Telematics company Watchstone (LSE: WTG), e-invoicing specialist Tungsten (LSE: TUNG) and UK onshore firm IGAS Energy (LSE: IGAS) have been through turbulent times. Are their futures now brighter, or are investors sitting on ticking time-bombs?
Watchstone
Watchstone — formerly called Quindell — was left with a rag-bag of loss-making businesses after selling most of its assets to Australian firm Slater & Gordon last year. The deal saved Watchstone from blowing up for lack of cash, but has been disastrous for the Aussie group whose share price has collapse from $8.00 to just $0.28.
Watchstone has already offloaded some of its retained businesses — an insulation business in January and a telecoms software business in February — and an announcement today of a management incentive scheme appears to envisage the remainder of the businesses ultimately being disposed of in one way or another. Cash bonuses for directors “will only be triggered upon value-crystallising events (including, inter alia, a takeover of the Group or disposals of individual divisions) in excess of base values”.
Watchstone is still the subject of a Serious Fraud Office (SFO) investigation into events of the Quindell era and faces potential legal action from disgruntled shareholders. However, with a cash balance of £95m at the last reckoning (equivalent to its current market capitalisation), former directors likely to bear the brunt of any penalties arising from the SFO investigation, and with a letter of claim from disgruntled shareholders only currently standing at up to £9.4m, Watchstone no longer appears to be the ticking time-bomb it once was.
Tungsten
Troubled e-invoicing firm Tungsten today announced the departure from the board of founder Edi Truell. Although Tungsten “serves 56% of the Fortune 500 and 67% of the FTSE 100”, and processed transactions worth over $187bn last year, it’s not making any profit.
Add-ons are where the profit is in e-invoicing. However, the company said in December that while its analytics product had been demonstrated or trialled by more than 50% of its customers, and while feedback had been generally positive, “at the initial pricing levels quoted none agreed to purchase the product”.
Alongside today’s announcement of the departure of Edi Truell, the company said it had received various proposals from him to combine Tungsten with other assets in which he has an interest. The board found these various proposals to be “universally without merit for shareholders”.
Whether Tungsten has a business that will ever be profitable remains to be seen. There are no immediate cash concerns, so there’s a long fuse on this ticking time-bomb, but many ifs and buts as to whether it can be defused.
Igas
Igas’s results for the nine months ended 31 December, released last week, showed that the company was only able to deliver net cash from operations of £1m. That was at an average price of $58.9 a barrel, but the current oil price is now around $40.
Moreover, Igas is weighed down with debt, the results showing cash of £29m, but £85m of secured bonds maturing March 2018, and £18m of unsecured bonds maturing December 2018. The company said that based on its current forecasts it is projected to breach certain of its bond covenants in the second half of 2016.
Asset sales, a dilutive equity raising or persuading bondholders to modify or temporarily waive the covenants are options the board could pursue. However, the secured bonds are trading at just 46 cents in the dollar, which tells you that equity holders are in the extremely precarious position of sitting on a ticking time-bomb.
In my view, there is limited upside for Watchstone, while the downside risk is so substantial at Tungsten and Igas that I believe selling would be the most prudent move.
