Accesso Up For Sale

One time favourite of private investors, and at one time one of my biggest holdings, Accesso Technology (ACSO) has announced that following approaches it has decided to start a formal sale process. It is inviting offers for the business.

Now I would have picked this up sooner but Investegate which I use for RNS announcements has a problem at present which is delaying emails. I told them about that issue this morning. Anyway what with that and taking some rubbish to the local waste tip, I only picked up the news when I saw the price change an hour later. The price jumped from last nights 755p to 1350p for a very short time but has now settled back to about 1100p so I missed the peak – and at 1350p I would have considered that a very fair price.

I think I’ll wait and see what offers come in now as it’s a difficult company to value. It depends how much prospective buyers want their customer relationships, which are good, and the technology they have developed even if the latter is being redeveloped to a large extent.

As I normally do in such uncertain situations, I hedged my bets by selling a few more shares and holding the rest today.

Roger Lawson (Twitter: )

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Accesso Technology AGM Report

I attended the Annual General Meeting of Accesso Technology (ACSO) this morning at their offices west of London. With a 10.00 am start time there were only about ten ordinary shareholders there.

This company provides ticketing and queuing systems for theme parks and other visitor attractions. It had a great share price performance under the management of former CEO and then Executive Chairman Tom Burnet (who is still on the board as a non-exec director) until October 2018 when the share price peaked at about 2900p. It’s now about 815p having picked up slightly after this morning’s announcement. Long-standing shareholders are not too happy as evidenced by one question posed by a shareholder – see later.

The new Chairman Bill Russell introduced the board (who had almost all changed in the last year) and then new CEO Paul Noland covered the morning announcement. There had been a positive start to trading and they are on target to meet year end forecasts. There was also coverage of the “significant investment in product integration”. That is a major issue to understand and may be spooking investors. As Paul Scott on his Stockopedia blog said this morning, there is “enormous capitalisation of development spending onto the balance sheet” and that’s just a comment on the historical position when they clearly plan to spend more.

David Stredder opened with questions on the impact of the change to IFRS 15 accounting which has substantially reduced revenue in the “guest experience” (queuing systems) segment because they now only recognise the net revenue rather than the gross amount billed. Comment: reading these accounts with all the “adjustments” and changes in the last year from acquisitions, etc, makes for tedious work. It’s easier just to look at the cash flow statement which shows how cash profits have come down due to very heavy development expenditure which was capitalised.

David also asked how each of the new non-execs were recruited. Apparently by searching Tom Burnet’s “network” and using professional advisors. A recruitment company was not apparently used for these jobs, which is definitely a negative sign in my view. Using the “old boy network” is not the best way to get independent and challenging non-executives. Also Tom Burnet cannot be considered independent being a former executive director which is frowned upon now in corporate governance circles.

In response to a question on the large increase in development expenditure, it was stated that they needed to increase expenditure on the two acquired companies (which were relatively “early-stage”) and to integrate them into a new open platform. It was later stated by Tom that customers were looking for simpler deployment systems which also prompted the software redevelopment.

I asked about the aborted acquisition last year which cost the company $1.7 million in wasted fees, and why was it not announced at the time? Surely a price-sensitive matter? The response from Tom was that they were advised that announcing it could be deferred until the next trading statement as it was not that significant an item. Comment: That may have been the advisor’s view but it’s not mine.

It later transpired that the acquisition was aborted because some of the key investors whose support was required for a large rights issue required to fund the acquisition backed out. They had become nervous about the tech sector. It was undoubtedly a poor time to do that.

One shareholder asked for explanation of why the share price had halved, and more. Tom gave the reasons as:

  1. General market downturn in tech stocks (down 25%-30% in the Autumn).
  2. A pattern of shorting in their stock for the first time.
  3. Internet blog reports which affected retail shareholders. He was particularly critical of comments by unregulated commentators and wants to do something about it. Comment: I agree with him and said so in the meeting.
  4. Shareholder disappointment that he was stepping down.
  5. Concerns about increased development expenditure.

Comment: the fact that Tom also sold a large number of shares no doubt contributed but I agree with his analysis.

David criticised the lack of PR to private investors that might have mitigated these concerns but Tom said the board decided not to get into a battle of words as they were advised this would not help. Comment: probably right there but some positive presentations may have helped.

The issue was raised about the lack of availability of institutional analyst reports to private investors. This had probably not helped as these had been generally positive. One of the non-execs had complained about this as a problem for all AIM companies to the stock exchange, his M.P., etc. Comment: it was bad before even MIFID II came into force but is now exceedingly frustrating even if you are “professional” investor (i.e. a “sophisticated” or “high net worth” investor as classified by the FCA).

