Globo Plc – Value superstar or too good to be true ?

Management summary:

At a first glance, Globo PlC looks like a highly profitable, strong growing and incredible cheap software company suffering only from overall bad sentiment against anything which is related to Greece. A second short look however shows clearly that there are a lot of issues in their accounts (capitalization of expenses, revenue recognition) which in my opinion already raises a couple of red flags.

Additionally, some of their behaviour like taking on expensive loans despite a comfortable cash position does make no sense at all.

As for me, value investing is foremost about protecting the downside, Globe PlC is not something I am interested in as a potential investment and not worth additional analysis.

Among value investors, Globo PlC, a UK listed mobile phone software company is no stranger. Almost any screener will have Globo as one of the top investments.

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Here are the current ratios which clearly look attractive:

Market cap 186 mn GBP
P/E 7
P/B 1,5
EV/EBITDA 4,3
ROE 22,2%
ROIC 19,3%
Operating margin 35%
yoy revenue growth +49%
yoy EPS growth +27%
Net cash 40 mn EUR

For some strange reason, whenever I see something like this my first reaction is “This can’t be true”. There has to be an explanation for this apparent under valuation. Especially in a market environment like now there are no “undetected value pearls” anymore.

In Globo’s case, one part of the explanation is pretty easy: Globo started out as a Greek company, is run and owned by Greeks and still does (some) business in Greece. So the recent mayhem in Greece has clearly taken its toll on Globo’s stock price as we can see in the stock price chart:

If this would be the only explanation, then Globo would be very interesting. Getting a stock for cheap because sentiment is bad, I mean that’s what value investing is all about.

Usually for me the next step is to look into the last annual report in order to get an “unprejudiced” view of the company. Globo’s 2014 report came out 4 weeks ago.

The first strange thing already appears on page 25 of the annual report:

Profit before tax of €35.7 million, an increase of 30% (2013: €27.4 million) and ahead of market expectations. This reflects the combination of strong top-line demand and the allocation of resources to increased marketing and direct sales processes combined with the cost efficiencies that the Group has achieved.

and

Increased Free Cash Flow generation to €7.3 million (2013: €5.2 million), excluding the impact of the Sourcebits acquisition. This is the third consecutive year in which Globo has generated positive Free Cash Flow whilst maintaining strong revenue growth. Cash conversion of profits remained healthy at 72%, supporting organic investment and working capital needs.

Despite the fact that 7,3 mn is not even close to 72% cash conversion, for a Software Company, Free cash flow generation looks really really bad. Usually for most software companie cashflow is even higher than stated profits, so this is clearly something to look at.

On page 34 then the “UH OH” moment arrives with the following statement:

Investments in intangible assets of €23.5 million (2103: €14.6 million), amounting to 22.1% of Group revenue (2013: 20.4%). This resulted from the balance between an ongoing commitment to product development and innovation and the significant economies arising from R&D centres located in Ohio US, Greece and Bangalore

If we translate this bullshit sentence into plain English it actually means “We capitalize a large part of our cost to make our earnings look better”. Capitalizing costs is not illegal but it is aggressive accounting. A software company like IGE&XAO for instance does not capitalize at all R&D. So in order to compare Globo’s numbers to other software companies, one should expense most of this which is roughly 2/3 of the shown profit.

Looking at the balance sheet and the P&L of Globo, we can see additonal “odd things”:

1. Receivables are relatively high and growing quicker than sales

In 2014, receivables jumped from 28,6 mn EUR to 50,8 mn EUR or from around 0.4 years to 0.5 years of sales. The receivables disclosure is actually not very good. On page 37 they mention the following:

The Group has billed and unbilled trade receivables together with customer specific work in progress totaling €45.7 million.

However in the notes to the receivables (nr. 23) there is no further information on what has actually been billed or is work in progress. For software companies, revenue recognition is always a critical issue, Just ask HP why they had to write down 9 bn od their 11 bn purchase price at Autonomy. The 22 mn EUR jump in receivables also “eats up” much of the growth shown in the income statement If you adjust for the acqusition (~5 mn sales) and receivables (22mn) only ~10 mn “real” grwoth remain. Not bad but pretty far from the 50% shown in the head line numbers.

