# VET - Vocation Limited



## System (26 November 2013)

Three established private providers of vocational education and training ("VET") in Australia, AVANA, BAWM and CSIA, and some ancillary businesses will be combined to form Vocation Limited.

Vocation Limited (VET) is expected to list on the ASX on December 9th, 2013.

http://www.vocation.com.au


----------



## Freizeit (7 March 2014)

what's will the impact be with the addition to asx 200?


----------



## McCoy Pauley (10 March 2014)

Freizeit said:


> what's will the impact be with the addition to asx 200?




Should be an impetus for the stock price to move higher.  A lot of funds managers have a mandate to only buy companies in a particular index, including the ASX 200.  Accordingly, once the company is added to the ASX 200, they will have to buy enough shares to meet their weighting requirements.

IMO, the price movement will have no correlation with the company's underlying performance.


----------



## skc (28 October 2014)

6 months later, VET sitting just above a $1 after the Victorian DEECD's review basically said their services have been substandard.

The announcements were a bit unclear but from what I gathered, the biggest revenue earner (BAWM) is basically re-structured out of existence. I think everyone is still scratchin their heads on how they could say FY15 impact is only $5m.

The bad news doesn't stop there... imo.
- They will stop using 3rd party contractors... which takes time to implement and cost to supervise.
- Pretty significant reputational damage in front of students.
- Possible more scrutiny by the governemnt on other courses.
- They raised capital while the funding was withheld, while constantly re-assure the market that the review is expected to be immaterial, and that funding was only withheld on a subset of courses. The damage inflicted on the insto will take a long time to repair.
- There may be grounds of a class action for those who took up the placement @ $3.05.

There was no guidance beyond FY15... on paper the valuation is not demanding. But it might take some time for the market to embrace VET again.


----------



## Wysiwyg (28 October 2014)

$0.99 to $1.02 has soaked up a lot of supply with the 4 p.m. auction a likely decision time for the rest. There is another emotion that affects the share market and that is anger. What value is placed on VET after this I don't know but for now a round figure is holding. 

IFL became a substantial holder before this event but their share price is not impacted.


----------



## ROE (4 November 2014)

I took a position today, risk reward justified.
management shake up wont be far away thought the board is supporting the CEO at this stage 
but money talk and large holder if they want change they will get it


----------



## VSntchr (4 November 2014)

Is this a trading position ROE? Or an investment?

Looking at it from a trading position, you could say that the risk is about 10c based on the recent low of 76c. As for the upside --- I wouldn't have a clue..

Have never really looked into VET before but the revised guidance puts it on about 3.4x EBITDA.
Although, I guess relative value has gone out the window given the loss of trust that the company has encountered given their handling of the recent issues.


----------



## ROE (4 November 2014)

I expect management change wont be far away and clean out the system and they should have room to
move on and make a decent living

this is an attractive system as the government outsource education that TAFE use to do to private sector.
there are money here, it is a matter of doing it properly with governance in place.

investment holding but wont be shy to take profit if it recover fast.


----------



## skc (4 November 2014)

VSntchr said:


> Is this a trading position ROE? Or an investment?
> 
> Looking at it from a trading position, you could say that the risk is about 10c based on the recent low of 76c. As for the upside --- I wouldn't have a clue..
> 
> ...





The announcement yesterday that the Board still supports the CEO is a slap on the face to all existing and potential investors imo.

The FY15 numbers will be "pre abnormal" galore. The steady state numbers probably won't be known for at least FY16. Then again, the numbers do look "cheap". ASH FY14 EBITDA was ~$23m has a market cap of $247m. While VET with forecast $55m EBITDA is valued at $192m.

What needs to take into account as well, is that VET was valued at a "cottage industry rollup model" multiple... now they won't have access to capital for quite some time. So they will never get back to the multiple they previously enjoyed.


----------



## VSntchr (4 November 2014)

skc said:


> The announcement yesterday that the Board still supports the CEO is a slap on the face to all existing and potential investors imo.



Yeah, it's clearly not something that shareholders wanted to hear and they are the ones who should be represented by the board. It just shows that no accountability has been taken for the poor disclosure IMO.
So what if Mr. Big Shot throws in another $500k...he already has $3.9m in the company. Maybe we could pull up a chart and get T/H to show how this is him protecting his position.



skc said:


> What needs to take into account as well, is that VET was valued at a "cottage industry rollup model" multiple... now they won't have access to capital for quite some time. So they will never get back to the multiple they previously enjoyed.