Above is a summary of the key questions/answers which helped to reveal exactly why the shares are now out of favour. I think investors are concerned about the heavy development expenditure and there is always some doubt about whether this will pay off in terms of future profits. One gets the impression it is necessary to redevelop old systems and provide a new technology platform for the future but it is clearly not going to be cheap. So profits are not likely to leap upwards for some time.

The confusing accounts probably does not help to instill confidence either, plus of course a new board and new CEO. It’s effectively “all change” at Accesso and investors don’t like revolutions.

With the current valuation the shares may be a buying opportunity as they have fallen so far, but I think a lot of investors will wait and see.

As regards the meeting itself, not a great location and time with no presentation to attract investors but otherwise it was well managed by the new Chairman.

All votes were passed on a show of hands, although some of the resolutions received considerable votes against for no very obvious reasons, e.g. 950k against the reappointment of KPMG. Note that there was no remuneration resolution on the agenda which is a shame because the remuneration scheme at this company is certainly one I would have voted against. AIM companies do not have to have one but it is certainly good practice to do so.

Roger Lawson (Twitter: )

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Accesso and Executive Chairmen

Yesterday the share price of Accesso Technology Group (ASCO) dropped over 35% after the company issued a trading update and also announced that Executive Chairman Tom Burnet was moving to become a non-executive director. This company has been one of the great growth stories on AIM after Tom took charge as CEO in 2010. Revenue has grown more than 6 times since then but profits and cash flow have been more variable. But Tom is a very persuasive speaker and the share price multiplied by more than 25 times to reach a peak of 2800p in September 2018 – it’s now 930p.

I first purchased the shares in 2012 when the business was selling a solution for theme park queuing and most of their revenue came from one customer. They have now developed the technology to have wider applications and have a wider customers base of “visitor attractions”. Acquisitions have also been made to broaden the product offering and the strategic plan of the business was to become a “consolidator” in the ticketing and other IT solutions to this sector.

Tom Burnet was made Executive Chairman in May 2016. That concerned me somewhat because he is clearly a very forceful person and I generally do not like Executive Chairmen unless there is a very good reason to have that kind of sole dictatorship such as the company being in dire difficulties – there did not seem to be such a justification here, and it is of course contrary to Corporate Governance guidelines for good reasons.

I sold most of my shares over 2016, 2017 and 2018 after the share price continued to ramp up driven by momentum and some investors apparently feeling that Tom could do no wrong. He seemed to think likewise when I prefer more humble personalities as CEOs. Institutional investors also piled in. But the financial numbers were not all that impressive – indeed I queried the poor return on capital and large increase in administrative expenses at last year’s AGM. Other commentators queried the revenue recognition, poor cash flow and high levels of software development capitalisation. Director share sales by Tom and others in 2018 were also a negative.

That’s the history, so what about the current valuation? The last published financial results were the interims for the 6 months to end June 2018 when I made a note that the prospective normalised p/e was 47! But Accesso’s interim results are usually very untypical of the full year figures as it’s a very seasonal business – not many people visit theme parks in the winter. But they did mention the impact of IFRS15 on revenue recognition where they had previously been recognizing the full value of tickets, not just their commission income. This is probably why current analysts’ forecasts show a fall in revenue for the 2018 year versus 2017, with a resumption of growth thereafter.

The latest announcement suggested the full year results will be “broadly” in line with market expectations – which is a bit tendentious bearing in mind we are now well past the financial year end already. It also mentions a one-off cost exceptional cost of $1.7 million on an acquisition which was aborted in October 2018. Why was there no announcement of this at the time as surely it was price-sensitive information?

Actually figuring out what the likely earnings will be for 2018, particularly as the new board might wish to take a bath and clean out any questionable capitalisations is almost impossible without more information.

My fall-back valuation method in such circumstances is to look at the market cap revenue multiple. Revenue forecast for 2019 is $138m which equates to £106m when the current market capitalisation is £254m. So the multiple is 2.4 which is relatively low for a high growth business, with good IP (protected by patents), high recurring revenue figures from existing customers and some profits rather than losses. The business might look very attractive to trade buyers who could strip out a lot of the overhead costs (which is why revenue multiples are important in valuing such companies).

There may be more bad news to come of course, but at least they now have a conventional board structure with a new non-executive Chairman (Bill Russell) who seems to have a very relevant background.

The dangers or having a dominant and forceful Executive Chairman have of course been reinforced by events at Patisserie (CAKE) where Luke Johnson had that role. Having a more conventional board structure might not have prevented the fraud there altogether, but it might have enabled the non-executive directors to more easily question the way the company operated, the internal controls and the information being provided to them. Indeed it might have ensured more questioning non-executive directors were appointed to the board in the first place. A separate Chairman might also have questioned whether Luke Johnson was spreading himself too thinly across his numerous business interests.

The corporate governance principle of having a non-executive Chairman is not something investors should ignore.