2. They pay almost no taxes

According to people more familiar with Globo, this is due to the fact that they get “research tax credits” in Cyprus. WHich I find strange as they talk about R&D “in Ohio US, Greece and Bangalore”. No wonder that the Greek and Cyprus governemnt has revenue problems….Anyway, I would find it quite aggressive to assume that Globo will continue not to pay any taxes in the future. One should also take into account the possibility that the tax collectors at some point in time actually do not aggree with Globo and then Globo will have to pay past taxes. I don’t know about other countires, but in Germany for instance this can hit you until 10 years after a business year if they do a special audit.

3. Their funding strategy makes no sense

Globo claims to have 83 mn gross cash and 40 mn debt so ~43 mn net cash. Nevertheless they increased borrowings by almost 20 mn EUR in 2014 without any obvious reason. As a result they paid around 4,1 mn EUR of interest and only received 0,3 mn interest income on their cash. Why would anyone pay 4 mn EUR net fincance cost a year just to increase a non-required cash position ?

As a software company, they shouldn’t have any specific intra-year working capital spikes so there is no economical reason for this at all. If you need a buffer for potential M&A transactions you would just sign a credit line at a fraction of the cost and draw it down when needed.

Another interestign aspect however is that the UK parent company is actually net cash negative. If we look at the Company balance sheets (page 57) we can see that the parent has -29 mn net debt.

The parent company cash flow statement looks even more bizarre. There are only operating cash outflows and the cash inflows are either new loans or capital increases (2013). Even more strange was their (failed) attempt to issue a high yield bond in June. According to Bloomberg, they wanted to raise 180 mn USD. This was the official reason given:

Upon successful completion of the offer the net proceeds from the sale of the Notes will primarily be used to fund further acquisitions that support the Group’s international expansion strategy in its key growth markets. Additionally, proceeds will be used to repay existing indebtedness and for general corporate purposes.

Honestly this is quite an idiotic reason to issue a bond at an indicative pricing of 8% p.a.. In order to repay existing indebtedness, they could just use their existing cash (if it exists). Also, the normal way to do this is to actually sign the acquisition first with a potential bridge financing and issue the bonds afterwards. Bond investors would then know what they would get and banks are happy to extend loans when they get the High Yield bond business.

If I would be in a friendly mood, I would rate their financing startegy as “amateurish”, I don’t want to say here how I would call this in a less friendly mood.

4. For such a small company they have a surprisingly complex structure

In the list of the subsidiaries one can see a lot of strange subsidiaries “holding intellectual property” in interesting jusrisdictions like Jersey or Cyprus. This might be part of the genius tax structuring but overall looks quite intransparent and hard to understand. Taken together with the strange account of the parent company (very little participation values, huge receivables position), this would not give me a lot of confidence what I actually would own if I buy a stock of the parent company.

I know that not many investors care about such things but for instance with the “Chinese-German” companies this was one of the features where it there was a clear indication that most of those companies were actually empty shells used to funnel funds from investors to “insiders”.

5. My favourite strange item: classification of bank counterparts

This is something I only recognized when I read it a third time. Let’s look at the table how they present their cash balance:

As at
  31 December 2014
A+, A, AA-, Aa3 9.977.272
BB+
B3, B, B-,Baa3 72.774.361
CA 11
   
Total 82.762.641

At first I would say: This is a normal table sorted “descending” by rating. But a second looks shows us an “interesting” feature: The majority of the cash is held in banks which are either low investment grade (Baa3) or deep junk (B3, B, B-). So one could ask now: How much is actually held in the “still investment grade accounts” and what is held at junk banks. They way they present it, even if only a single EUR is held at the Baa3 account would be enough.

Compare this with what they write earlier in the annual report:

At the end of the period the Group had cash resources held by counterparties (“Banks”) of €82.8 million. Our counterparty risk management is focused on the protection and availability of cash deposits for the benefit of the Group. Actions have been taken to reduce counterparty limits with certain financial institutions and to hold a significant proportion of our euro denominated holdings in highly rated banks outside of the Eurozone.

One thing is clear here despite their rather obscure disclosure: Most of the money (if it exists) IS NOT held by highly rated banks but rather at pretty weak institutions.

