It's been anything but plain sailing for cloud service provider Outsourcery (OUT) since listing on AIM at 110p in May last year. The shares have slumped to 15p. Set up by Dragon's Den star Piers Linney in 2007, revenue has been slow in coming and investors have been put off by funding fears. And while the business plan does seem credible, investing here requires a leap of faith.
Linney certainly remains bullish. "In the next 18-24 months we believe this with be a valuable business, worth much more than the IPO price," he told Interactive Investor.
And both Linney and business partner Simon Newton have invested heavily in the company. They made over £1 million each when they sold down their stakes at the IPO, but have since invested over £200,000 apiece in a recent net £1.5 million placing at 20p. They've also agreed a wage cut which will save £520,000 over the next 12 months, although lucrative share options sweeten the pill.
That placing and salary sacrifice was part of a package of measures worth £4.5 million, which also included £1 million of staff cuts and debt rescheduling to generate £1.5 million of free cash flow. It also means Outsourcery will not need to raise any more cash to get to profitability, Linney told us. He expects monthly run rate break-even and operational positive cash flow in 2015.
Clearly, there have been problems. Partners have come on stream much slower than expected, always an issue when dealing with big organisations. That explains modest revenue of just £3.4 million in the six months to June 2014, which includes no contribution from key strategic partners.
With hefty admin costs of £4.8 million, Outsourcery made an underlying pre-tax loss of £3.6 million during the period. But it's the top line that's important here. Its main cost is people, and spend doesn't increase much whether the business is generating sales of £1 million or £50 million.
"The model isn't broken, it's just delayed," says Linney. "If Vodafone (VOD) and Microsoft (MSFT) thought we weren't special they wouldn't be working with us."
Outsourcery focuses on the delivery of services based on Microsoft technologies; things like servers and emails. It designs and deploys cloud services for partners, which it then bills monthly based on usage and storage. Others are charged a monthly fee. Contracts are typically for three to seven years.
Interestingly, the company is also working with Microsoft and Dell (DELL) on highly secure cloud services for central government. Linney tells us that Outsourcery is one of only two UK companies capable of doing this on scale, and hopes to generate revenue from it during the first quarter of 2015.
House broker Investec Securities is obviously a big backer of Outsourcery. But even it admits its own forecasts "require material deal traction" in 2015. "As soon as this deal flow builds, sentiment around the sales potential and balance sheet strength should improve."
"Until we see evidence of this we expect the stock to continue to be volatile, but retain our Buy based on the long term potential of the business," it adds, although the target price is slashed from a widely ambitious 130p to a more modest 71p based on an enterprise value-to-sales ratio of 2.
Keep an eye on this one. As soon as there's evidence of greater up-take then the shares could fly, but it's clearly not one for widows and orphans.
Now the 'Microsoft Cloud Solution Provider Programme' has the involvement from 'Outsourcery' things should well ' hot up '
The Microsoft Cloud Solution Provider Programme allows Outsourcery to provide direct billing, sell combined offers and services, as well as provision, manage and support Microsoft Cloud offerings, such as Office 365.
The programme is designed to strengthen customer relationships and expand Cloud sales opportunities by enabling partners to provide direct billing, sell combined offers and services, as well as directly provision, manage and sup
"It's been anything but plain sailing for cloud service provider Outsourcery (OUT) since listing on AIM at 110p in May last year. The shares have slumped to 15p. Set up by Dragon's Den star Piers Linney in 2007, revenue has been slow in coming and ..."
I've been out of the shares since 41p but i can't help watching what is going on here. The financing package they announced a few weeks ago seemed inadequate at the time and the placing not discounted enough. There is no news on contract wins and little support. Things could always turn around with some good news but I suspect we are going lower still from the current 18p. Quite an implosion.
Here it is then. An 18% dilution for shareholders at the 20p level I guessed. The co-CEO's give up £500k of salary for 12 months but get 2.7m options struck at 1p which will vest with 100% probability in 12 months to replace options that probably wouldnt have vested, which are worth the same as the salary cut, so are simply postponing thier remuneration. No details on the terms under which they have re-structured their loans or how other cost savings will be made.
For me this still leaves them on the brink. They get a £4.5m breather for 12 months but I dont know if that is enough. I hoped to buy back in after they got themselves back on a sound financial footing but I will pass, at least for now.