Another good example for downside scenario involved in this business model and the way market participants price them..


----------



## skc (4 November 2014)

VSntchr said:


> Another good example for downside scenario involved in this business model and the way market participants price them..




I am going start another threads about this model... there are successes and there are failures. Please join there for more in depth discussion.


----------



## AUSG (19 November 2014)

Vocation faces 2 class actions, one from Slater and Gordon and another from Maurice and Blackburn

http://www.mauriceblackburn.com.au/...perts-to-examine-what-vocation-knew-and-when/

https://www.slatergordon.com.au/med...ass-action-against-vocation-limited-announced


----------



## ROE (4 December 2014)

alright I am all in today - wait another 5-10 years like ccp


----------



## skyQuake (4 December 2014)

ROE said:


> alright I am all in today - wait another 5-10 years like ccp




I too am a believer, but for about 5-10minutes at a time


----------



## hiddencow (4 December 2014)

What worries me is that the forecast EBITDA is negative for the first half, which even they should be able to get right by now and a substantial improvement in the second half. Will that improvement eventuate. So far they've proven they can't forecast to save themselves.

At 15c though, you'll make a lot of money or lose it all.


----------



## Wysiwyg (4 December 2014)

Looks like the market is pricing in the low point of the revised fy15 midpoint guidance range.


----------



## Wysiwyg (4 December 2014)

From $3.40 down to 13.5 cents in less than 3 months reflects in one way the epic failure of this business. The optimist will hope for a full recovery while the pessimist will fear liquidation.


----------



## Huskar (4 December 2014)

Real interesting - looking at annual report key fears are funky things leftover from acquisitions like contingent consideration and put options in hands of vendor for part not sold. That was the sort of thing that made Photon Group (now EGG) really get dragged through the dirt, even though there may be some good businesses underneath..


----------



## McLovin (4 December 2014)

Wysiwyg said:


> From $3.40 down to 13.5 cents in less than 3 months reflects in one way the epic failure of this business. The optimist will hope for a full recovery while the pessimist will fear liquidation.




Funny that yesterday John Dawkins was writing in the AFR about how he bought more VET shares after they fell.

http://www.afr.com/p/business/companies/why_john_dawkins_thinks_vocation_bPg2aJfgxAo7woCGe3Gz3I


----------



## skc (4 December 2014)

Wysiwyg said:


> From $3.40 down to 13.5 cents in less than 3 months reflects in one way the epic failure of this business. The optimist will hope for a full recovery while the pessimist will fear liquidation.




Truely epic in deed... and it's all due to it's own undertaking. There's nothing else to blame.

Changing from market darling to an absolute thrashing in the blink of an eye.

P.S. Good trading today though.


----------



## Wysiwyg (4 December 2014)

McLovin said:


> Funny that yesterday John Dawkins was writing in the AFR about how he bought more VET shares after they fell.
> 
> http://www.afr.com/p/business/companies/why_john_dawkins_thinks_vocation_bPg2aJfgxAo7woCGe3Gz3I



This article when knowing the "market update" due out today? He didn't mention the class action under way. This quote below is expected when you're sitting on a massive loss.



> Vocation is wearing the scars of novelty and, *apparently, suspicion – which is unjustified.




Admittedly oversold in the short term but what does the future hold.



> *Once we knew of the problems*, we took action to address them. Vocation can now refocus its energies on providing high-level education services to Victorians – with continuing *support from Victorian government programs.



Means --- once we got busted with this nice little money spinner. Would you admit, would I.


----------



## ROE (4 December 2014)

skc said:


> Truely epic in deed... and it's all due to it's own undertaking. There's nothing else to blame.
> 
> Changing from market darling to an absolute thrashing in the blink of an eye.
> 
> P.S. Good trading today though.




epic failed but their problem is fixable and that what I am looking for
is the business model ok and can the problem be fixed 

I will hold for 5-10 years and and wait for the turn around

this stock has the problem of ckf and ccp combine -
new to the market and don't know how to guide the market and one big %^#* up 
but in my opinion all fixable


----------



## skc (4 December 2014)

ROE said:


> epic failed but their problem is fixable and that what I am looking for
> is the business model ok and can the problem be fixed
> 
> I will hold for 5-10 years and and wait for the turn around
> ...