TOO MANY RED FLAGS

For me, despite having had already quite some entertainment while reading the report, this is now the place to stop. In such a case, the possibility to loose all your money is definitely not zero. To be honest, in one other case where I did the same (Reply Spa) the stock made around 400% after I had rejected it for some “creative cash flow reporting”.

For any one who is maybe less risk averse I would however recommend to adjust the profits with regard to capitalised expenses and normalized taxes. Roughly speaking, “true earnings” are maybe only 1/2 of stated earnings if you would assume more conseravtive assumptions.

If Globo turns out to be a actual great company and continues to grow like crazy then the upside is of course there. On the other hand, for me value investing is mostly about protecting the downside. And in a case like Globo, the downside case for Globo is clearly there. I do not want to own companies where the chance of a total loss is relatively high. My “style” of investing works better with very boring companies where in the worst case I don’t loose much. There is a sometimes invisible line between investing and speculating, but for my this line is crossed if I cannot trust the accounts of a company.

For me there is no need to dig deeper into the business itself as I never would be sure that the whole thing doesn’t turn out to be “another Autonomy” but without the take-over….

Ennismore & would I short this stock ?

It is no secret that fundamental small cap investor Ennismore is short the stock (-4,4% of the outstanding shares). They had issued a 5 page research piece on Globe more than a year ago which includes some more stuff like the questionable background of one of the board members.

For the time being I would not short the stock. Why ? First of all, I do not know enough about the company. I have only looked at the most recent annual report for maybe 2 hours. Secondly, as in the Autonomy case, especially in the software sector there might always be another cash rich software company with a bad Due Dilligence team who might actually buy them. Or if they actually manage to issue a 180 mn USD high yield bond with few covenants, they could actually buy themselves out of trouble if they are lucky.

45 comments

  • I’m just seeing this. Great analysis. When I look at point #3, it’s so hard to tell why someone raises money when it looks like they just simply don’t need to. For example, all types of large businesses (GILD comes to mind) are raising debt “for no reason”. A smaller example would be SPCB. Are both of these companies really raising money for an acquisition or to strengthen their balance sheet for a new contract win respectively? Obviously SPCB is more curious, but it’s incredibly difficult to tell when looking at that alone.

  • Last month at Seeking Alpha, I saw also a link to your blogpost.

  • Shares suspended:
    http://www.reuters.com/article/2015/10/23/idUSASM000D1W20151023

    Have not found the report yet. But will be interesting to read, of course.

  • Great, the summer holidays came really surprising this year:

    Globo Seeks to Sell HY Bond After Summer Delay
    By Tom Freke
    (Bloomberg) — Co. continuing process of fund raising via a debut HY bond “which it hopes to conclude shortly,” according to statement.
    Bond sale had been delayed in summer 2015 due to market events including uncertainty about Greek economy, correction in China
    Purpose of sale to strengthen co.’s position to execute acquisitions; co. “remains committed to completing the first of these acquisitions which is underpinned by existing cash resources”

  • If I was the CEO of a company, hell bent on doing whatever I had to to make a pile of money including issuing innacurate, false or misleading accounts, and updates, the one thing I wouldn’t do is relocate myself, wife and twins, to the USA. And I certainly would not issue ADR’s either, unless I fancied breaking rocks in the hot sun for a good many years.

    28 July 2015

    GLOBO plc – Statement regarding share price movement

    Globo plc (LSE-AIM: GBO / OTCQX: GOBPY), the international provider of Enterprise Mobility Management (EMM), mobile solutions and software as a service (SaaS), notes the significant move in its share price since 22 July 2015. Globo is not aware of any material reason for the decline in its share price.

    The Group updated the market on 7 July 2015 regarding the situation in Greece and would like to reiterate that there is no financial or operational impact expected as a result of this turmoil. Since Greece has entered into an agreement with its lenders, we see the Greek market returning to a degree of normality over the coming weeks and months.

    Marketing related to the potential issue of longer term debt in the form of senior secured high yield notes continues, with the proceeds expected to be used within two years, mainly for future acquisitions of an anticipated value in excess of US$150 million. These acquisitions will help transform the Group into one of the pure-play leaders in the Mobile Enterprise market.