Postscript: I corrected the revenue growth figure and the market cap sales multiple figure a few hours after the above was first published after I identified some sloppy research, but the conclusions were unchanged.

Roger Lawson (Twitter: )

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Two AGMs (Accesso and Foresight VCT) in one day

Yesterday I attended the Annual General Meeting of Accesso (ACSO) in Twyford at the somewhat early time of 10.00 am with the result that I got bogged down in the usual rush hour traffic on the M25. What a horrendous road system we have in London! A symptom of long term under-investment in UK road infrastructure.

Accesso provides “innovative queuing, ticketing and POS solutions” to the entertainment sector (e.g. theme parks) although they have been spreading into other application areas. The business has been growing rapidly under the leadership of Tom Burnet who moved from being CEO to Executive Chairman a while back.

Tom opened the meeting by introducing the board, including new CEO Paul Noland who is based in the USA where they now have 5 offices apparently. He also covered that morning’s trading statement which was positive and mentioned deals with Henry Ford Health System and an extension to an existing agreement with Cedar Fair Entertainment. Expectations for the year remain unchanged. Questions were then invited – I have just covered a few below.

I raised a concern about the low return on capital in the company (now less than 5% irrespective of how one cares to measure it). I suggested the reasons were large increase in administrative expenses (up 43% last year) and the cost of acquisitions. Did the board have any concerns about this? Apparently not. The reason is partly the acquisitions and the costs might come down as they rationalise operations but they are in no rush to do so.

The Ford deal was mentioned and Tom said this is one deal where the acquisition of TE2 has provided the technology to assist closure. This is what the company said about TE2 when they bought it: The Directors of accesso believe that TE2’s cloud-based solution offers market-leading personalisation capabilities and data orchestration technologies which capture, model and anticipate guest behaviour and preferences not only pre- and post-visit online, but in the physical in-venue environment.  Personalisation is achieved via many heuristics, including machine-learning-based recommendations, in order both to enhance guest experiences and to provide actionable analytics and insights to the operations, retail and marketing organisations.”. I am sure all readers understand that. Hospital systems are clearly one target for this technology.

The vote was taken on a show of hands so far as I could tell, although the announcement the next day of the votes suggested it was done on a poll which is surely wrong. But there were significant numbers of votes (over 2 million) against several directors and against share allotment resolutions. I asked why and was told it was because of a proxy advisory service recommending voting against, allegedly because of some misunderstanding. The answer to my question seemed somewhat evasive though.

In summary, shareholders are clearly happy with the progress of the company but with a prospective p/e of 41 (and no dividends), a lot of future growth is clearly in the share price. Corporate governance seems rather hit and miss.

I then drove into London to the offices of Foresight in the Shard, again journey time a lot more than it should have been due to road closures, lane removal for cycle lanes, etc, etc. Interesting to note a large hoarding on the elevated section of the A4 inviting anyone who had a complaint against RBS and the GRG operation to contact them.

Also interesting to note when I stopped for fuel at a service station on the M4 that at the desk they were serving Greggs food and coffee as well as taking payment for fuel. I know that Greggs have kiosks in some motorway service areas but this is perhaps a new initiative to expand their market. It’s rather like the small Costa coffee outlets that are in all kinds of places. I am a shareholder in Greggs but this was news to me. Obviously I need to get out more to see what is happening in the real world.

The visit to Foresight was to attend the AGM of Foresight VCT (FTV) one of my oldest holdings. Effectively I have been locked in after originally claiming capital gains roll-over relief. It’s also one of the worst of my historic Venture Capital Trust holdings in terms of overall performance over the years.

I did not need to tell them again how dire the performance of the company had been over the last 20 years because another shareholder did exactly that. But I did query whether the claimed total return last year of 6.5% given by fund manager Russell Healey in his presentation was accurate. It was claimed to be so. Perhaps performance is improving but I am not sure I want to stick around to see the outcome.

One particularly issue in this company is the performance fee payable to the manager which I wrote about in my AGM report and on the Sharesoc blog last year. You can see why the manager has such plush offices as they have surely done very nicely out of this and their other VCTs over the years while shareholders have not, and will continue to do so.

Several shareholders raised questions about the reappointment of KPMG bearing in mind that in Foresight 4 VCT the accounts were possibly defective and a dividend might have been paid illegally. But the board seemed to know nothing about this matter. KMPG got about 6 hands voting against their reappointment and the board is going to look into the matter.

The above is just a brief report on the meeting as I understand Tim Grattan may produce a longer one for ShareSoc.

To conclude, both AGMs were worth attending as I learned a few things I did not already know. For example it seems my holding in Ixaris, an unlisted fintech company where Foresight have a holding, may be worth more than I thought. But I still think their valuation is a bit optimistic.

Roger Lawson (Twitter: )

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