Probably... at <20c it's not really pricing much of a business at all.

Their balance sheet is not looking crash hot though. At FY14, Cash $21.7m and debt of $42.6m. Since then they raised $74m. Today they said cash of $55m while debt is fully drawn at $120m.

In other words, they went from $21m net debt at report, to $53m net cash after the raising, to $65m net debt doay.

So they burn through $118m in about 3 months?! How's that possible?


----------



## VSntchr (4 December 2014)

skc said:


> Their balance sheet is not looking crash hot though. At FY14, Cash $21.7m and debt of $42.6m. Since then they raised $74m. Today they said cash of $55m while debt is fully drawn at $120m.
> 
> In other words, they went from $21m net debt at report, to $53m net cash after the raising, to $65m net debt doay.
> 
> So they burn through $118m in about 3 months?! How's that possible?




Glad you confirmed that for me. I wondered how they can say they have a healthy balance sheet in the same sentence that they said debt facility of $120m is FULLY DRAWN after previously having far more legroom!?


----------



## McLovin (4 December 2014)

skc said:


> Probably... at <20c it's not really pricing much of a business at all.
> 
> Their balance sheet is not looking crash hot though. At FY14, Cash $21.7m and debt of $42.6m. Since then they raised $74m. Today they said cash of $55m while debt is fully drawn at $120m.
> 
> ...




They acquired Endeavour on the 1st of July for $84m.

ETA: Bought in today at 18c.


----------



## galumay (4 December 2014)

I had a scan over this one to see if the carcass was worth a nibble, but I am not sure the business can survive carrying that amount of debt and the collateral damage of the victorian cockup.

I think if I was seriously looking at a punt it would be a very small allocation of capital and treat it as a purely speculative play.


----------



## DeepState (4 December 2014)

Take a look at the debt covenants.

p8. 2014 Annual.

Somewhat uncomfortable.  Becoming fully drawn heading into this situation is a flag.


----------



## galumay (4 December 2014)

DeepState said:


> Take a look at the debt covenants.
> 
> p8. 2014 Annual.
> 
> Somewhat uncomfortable.  Becoming fully drawn heading into this situation is a flag.




yep, i saw that and hence my previous comments, havent done the numbers but both of those covenants look shaky.


----------



## skc (4 December 2014)

skc said:


> Their balance sheet is not looking crash hot though. At FY14, Cash $21.7m and debt of $42.6m. Since then they raised $74m. Today they said cash of $55m while debt is fully drawn at $120m.
> 
> In other words, they went from $21m net debt at report, to $53m net cash after the raising, to $65m net debt doay.
> 
> So they burn through $118m in about 3 months?! How's that possible?






McLovin said:


> They acquired Endeavour on the 1st of July for $84m.
> 
> ETA: Bought in today at 18c.




Ahh.. thanks. I thought over dinner that it's not possible for them to burn that much cash considering the size of their operations. They have also paid ~$7m in dividends and had a $3.6m tax bill under current liabilities. So all in all a cash burn of around $23m which makes sense.

So with net debt of $65m, and market cap ~$45m... EV = $110m. EBITDA guidance mid point = $27.5m, but that consists of -$8m in H1 and $35.5m H2. So a steady state (if they ever get back to such state) EBITDA of $50m is still quite possible. 

On the debt convenants mentioned by RY... annual report has them at gearing < 2.75:1 and interest cover > 3.

So this year net debt of $65m vs EBITDA of $27.5m gives 2.36 (so just under). Although the 6-month test for H1 is assured to fail, the banks (3 of the Big 4) may choose to not call in the loans, although interest rates might go up. Interest payment on $65m debt @ 7% is <$5m, so this test should be OK with D&A  ~$3.7m in FY14.

So they should survive... right? This isn't like a FGE situation where they don't have a handle of costs to actually complete the projects. I'd never imagine that a seemingly steady education provider with mainly government revenue could blow up just as spectacularly. 

