Would You Buy Tungsten Network Stock?

Elliot: A bug is never just a mistake. It represents something bigger. An error of thinking that makes you who you are. ‘Mr. Robot” 2015

Being one of the few publicly traded P2P vendors in the market that has built an early pay finance business, I am always interested when we can get a peak under the kimono. Last week, Tungsten released their financial year results ending 30 April (FY16). Below, I share the hard numbers with you below.

I wrote about the culture change going from a tech provider to a bank with an invoice proposition awhile back.   At the time, the story held great promise. But original projections and hopes have not materialized as planned. Tungsten has recognized they can't keep losing money forever and have started to be aggressive with raising pricing – results of that are below. This brings potential risk over the longer-term as higher pricing will lead customers to benchmark what they are getting. In addition, Tungsten does not have the pricing luxury of other competing firms like Basware and Ariba/SAP to pull different application and network pricing levers (targeting both buyers and suppliers for various services and software).

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The other key data points are how much cash is left, the burn rate, the sale of the Bank, and if the company can be creative with financing to bridge any cash needs. Cash in the Tungsten bank (and access to it) will remain important in the medium-term.

From a financing volume perspective, £100 million done by the Network Finance business is a start, but a drop in the ocean of trade receivables outstanding at any one time. The challenge when selling suppliers transactional finance are many, and not having a relationship with them to understand their capital costs and finance options is just one challenge Tungsten — and any other intermediary in their shoes — faces. Disintermediating the factoring market — and other lending options — will take time.  Just like a computer bug represents an error in thinking, perhaps there are things that can be done to improve the early pay market.  I will have some thoughts on this next week on my Trade Financing Matters blog.

The numbers below come from their recent financial release:

 Volume, Revenue, & Cash

  • Tungsten processed 16.1 million invoices in FY16, an increase of 9% from the prior year. E-invoicing volumes grew by 11% to 15.4 million as we continued to reduce the number of paper invoices processed, which declined by 29% to 0.7 million. The value of invoicing over the Network grew by 20% to £123 billion.
  • Revenues for the period are expected to be in excess of £26 million, and represented an increase of at least 12.5% on the prior year.
  • Tungsten's EBITDA loss for FY16 is anticipated to be less than £15 million, excluding one-off items, or less than £19 million if one-off items are included
  • Unaudited cash balances at 30 April 2016 were £9.1 million, excluding cash in Tungsten Bank.
  • Average monthly net cash outflow of £1.1 million during the six months to 30 April 2016.

New Relationships and Pricing

  • Tungsten Network added 11 new buyers during FY16. The new buyers, including Sanofi, Duracell and Ventura Foods.
  • Tungsten completed contract renegotiations with 34 buyers in FY16, agreeing weighted average price increases of 64% on a like-for-like basis. A further eight buyer contracts were due for renegotiation in FY16 of which we have agreed commercial terms on five at similar price increases. Due to legacy contractual restrictions we were unable to renegotiate pricing with an additional 10 buyers who had their current contracts extended. 

Tungsten Network Finance

Over FY16 Tungsten financed invoices for 79 suppliers totalling over £100 million for an average duration of 36 days at an average gross yield of 6.1%. This compared with £32 million for 38 suppliers in FY15. Unaudited Tungsten Network Finance revenues for FY16 were Â£0.2 million (FY15: Â£0.1 million).

Tungsten Bank

Tungsten expects the bank sale to be completed by the end of the first half of FY17. The Group expects to finalise the terms of a credit facility prior to the announcement of its final results in order to provide stand-by facilities to bridge any unexpected delay in the sale of Tungsten Bank.

Tungsten will announce its final results for the year ended 30 April 2016 on Monday 25 July 2016.

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