    galumay learner

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    VET annouced that they have sold Endeavour Learning Group to Study Group for $75m so this will basically get the balance sheet pretty clean, although not sure what is left to make any profit!
     
  13. skc

    skc Goldmember

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    I was wondering about the same. The holders must love the fact that they will issue another financial guidance in the next few weeks. I wonder if they will make a provision for the class action.

    Perhaps it's time to re-do a bit of research (if it's possible to get a clear picture) now that the bankruptcy risk is cleared.

    NUF once settled a non-disclosure class action for $46.6m.
    https://www.slatergordon.com.au/class-actions/recent-class-actions/nufarm-limited
     
  14. DeepState

    DeepState Multi-Strategy, Quant and Fundamental

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    FYI, my calculations were based of settlements relative to the total estimated value of the claim. In a relative sense, the range for VET was around $5m-$25m based on the case history. Other claims were over the high end of this because the claim exposure was higher in that case.

    ---

    Note they have gone silent on cash. It was $20m. They would have sold a stack of cash along with the firms they were offloading making prices look nice on face value, probably leaving a small operating amount suitable for what is left of the firm. It would be well sub $5m. The thing floated with about $10m, if I recall, before IPO proceeds to beef up the acquisition funds. The upside surprise potential from asset sales is now past. This is relevant because this stock is trading on option value.

    $10m in debt. Very little in tangible operating assets. Who knows what working capital is. Market cap of $19m. Implied goodwill of...something like 3/4ths of Endeavour at purchase...really? Best assets gone (all recent acquisitions unwound. What is left is the shadow of the original IPO company...where student re-enrolments were a bit too uncertain to update the market on at last report)... before class actions which are surprisingly absent from the accounts despite restatement along the lines of the accusations in the class actions... without ability to raise debt for all intents and purposes... without a CEO in place to take it forward or any mention of how the process on this critical matter is proceeding. No disclosure on expenses related to the disposal process. If the past legal expenses are any guide...it will be large. Still looks a bit on the rich side.

    Interested in your findings if you choose to post them.
     
  15. buffet

    buffet

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    Hey guys price has skyrocketed volume has multipled by 80 anyone know something

    cheers
     
  16. tech/a

    tech/a No Ordinary Duck

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  17. galumay

    galumay learner

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    Given the news released by VET there is clearly a belief in the market that they can survive and create a 'turn around' story with this company. Likewise there are speculators, traders and shorters who come into play once the market forms a new view of the fundamentals of the company.

    Emotion is a funny thing, a couple of weeks ago this company was written off as a dead duck, no hope of recovery, if the banks didnt get them then the ambulance chasers would, now its all great, the core business is what was in place before the float, no debt, sky is the limit!! Hold on for *insert price here*!!

    At least my gamble of entering at 19c looks like it might have some payoff after all. :D
     
  18. tech/a

    tech/a No Ordinary Duck

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    Not buying more?
    Thought you'd be loading up!
     
  19. DeepState

    DeepState Multi-Strategy, Quant and Fundamental

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    Apparently the appointment of the existing CFO as CEO is worth $18m.

    Out of curiosity, I took another look.

    ASM/ACAE and Endeavour recently sold for $90m. In H1 15, they had combined underlying EBIT of $3.5m. Zero corporate costs were linked to this figure. Endeavour had tangible assets of $34m at acquisition (Cash was negligible). ASM/ACAE had tangible assets of $1.4m (Cash was this figure). Cash has been drained from VET-AU as part of these acquisitions. Let's say $10m of cash was tacked on. Sale price $90m less tangible assets of $34m+1.4m+10m) leaves implied goodwill of abt $45m. That was for the good bits.


    VET + VETtrak has combined EBIT of $1.2m. Prior to VETtrak sale, the debt was around 10m The EBIT is before corporate costs. Cash would be negligible now. Consider the fees that 333 Capital would extract and other professional fees.

    Net Assets (excl g/w and add back debt) as at 31 Dec 2014 was $10.8m. That was before the net assets related to ASM/ACAE and Endeavour were disposed of. Getting the feel of this?

    So now you have a corporate entity (this time including corporate) which pretty much makes nothing in EBIT (prob still in significant losses), cannot borrow materially to grow, is in a turnaround...trading with a market cap of $36m. All this works out as having goodwill at least as large as AS/ACAE + Endeavour. All this to be built from ashes of a company which has less operating capacity. Around half of which is a CEO announcement effect. None of which includes any provision for the class actions.

    I checked, the stock is unborrowable...dammit.
     
  20. galumay

    galumay learner

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    Dont disagree with any of that, as I said emotion is a funny thing in the market. Plenty out there convinced its on its way again now!
     
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