They have had thier first contract win yes but its worth less than £1m in sales per annum, and thats when it is fully ramped up. Its pretty tiny. Mind you with a market cap so low (£10m) they don't need to make a ton of money to move the shares up do they!
The company is bust if it doesnt secure more funding by the year end. I think it will and there might be an opportnity for those who like the business model to buy after funding has been secured. Having been burned badly by this and now undertsanding more about the company, its not for me.
You have brokers targets, on the other, a group appearing to short - who to believe? - near on impossible for a PI to work out. One thing is clear though, if the SP drops, the company has real problems raising capital at a decent rate & for a business trying to break into this market that's not good.
Not for orphans! & don't bet the farm either way.
Hmm, maybe it wants to go back up? The broker targets are doing their intended.
Why is it that these "targets" get put out there? clearly if a PI said 525p they would get accused of ramping.
Well, the lower of the two broker prices is £2.80 something & £5.25. - take your pick.
It seems keen to get going, probably answer own question tomorrow.
Outsourcery (LON:OUT). Many of these businesses have merit and the current depressed share prices represent potentially interesting entry points. Incoming investors will need patience, however, as management rebuild confidence in the proposition. Cash rich overseas companies remain potential acquirers of businesses with interesting intellectual property and evidence of commercial traction.
Outsourcery announced that one of its major partners had secured their first order. And on 3 June, a smaller channel partner signed up their first customer, too: global engineering group Lloyds Register. The values of the contracts were not disclosed, but its a start.
Edisons base-case discounted cash-flow model calculates a per share value of 525p should Outsourcery meet its revenue projections for the next five years. That would make the shares, at 28p, a potential 19-bagger. Both brokers highlight the key risk to their forecasts as timing on partners securing deals.
* Bookmark the links if you wish to 'pass the LINK/s on'.... or read later?
* The Campaign is specialized among the investing fraternity only. The population as a whole would hardly vote for a ban on shorting...most people have never heard of it, have they?
Whereas, the other Govt epetitions command votes from the *general population..and if you check, NONE are doing better than a handful of votes !
Deramping SHORTERS !
Shorting a rising stock....is much worse when it is done by your resident posters that seemingly are your buddies and convince 'long' holders to give up!
What many pi's fail to grasp is the extent that shorting is taking place. Often we tend to think that the 'shorter' is gone, 'he' is out of the way? You'd be wrong in most cases, for ( he ), the shorter, is often joined by others that keep the stock down !
Some stocks fall after GOOD NEWS!
The main reason for many pi's selling, is they are afraid they'll be left in losses AND because they FEAR shorters !
Consolidating shares often sees the sp fall as the *multi-bagger potential is greatly reduced. Shorters know this and will take full advantage to get 'longs' to give up and sell !
Investors that have put stocks into their ISA's or pension funds?...HUGE losses again!
* Once pi's know the stock is being shorted...they'll SELL UP IN THEIR DROVES !
We can't both WIN !
The 'shorts' therefore 'win' their bets, whereas the 'longs' lose the best part of their investment, possibly for some time to come......and just when you thought this couldn't go any lower, THEY'LL SHORT THE STOCK AGAIN !
* Thanks for all your support. We are now heading towards 5,000 votes!
* Investors are saying something? They are voting in their hundreds !
# The big problem with shorting is that THEY (the shorters) WOULD most likely lose most of their money IF they just 'bet' on the price going down without trying to 'help' it down?
'Catch 22' .... No one would know of an RNS to be released that will contain BAD NEWS, if they did and then 'shorted' the stock, then they are guilty of 'insider trading'.
The only sure way to short a stock and WIN is to spread dis-information to defame the company with help from other posters that are in concert with them. To ENSURE that they don't lose the biggest part of their 'short', ironically, then, they must deramp with (seemingly) believable posts.
* When the pro's do it, they simply get the media or well known 'crooked' tipsters, analysts or brokers to do it for them. (say no more).
# The campaign against shorting is for the benefit of the 'cheated' investors that cannot control their investments due to the dirty tricks played out by co-ordinated shorting !
The results will be reviewed by Govt legislators for further action! The FCA will be asked by Davide Serra to conduct an investigation into short selling practices, with the view to either ban short selling, or to be better regulated !
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