    Although recent events in Greece and China have caused the high yield markets to stall over the past few weeks, we are confident that this is the right time to accelerate our growth and execution capabilities as we build a leadership position in the Mobile Enterprise space. We expect any future acquisitions to be EBITDA accretive and significantly outweigh any coupon costs in relation to the bonds, for which Globo has recently received a credit rating of BB- from S&P and B2 from Moody’s.

    The Group released its H1 2015 Trading Update on 7 July 2015 and would like to reiterate the following highlights:

    — Group revenues grew by 56% to EUR72.4million in H1 2015, driven by the GO!Enterprise business which grew by 126% YoY

    — During H1 2015 Free Cash Flow grew significantly to EUR 7.2 million, with Free Cash Flow over the past 12 months of EUR10.3 million

    — The Group’s net cash position of EUR47.4 million has increased by EUR7.0 million since 31 December 2014

    — Trading continues to be strong with numerous new customers and repeating orders won during H1 2015

    — U.S. growth remains on track, with expanded operations and headcount increases in the region

    Globo’s industry recognition continues, with the announcement on 27 July 2015 of our inclusion in the Gartner MADP Magic Quadrant, making Globo the only pure-play mobility vendor globally in both Magic Quadrants (EMM and MADP).

    Costis Papadimitrakopoulos, Globo’s CEO commented:

    “The past 30 days have been challenging for global markets, with events in Greece and China having unnerved investors. We continue to experience positive trading conditions and are confident in our strategy to create value for our shareholders in a robust and growing mobile services market worldwide.”

    • It is good for Globo to be a challanger in the MADP Quadrant after not been mentioned previously.
      On the other hand, there are 5 leaders and 2 challangers ahead.

    • I am not sure if the relocation of the CEO is a good thing or not. The interesting thing about the press release you attached is in my opinion the following:

      So far, Globo said that they have some M&A projects ready to sign and tha they need only the money to close. Now they say “with the proceeds expected to be used within two years, mainly for future acquisitions of an anticipated value in excess of US$150 million. “

      They are changing the story, which in my opinion is not really increasing the trust.

      • ‘I am not sure if the relocation of the CEO is a good thing or not.’?

        The US is by far the largest and most important enterprise mobility market – for Globo to become a leading player in the quickly evolving and fast growing EMM and MADP sectors it was considered essential by the CEO to successfully enter this market – he quickly validated this decision – US revenue growth is up over 300% in a year and this market is already Globo’s second largest by revenue.

        Globo has been under short attack by Ennismore for around 2 years, during which time they will have been increasingly erring on the side of caution by conserving cash to prevent an intensification of the attack.

        While a little unpalatable, paying over the odds to secure $180m of long term debt will enable the $150m of large acquisitions to proceed in a timely fashion to help transform the company into one of the pure-play leaders in the Mobile Enterprise market, while allowing them to stay very liquid for an extended period to help see off the unwanted attention of the shorters.

        Globo’s technology is very highly rated by Ovum, Gartner and IDC and is one of the few independents left at the top end of this very rapidly growing and consolidating market. Considering the market valuation of a heavily loss making pure EMM play like US quoted MobileIrion, and the M&A prices for companies in the sector over the last few years, shorting Globo carries the additional risk of a high premium takeout, which a number of US industry commentators believe is highly likely considering the pace of consolidation that is occurring in an industry which continues to grow at a CAGR of around 25%.

        • Well, the problem for me is: If the business is so great, why don’t they offer reasonable accounts without capitalization, clear reporting for receivables, cash deposits etc. Why do they change the story all the time ?

          If you have a valid business, you are not vulnerable to short attacks. Admiral for instance had much bigger short positins against them, but they don’t have to care as their business does not depend on who owns the shares.

          And yes, that there are a lot of stupid or desperate buyers in the market with more money than brain cells. Autonomy was the prime example for this.

