Time Out (TMO) – Horrific losses and cash burn make for grim reading
If most companies on AIM erode (destroy in some cases) shareholder value, and a third of these by 90% or more, why are AIM investors inherently long? In theory, one could go short of every single IPO with a 25% stop loss, and be massively in the black. But we like stories, and we are suckers for a good narrative.
Well, the narrative here isn’t good. The business is an absolute dump, and the purpose of it being listed appears to be to raise cash to pay the directors’ exorbitant salaries. Since listing at 140p, the stock peaked at 144.5p and is currently sat at 80p – down 43% from its IPO price. It’s highly likely that literally everyone on the shareholder register is sat on a loss – a loss which I think will only increase.
If you’re old, you may remember Time Out as being those magazines people read before the internet came along and made the world a better place. The concept has now moved online, where ‘curated’ (bad) content is now published by ‘journalists’ (freelance bloggers). They still publish the magazines, as it apparently helps the online business and re-enforces the brand. I’m not sure how. I’ve never heard of anyone using Time Out to explore a city before, as I thought everyone just used TripAdvisor.
Facebook put an ad for Time Out’s ‘badi’ app on my account because I visited the website to get to their annual report, and having read through the comments on the Facebook post many of them were complaining that almost every ad was a scam. Sounds great! Funnily enough, I did see one of these magazines in Dubai over Christmas and thought “well, this must be horrifically loss-making”. It turns out it is.
The total comprehensive loss was £29m. That’s fine, as long as revenue is rapidly growing and it doesn’t burn cash quicker than a FOBT. Unfortunately, it’s not. A pedestrian 19% revenue growth and an operating cash flow of -£25m means that the £28m of net cash will soon be burned through, and so another raise is almost nailed on. The 10-15% interest £20m loan facility that needs paying back in October 2019 isn’t going to magically appear from profits, though it has yet to have been drawn as of the last results. Bizarrely, the CEO almost admits the need of further cash in the annual report: “To capitalise on the exceptional growth opportunity Time Out Market offers we secured a loan of €9 million in 2017, a further £20 million in March 2018 and we continue to explore funding options”.
It gets better. Julio Bruno gives himself a £300k salary and a £297k bonus – up £24k from last year despite having achieved very little. Richard Boult went from £133k salary and £67k bonus to £200k salary and almost £100k bonus. Christine Pietersen gets £276k plus a (thoroughly deserved, I’m sure) £260k bonus. All of this doesn’t include share options for all three. The directors’ salaries only decreased from £1.73m to £1.51m despite the number of executives dropping from four to three!
The stock currently has a NAV of 74p, which means that the earnings potential of the business is valued at just 6p given the 80p stock price. However, strip out intangibles and you’re left with 22p – the majority of which is cash that’ll go into the directors’ pockets or be burned through. I would argue that 6p for the underlying business is 6p too much; it appears the directors almost agree with me as between the three of them they own a paltry 70k shares (worth £56.5k at current bid).
This floated at nearly £200m, and so it may be worth keeping an eye out for other junk IPOs (see FOOT) as there is definitely money to be made finding rubbish business models with no director shareholdings and a fair probability that the business will never ever generate a profit. There are plenty of those on AIM. It’s crazy to think that people actually subscribed. I used to think that the ‘smart’ money was actually smart, but now I realise that they’re just as clueless as I am.
Quite possibly the only thing of interest for Time Out is the Time Out Markets concept. This is a glorified food hall which takes the ‘best of the city and puts it under one roof’, which Time Out argues is not a food hall. As the CEO likes to report in almost every RNS just how successful the Time Out Markets Lisbon is, one wonders why it’s taken them over four years (and counting) to actually open a second one. With growth as glacial as this, by the time Time Out actually achieves anything robots will have stolen all of our jobs including mine as a stock trader. Until then though and for now, I’m short.
At the time of publication, the author holds a short position in TMO.