84m out of 230m shares traded today... instos were dumping this like it won't survive. It looks like it should, but time will tell.


----------



## DeepState (4 December 2014)

galumay said:


> yep, i saw that and hence my previous comments, havent done the numbers but both of those covenants look shaky.




It's more likely than not to get through this tight spot and has a couple of years to run before the facility needs to be reviewed as a whole.  Probably will run cash positive and hence not starve. Will have to go organic as capital markets hate it or otherwise have the mother of all dilutions. Almost no tangible value, but unreasonable to think it has no franchise value despite the stuff ups.  Priced for utter destruction.

The scenario of meeting FY15 guidance could see this dog with feral fleas double...and it would still be priced as a dog albeit with less fleas.  High risk, including a scenario of total capital loss which is not remote.  However, the return potential looks to be there. + 20% carry.


----------



## McLovin (5 December 2014)

skc said:


> Ahh.. thanks. I thought over dinner that it's not possible for them to burn that much cash considering the size of their operations. They have also paid ~$7m in dividends and had a $3.6m tax bill under current liabilities. So all in all a cash burn of around $23m which makes sense.




I'm not sure but have they also paid back that $19.6m to the Vic government? I think they were going to receive ~$10m in funding from the government too. It's a bit of mess at the moment (acquisitions, fines, rebates, cap raisings), a lot of moving parts.



skc said:


> So with net debt of $65m, and market cap ~$45m... EV = $110m. EBITDA guidance mid point = $27.5m, but that consists of -$8m in H1 and $35.5m H2. So a steady state (if they ever get back to such state) EBITDA of $50m is still quite possible.
> 
> On the debt convenants mentioned by RY... annual report has them at gearing < 2.75:1 and interest cover > 3.
> 
> ...




I don't think they're the same as FGE, although I've seen a few people make the comparison. There are still kids turning up to these guys schools. They're still paying for the courses etc. The cost of providing a course hasn't changed. How bad can the reputational damage be? I just can't envisage it being so terrible that they implode because no one wants to get training from them. Yet the shares are being priced as though that is a very likely outcome.

They'll breach the bank covenants this half and I'm sure they've had a few concerned bankers knocking on their door, but, as long as they have some faith that VET can service its debt in the short term, they won't be calling in the loans, imo.

They'll spend a few years in the wilderness.


----------



## skc (5 December 2014)

McLovin said:


> I'm not sure but have they also paid back that $19.6m to the Vic government? I think they were going to receive ~$10m in funding from the government too. It's a bit of mess at the moment (acquisitions, fines, rebates, cap raisings), a lot of moving parts.




MacQ has the negative cashflow @ ~$20m so that's close enough.



McLovin said:


> I don't think they're the same as FGE, although I've seen a few people make the comparison. There are still kids turning up to these guys schools. They're still paying for the courses etc. The cost of providing a course hasn't changed. How bad can the reputational damage be? I just can't envisage it being so terrible that they implode because no one wants to get training from them. Yet the shares are being priced as though that is a very likely outcome.




No it's not the same... but the implosion is just as spectacular. The average kid going to the gardening or security courses probably doesn't know VET from a bar of soap, and they certainly wouldn't know VET operates under a few different banners. I really don't know the selection criteria for these students in the first place (probably location + where their friends go). But the revised guidance was largely a result of "unexpected" contagion... so who knows?


----------



## TPI (5 December 2014)

McLovin said:


> I don't think they're the same as FGE, although I've seen a few people make the comparison. There are still kids turning up to these guys schools. They're still paying for the courses etc. The cost of providing a course hasn't changed. How bad can the reputational damage be? I just can't envisage it being so terrible that they implode because no one wants to get training from them. Yet the shares are being priced as though that is a very likely outcome.




I think "contagion" describes it best. I read that 2000+ kids got their qualifications from VET overturned, so presumably they have to redo some or all of their subjects again? If a few of these kids got onto social media to vent, told a few of their mates and so on, and on top of this their referral base starts to exercise some caution when recommending kids to use VET or not for their own sake as well as the kids, couldn't this explain the "unexpected" drop in enrolments? Just saying, I was going to buy at 62c then decided against, but may still proceed depending on how things progress.