  • Following the last numbers Q2 15 some question arised for me.
    Globos flagship seems to be the App “GO! Enterprise”

    Globo claims to have 44.9 Mio€ returns in first half of 2015. In June they wrote about 834.000 active users.
    That means every user paid 50€ in a half a year per average. Wow!
    The App “GO! Enterprise” ist offered for download by
    Android: Google Play store (50-100,000 Downloads for Go!Enterprise, 10-50.000 for GO!Enterprise MDM, only 3 written reviews, last of Spring 2014)
    Apple: iTunes (not enough single ratings to publish a rating)
    Windows: Windows Phone Shop: “No one’s rated or reviewed this app yet.”
    Google search: Near to no independent user review or discussions about the quality o this app.
    Quite surprising for an app that is used by 800.000 people.

    Prices: The app is offered for free in all App Stores, with no note about later a size of later payments.
    The app is offered for a free test by Globo, but also without any indication how much it might later cost or any link to ask for a price offer.
    I am really curious how they make 45 Mio€ out of this app in 6 months, an average of 50€ per user.

    Can anyone help me out?
    Am I thinking wrong or may we experience a huge fraud?

    • Roger,

      i am sure if you ask Globo, they have a good answer. As far as I know the say that they sell “direct” whatever that means…

      mmi

    • Hey Roger,

      you are getting some facts wrong, but generally I would agree that the reported sales numbers are not congruent with the reality (i.e. appstores, independent reviews, case studies, google results).

      Just to clear up some confusion for you (and you could have a look at p.26 of the annual report 2014):
      – GO!Enterprise is their business segment which covers of their Enterprise Mobility business.
      – GO!Enterprise consits of three different parts: Enterprise Mobility Management (EMM), Mobile Application Development Platform (MADP), Mobility Business Solutions (MBS)

      I guess the 834,000 active users are the 834,600 “licenses” which Globo refers to in their annual report 2014. These 834.600 licenses only refer to their EMM segment, which generated €12.6 million revenue in FY 2014 (= ~15Euro/year per license).

      You can not compare the €44.9 million figure to solely the EMM business licenses, because the €44.9 million also include their MADP and MBS business. The GO!Enterprise app and GO!Enterprise MDM app are the main products within the EMM segment.

      Additionally, I don’t know why they do not appear for you, but there are some reviews for the GO!Enterprise app (https://play.google.com/store/apps/details?id=gr.globo.citrongo.enterprise.client&hl=en), but the positive ones are mainly from Globo employes anyway (LOL).

      There are some reviews for the GO!Enterprise MDM (https://play.google.com/store/apps/details?id=net.notify.notifymdm&hl=en) app. The vast majority of those reviews are from Oracle employes (check up their names on linkedin). This is also the business (Notify) which was acquired in 2013.

      All in all, Globo likes dropping names regarding customers (e.g. Coca Cola/US Army etc.), but if you look for hard facts you will only find about three “big” customers which can actually be verified as customers (e.g. Oracle, Milton Keynes, NSW Australia). Then they still have like 10 smaller companies (mostly greek actually), where you can actually find some information about the connection to Globo.

      Btw, there is another questionable area of revenue within Globo. It is their CitronGO!/GO!Social segment. They claim to generate €40 million revenue per year, but there is not even a single customer known for this product. In their annual report / trading updates they always provide minimal to none information regarding CitronGO!, besides the revenue/active users. Nothing else.

      • Thank you, that may describe a lot!
        On my mobile I found only 3 written reviews for Go!Enterprise (but lots of ratings) and none for Go!Enterprise MDM at Google play! I dont know what went wrong! Thanks for lightning me!
        But if they are all rom Globo staff – wow. 🙂
        12.6 Mio € for EMM is much less than the expected 44,9 Mio, thanks for clearing my confusion.

        Still it remains strange that there are quite few independent homepages and users talking and discussing about their experiences or only their problems with Globo software. For AirWatch MDM eg. there is much more to find.

        I have no doubt that Globo apps exists. But I still feel uncomfortable with their official numbers for users and earned returns.

  • Charles Highett

    So many of your points are erroneous and misleading.
    1. ref Receivables

    “…In 2014, receivables jumped from 28,6 mn EUR to 50,8 mn EUR or from around 0.4 years to 0.5 years of sales. The receivables disclosure is actually not very good. On page 37 they mention the following…”

    If one looks at the conscentration of revenue in 2014, one woulr see that 65% of revenue was in the last 6 months. So clearly the annualised collection would be weighted to reflect this back end revenue. The annual reports shows also that
    30,5m is within 90 days, 14.3m between 4-6monhs and 5.6m bewteen 7-12months.