----------



## DeepState (5 December 2014)

TPI said:


> I read that 2000+ kids got their qualifications from VET overturned





Do you have a source available please?

Disc: VET initiated today VWAP 18.5. Immaterial.


----------



## TPI (6 December 2014)

DeepState said:


> Do you have a source available please?
> 
> Disc: VET initiated today VWAP 18.5. Immaterial.




I've read it a couple of times, I think initially on AFR. 

Can't quite find the article on AFR now, but here is one from another paper:

http://m.theaustralian.com.au/busin...head-of-guidance/story-e6frg906-1227141731518

_"Last month, it was revealed Vocation is embroiled in an audit review by the federal skills regulator, while Victorian authorities have revoked the qualifications of 2,400 students in a separate probe."_

It is just one line and mentioned in passing, but caught my interest.

I have not seen much detail about what this separate probe was, but someone here might be able to find it.


----------



## McLovin (6 December 2014)

TPI said:


> I've read it a couple of times, I think initially on AFR.
> 
> Can't quite find the article on AFR now, but here is one from another paper:
> 
> ...




That's a very poorly worded sentence. The two statements are tangentially related but have a comma seperating them as though they are linked. Bring back subbies!

Perhaps...



> Meanwhile, in a separate probe, Victorian authorities have revoked the qualifications of 2,400 students.


----------



## DeepState (6 December 2014)

McLovin said:


> That's a very poorly worded sentence. The two statements are tangentially related but have a comma seperating them as though they are linked. Bring back subbies!
> 
> Perhaps...




Thanks TPI.

The 2,400 is very unlikely to relate to Vocation in isolation.  The DEECD probe related to just three courses offered in Vic. Two were very specific disciplines. Total enrolments for 2014 was about 27,000 students.  The RTOs in question are still completing their courses and will cease to operate once the last of the currently enrolled students graduates.  New students will be enrolled with other VET RTOs that will still be running.  There are two remaining in Vic that are still being funded and, to my knowledge, not under investigation.

This gig segments on geography and between vocational and higher-ed.  Contagion is an issue for the remaining two RTOs in Vic.  It will be less of an issue for, say, non-Vic Higher Ed.  Higher Ed is still growing.

Still running the numbers.  At this time, the price looks like it is assuming total loss of the vocational business nationally and an uninteresting Higher Ed assuming debt is not pulled to totally bankrupt the company with no residual.  Pulling in the debt could be as high as a 25% likelihood and even this scenario would be regarded as fair value. The incentives for the banks to do this are low, but the wording of the covenants is actually unclear and the specifics matter a lot.  I am checking. 

Guidance for H2 FY15 still looks aggressive and assumes a good bounce in Vic vocational. However I need to re-run a few things.  It would not be surprising at all to see FY15 slashed by 50% (think of what that means for H2).  I am almost certain that further material downgrades will be forthcoming.  Also, earnings will be smacked by non-cash write-downs of goodwill and more rapid amortization of 'intellectual property' which has not proved to contain sufficient intellectual content.  In reality, the market is discounting much of this already. Nonetheless, confirmation can still lead to further price pressure and offer a better entry point.  But this can get tricky depending on how the net debt leverage ratio is actually calculated.

This thing is on a fire sale from what I can currently discern in a few hours of research.  I am checking for "too good to be true" risk.  What am I missing? Blink blink.


----------



## DeepState (6 December 2014)

DeepState said:


> Total enrolments for 2014 was about 27,000 students.




typo:

FY2014 enrolments: 45k
FY2014 graduation: 27k


----------



## VSntchr (6 December 2014)

DeepState said:


> This thing is on a fire sale from what I can currently discern in a few hours of research.  I am checking for "too good to be true" risk.  What am I missing? Blink blink.




Thanks for the post RY, I doubt I will be able to add anything of value after the posts in this thread from yourself and others. Nonetheless, I am having a look at this over the weekend.


----------



## DeepState (7 December 2014)

On valuation grounds, this is very cheap indeed.  I can readily see 100% upside type scenarios, even as bear cases.

One way to generate a scenario to justify the current valuation requires nearly 90% wipe out of the founding businesses on sum of acquisition value basis (plus various adjustments for Endeavour, Vic restructure, franking accumulation and DEECD).  That's wholly unreasonable when you consider how the business is structured and that pretty much all of the screw up occurred within the BAWM founding component and it is where they are seeing major contract losses via the MyVocation student acquisition business.  Setting the entire BAWM acquisition value to zero (ie. wiping out half of the original company value at IPO) still requires nearly 80% wipe out of Avana and CSIA businesses.  These operate in entirely different segments and under different brands.  It would require the loss of the entire solutions business, entire enterprise business and half of the direct business for example. That's not reasonable.

On a forward looking basis, the value implicit in the Higher Education component, which is largely via the Endeavour acquisition and continues to grow, can be used to derive a valuation at 10x adj FY15 earnings, even if it carries the entire debt burden.  In other words, the business is fair value or even cheap if all it has left is the Higher Ed business. 

When you have Avana, CSIA, Real and Endeavour's non Higher Ed businesses involved who operate in geographically distinct and via different channels, serving different industries, differing in levels of education offered, under different brands, total loss of these businesses is not really a viable central case or even a bear case.  It would need to be something considerably more virulent than the house of brands version of ebola to yield this outcome. It's possible, but nowhere near a central case.  Please look into the Real Institute and Endeavour Institute sites and see if you can find all that much to link them, for example.


The business model was about industry consolidation. That is broken. The claims to be experienced on this stuff were remarkably light.  They have been found wanting even amongst the founding members.  Two senior executives (COO and Exec Manager-Education) would have been struck off Christmas lists by now. They cannot finance any such ambitions this at anywhere the same rate as might have been envisaged. Four acquisitions in four months...boom. That was quick. If anything, they are better considered as a target for consolidation at this time.  Given the share price and current circumstances, the scenario is realistic.

The FY15 figures require a recovery from H1 that is not reasonable. Something like half of the losses in H1 are assumed recovered in H2.  A dead cat would need to be filled with super high bouncing balls to achieve a bounce like this.  Downgrades.  Downgrades.  The enrolment period in early 2015 will be telling.  Expect another market update.

It looks like this is very cheap as would be expected given the degree of disappointment experienced.  Over time, this should be realized.  In the near term, there is likely distress selling going on right now.  The lack of an honest assessment of the outlook may keep the price weak until things stabilize.  Despite misjudgments, this does not appear to be a company killer.  

Famous last words:

"The reports of my death have been greatly exaggerated" - Mark Twain


----------



## tech/a (7 December 2014)

So buy?


----------



## DeepState (7 December 2014)

tech/a said:


> So buy?




Depends.  It's just cheap on the basis of fundamentals as I can observe them and compile them.  No law of physics requires the price to converge to value in my lifetime.

I've posted because I'm waiting for someone to make that ..."but have you considered"...kind of statement that flips the argument on its head or causes me to set it aside.  I'm actually expecting it because this kind of valuation gap is uncommon particularly in the absence of technological/development risks and monster leverage.

Clearing all these hurdles predisposes me to acquiring more of this stock.  On a BS trading view, I'd say there may be a better opportunity to get set around Feb/Mar at the next debacle of a downgrade.  Maybe it gets released with the Half Year.  It's a question of when.

For you, perhaps, it is an opportunity to utilize your methods with a view to taking long positions if you come to the belief that valuation support provides an additional level of safety for long positions beyond what is discernible from your tool kit.


----------



## tech/a (7 December 2014)

Hmm I'll have a look


----------



## TPI (7 December 2014)

DeepState said:


> Higher Ed is still growing.




Thanks for your input RY. 

For higher ed, the announcement says "The Higher Education business continues to perform well, albeit slightly behind forecast".

FY15 guidance for Higher Education went from 16 to 14.8, so 7.5% lower than initially anticipated, which to me seems a bit more than "slightly" behind.

To me it suggests their overall FY15 estimates are a real ball park figure that they don't quite have a full grasp of, and that could easily surprise on the downside (or even upside).

I also think the general choice of words in their announcements could be better, eg. "The company remains in a healthy financial position with fully drawn debt facilities of $120 million..." - notwithstanding their cash on hand, not sure how having a fully drawn debt facility with significantly  impaired ability to raise more debt or equity can be considered healthy?