    The longer receivables reflect the consultancy element of the business that has a longer collection cycle and represents 20% of annual revenue.

    2. Capitalisation

    “..Capitalizing costs is not illegal but it is aggressive accounting. A software company like IGE&XAO for instance does not capitalize at all R&D. So in order to compare Globo’s numbers to other software companies, one should expense most of this which is roughly 2/3 of the shown profit…”

    the UK accounting allows under normal practice (not aggressive) for IP to be amortised to put balance into your argeement as what is not considered in your report is the accumulated impact of amortsation on the P&L:
    Expenditure IP 2014 23.56
    amortization charges 12.8m

    LIKE FOR LIKE WITH MOBILIRON
    So if the policy for IP was to be expensed, the additional cost would be 10.43m.
    If one recalculates and does a side by side with mobiliron

    Revenue Mobiliron $132295
    PAT $-61,889

    Revenue Globo e106,386
    PAT e24,580

    RE Banking

    Pls write to comany and ask them directly instead of making assumptions

    • Dear “Charles”: The “back loaded” sales are an argument I heard already more than once. Also I clearly mentioned that the capitalization issue is a subjective view of mine.

      And no, I don’t need to contact the company. I rather spend my time on better companies. There are just too many issues with Globo to make them interesting for me,

      Maybe I miss a great investment, maybe not.

  • Prior to Ennismore increasing their short position, high performing funds with superior investment performance track records like FORUM European Smallcaps GmbH(21% IRR since they started in 2002, against Ennismore’s 10%), Goldman, Inflection and Global Asset Management have become shareholders and now hold a collective long position some four times the size of Ennismore’s short position.

    Research suggests Ennismore have what can only be politely described as mixed success in their shorting strategies and their position in Globo should be seen in this context.

    FORUM European Smallcaps GmbH investment performance since inception shows they clearly have a methodology, process and team for making smart investment decisions. They hold a far more concentrated portfolio which means a greater degree of conviction in any position – as of early 2015 they only held 11 positions(including Globo), in the part of the portfolio they term “Tactical”.

    The following quote is from their “Mission Statement – Value Investing”:

    “As part of a German Family Office, FORUM European Smallcaps GmbH (“FES”) invests in quality businesses displaying high customer “stickiness” and robust competitive advantages.

    We select companies from the European Smallcap universe with a market capitalization of £35-350 m. as we believe this segment presents us with the most market inefficiencies. We target an absolute return of 20-25 % p.a. over a 5-10 year investment cycle.

    They say of Globo: “Globo is using cash flow from a mature business to build up a new business in a high-growth category. We feel we have paid for the mature business and get the optionality of success in the new business – or a take-out – for free”

    “The current Globo share price and valuation means that in effect you can buy the CitronGO! / GO!Social & Telecom business for what is very nearly a single digit PE multiple and the GO!Enterprise business is in for free.”

    Ennismore Fund Management have held a short position in Globo Plc for over a year now, so it is interesting that a high conviction small cap fund with an outstanding investment track record is, along with Goldman Sachs, Inflection and Global Asset Management now appearing on Globo Plc’s shareholder register – collectively they have built new positions totalling nearly 45m shares.

    I suspect Ennismore expected by now to have the s/p lower than where it was last April, but have clearly been frustrated by the company continuing to report industry leading sales growth, and cash generation by far the best in this very fast growing sector – the recent results and market valuation of Nasdaq listed US competitor Mobileiron is worth looking at for a comparison, and demonstrates well why the Globo CEO is aiming for an early Nasdaq listing.

    Time will tell who has made the better call and it is of course conceivable that both could make money from their respective positions albeit over different timeframes – however, my money is on Forum, as their long term investment track record is simply in a different league – and unlike Ennismore, they have actually spent a week with the Globo Plc management, senior staff, sales people in the field, customers and major suppliers, as part of the extensive due diligence they do on the relatively small number of investments they make.

  • Curious question: Anyone knows where I can learn about the rating of the bigger cyprus banks?

    Parts of Globo are sited in Cyprus, as it is known as a tax lap hole and also another greek speaking country with many economic relations toward Greece. If 44% of your staff works in Greece and has to be payed, but you want to hold nearly no money in Greek banks, Cyprus banks may be the best alternative option.

    Just thinking: Could the bad rating for the majority of their cash reserves mean it is in cyprus banks, which may have still a rating much worse than the real risk would require?

  • Genius or “all or nothing”: Globo goes again for the high yield bond, now for 10% yield:

    Company Haunted by Greek Roots Said to Revive Junk Bond Offering
    By Sridhar Natarajan
    (Bloomberg) — After failing to issue junk bonds last month to investors leery of its Greek roots, mobile-software firm Globo Plc is giving it another shot.
    This time the company founded in Athens by Costis Papadimitrakopoulos is seeking to entice investors with higher yields on $180 million of speculative-grade notes, according to a person with knowledge of the deal. It’s offering to pay about 10 percent on the securities, instead of the 8 percent it was proposing before postponing the sale last month, said the person, who asked not to be identified because the talks are private.
    Imperial Capital LLC, the investment bank managing the offering, has started to reengage potential buyers as appetite for riskier securities returns. Junk-bond issuance, which all but shut as Greece teetered on an exit from the euro and China’s stock market plunged, has started to revive this week.
    After meeting resistance from investors last month and a 28 percent plunge in its share price, Globo issued a statement on July 7 reassuring investors that it had limited exposure to Greece.
    With the company incorporated in the U.K. and operations in five countries, sales from the Hellenic Republic had shrunk to 12 percent of its total, from 80 percent in 2010, Globo said. It expected Greece revenues to decline even more as a percentage of the total this year. And the company actually stood to benefit were Greece to leave the euro, it said.
    ‘Small Portion’
    “I assume that some investors may be nervous about our connection with Greece, but we made it clear that it is a very small portion of our revenue,” Papadimitrakopoulos said in a telephone interview Thursday. “Our future is not related with Greece.”
    He said the company plans to use proceeds from the offering for acquisitions. Papadimitrakopoulos said the bonds are expected to price next week.
    For Los Angeles-based Imperial, the sale would be its first in the public markets as lead book-runner this year, according to data compiled by Bloomberg. The firm specializes in lending to middle-market companies, typically underwriting debt transactions as large as $500 million.
    Mark Martis, Imperial’s chief operating officer, declined to comment.

  • Good strategy to stay sober. 🙂
    It is still a great way to learn… and, according to my experience, you tend to appreciate conservative, honest management/companies even more after encountering these “people”.

  • Quite an entertaining read.
    As soon as I read about the “Investments in intangible assets of €23.5 million” I was reminded of Mox Telecom. They had a very savy investment in intangibels at their Vietnamese subsidiary. A big bond plus a lot of “cash” on the balance sheet was also there. Complex structure for a small company – check.
    And they are bust.
    I’m rooting for the shorts

  • Good work!

    In 2010, I took a look at the cheep and funny Artificial Life. Today they are 98.5 percent cheeper.
    Regarding globe, especially the low FCF and the business environment discouraged me. I saw a lot of competition and no moat.
    As you said, “grow like crazy”, but “protecting the downside”.

  • Excellent analysis. I first looked at Globo in June 2011 and kept an eye on them ever since. When I look in my notes, I have exactly the same remarks. Let’s see how this will end. Interesting to see that you mention Reply, where I had the same experience. Have you looked at Utilitywise? Revenue recognition could be a problem here.

  • What a great post! I enjoy a lot reading you, and paraphrasing Warren Buffet “When I see a new post from Valueandopportunity in my email, they’re the first thing I open and read. I always learn something”. Thanks a lot for taking the time at sharing your thoughts.

  • Great write-up. It’s interesting to see the short interest almost doubling since beginning of 2015.

    http://shortsell.nl/short/Globo/all

    If my rough calculation is right, Ennismore has more than 11m EUR “on the line”. I think their Fund AuM is something like 290m GBP, hence c2.8% of the Fund is short Globo. That’s what I call conviction. 🙂

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