----------



## McLovin (7 December 2014)

TPI said:


> I also think the general choice of words in their announcements could be better, eg. "The company remains in a healthy financial position with fully drawn debt facilities of $120 million..." - notwithstanding their cash on hand, not sure how having a fully drawn debt facility with significantly  impaired ability to raise more debt or equity can be considered healthy?




They will not be making any acquisitions anytime soon, so $55m in cash will be used to pay down debt. It's hard to see how their bolt on acquisitions can be that affected by this. I spent this afternoon fighting jetlag and working on this. It's easy to use the old "be greedy when others are fearful" line when everything is cheery, but, imo, it's much harder to do when everyone says the game is up.


----------



## luutzu (7 December 2014)

TPI said:


> Thanks for your input RY.
> 
> For higher ed, the announcement says "The Higher Education business continues to perform well, albeit slightly behind forecast".
> 
> ...




There's a saying, "When in doubt, stay away."

I think that if you spend a week or so and it hasn't yet hit you in the face that it's a bargain... move on to other opportunities.


----------



## DeepState (7 December 2014)

TPI said:


> Thanks for your input RY.
> 
> For higher ed, the announcement says "The Higher Education business continues to perform well, albeit slightly behind forecast".
> 
> ...




The important issue for Higher Ed is not so much a downgrade in expectations but that it is still moving forward.  It is still well ahead of the FY14 pro-forma EBITDA and we are now half way through the year.  Let's say that there is a further downgrade of equal magnitude in H2...the point still stands and the argument doesn't alter much.  The performance of Higher Ed contrasts with the catastrophe in MyVocation which is mostly concentrated in a few large contracts that seem to have been discontinued.  If the latest developments were a franchise killer for Higher Ed, this would be visible as more than a decline in growth rate.

FY15 will surprise on the downside from these figures. It factors things in which don't make sense from a central case...like winning back a stack of MyVocation contracts months after the business has been cratered.  My argument is that you can wipe out anything else in FY15 and beyond besides Higher Ed and the stock would still be fair/cheap.  So whatever it turns out to be, as long as the underlying contributions from the other bits don't go negative and stay there, FY15 can do whatever it wants.  The business has virtually no fixed costs.  This is great because implosion can be met with a reduction in the cost base relatively quickly.  If demand is not there, costs don't have to be either.  Hence, the skew is positive.  As discussed, it does not seem reasonable for everything other than High Ed to have been shuttered. It should be noted that what matters is actually underlying FY15.  FY15 has significant one-offs in there.  Some have been quantified.  Others, like not reducing the cost base instantaneously in Victoria, are not mentioned.

They had announced net debt of $55m although UBS suggests that this has moved to $65m.  In combination, this implies they still have a fair chunk of cash on balance sheet.  This is not a capital intensive business.  The available cash is about the size of the entire receivables book.  They run cash positive.  They can cut dividends. In a static state, it's fine. Subject to odd definitions in their debt covenants, it will pass those.  However, the lack of access to finance will limit their ability to grow via acquisition, which was the agglomeration business model at the outset.  They will need to grow organically.  It could be said that capital constraints will limit their ability to do more stupid things. Nothing relating to value-add via acquisitions is in these figures.


----------



## skc (7 December 2014)

TPI said:


> For higher ed, the announcement says "The Higher Education business continues to perform well, albeit slightly behind forecast".
> 
> FY15 guidance for Higher Education went from 16 to 14.8, so 7.5% lower than initially anticipated, which to me seems a bit more than "slightly" behind.
> 
> To me it suggests their overall FY15 estimates are a real ball park figure that they don't quite have a full grasp of, and that could easily surprise on the downside (or even upside).




My guess is that they beefed up the initial forecast to make the first downgrade look less bad...



TPI said:


> I also think the general choice of words in their announcements could be better, eg. "The company remains in a healthy financial position with fully drawn debt facilities of $120 million..." - notwithstanding their cash on hand, not sure how having a fully drawn debt facility with significantly  impaired ability to raise more debt or equity can be considered healthy?




They don't really need to raise more equity or debt. They are not expanding and there's limited sustaining investment. There's a large transition in business model (from 3rd party to in-house providers) that will however incurr large one-off expenses.



DeepState said:


> I've posted because I'm waiting for someone to make that ..."but have you considered"...kind of statement that flips the argument on its head or causes me to set it aside.  I'm actually expecting it because this kind of valuation gap is uncommon particularly in the absence of technological/development risks and monster leverage.




A few things that are hard to quantify at present.
- The change in business model (from 3rd party to inhouse) and what the new steady state looks like. I'd imagine ROE will take a hit.
- 2-3 class actions. I am unsure who pays the bill, but I can't imgaine they can get away with it... especially given that they raise capital whilst under investigation. 
- A bit of a long shot... the banks take control on the company knowing that it can be sold to recover 100% of the debt + some equity value.



DeepState said:


> Clearing all these hurdles predisposes me to acquiring more of this stock.  On a BS trading view, I'd say there may be a better opportunity to get set around Feb/Mar at the next debacle of a downgrade.  Maybe it gets released with the Half Year.  It's a question of when.




Also a question of what the share price would be by the time. It could easily float up 100% before the downgrade, and down 30% on that new news. Waht I am saying is that there's no guarantee that the price after the 3rd downgrade would be lower than today's price.



DeepState said:


> If anything, they are better considered as a target for consolidation at this time.  Given the share price and current circumstances, the scenario is realistic.




That's true but I can't readily think of a would-be acquirer. The private equity won't touch them as many exit strategies would remain close for some time. Trade sale, yes, but who? ASH? It's not that big and a VET with EV of $100m would be a large bite.



DeepState said:


> In the near term, there is likely distress selling going on right now.




230m shares on issue, with some 31m on escrow (I think) and Bret Whitford holding 18m (and not sold any from what I can see)... so only 181m is liquid. It's traded 103m volume in the 2 sessions since the re-open. So another 40-50m traded would means that most people who wants out at any price would definitely be out. 

It remains to be seen whether the share price can melt up slowly after that.


----------



## McLovin (7 December 2014)

DeepState said:


> My argument is that you can wipe out anything else in FY15 and beyond besides Higher Ed and the stock would still be fair/cheap.  So whatever it turns out to be, as long as the underlying contributions from the other bits don't go negative and stay there, FY15 can do whatever it wants.  The business has virtually no fixed costs.  This is great because implosion can be met with a reduction in the cost base relatively quickly.  If demand is not there, costs don't have to be either.




Ed Zachery. Great posts too, RY.

I'll try and post something more meaningful up tomorrow. Right now, I'm done.


----------



## DeepState (8 December 2014)

skc said:


> A few things that are hard to quantify at present.
> 
> - The change in business model (from 3rd party to inhouse) and what the new steady state looks like. I'd imagine ROE will take a hit.
> - 2-3 class actions. I am unsure who pays the bill, but I can't imgaine they can get away with it... especially given that they raise capital whilst under investigation.
> ...




Thanks as always for these valuable comments (and to others too).  It's fantastic to be able to work on a case together, in concrete terms, whatever our individual views are.  May there be many more.

My to do list:
- check the Endeavour model for outsourced third party exposure (this company targets a different segment within Higher Ed and Higher Ed is not VET.
- Litigation settlement expectations.  This is probably the biggest downside swing factor not in my numbers.  Will need to check the case history and understand whether any of this exposure is insured or otherwise defrayed in some way.  They make some reference to an exposure which they were led to believe was negligible prior to the bombshell.  Hopefully I can find out what the basis was.  If solid, they have a viable mitigant.  If not, there will be a settlement. 


On others, Avana was effectively the acquiring party in the IPO process and it was a minority.  Hence some sort of reverse merger amongst unequals backed by PE in some way is probably viable.  Not factoring anything for this anyway.  It's just an upside case without ascribed value.


The voluntary escrow period has not yet been passed.  How pissed off must they be?  No research required.


----------



## tech/a (8 December 2014)

Ive had a read of the discussion.

You guys obviously know your stuff on the company.
But I also notice a whole wad of what if's/this could
I haven't included points in the discussion between you.

There is no conclusion and there cant be yet.

This is the very reason I don't trade Fundamentally or have any interest in delving into fundamentals on a case by case basis.---too many variables--what ifs and that's the case with the Known's--how much don't the public know---and I think R/Y eluded to that in his to do list.

But while there is a suggestion that this MAY be a good buy there is a great deal of hesitation and for good reason.
I guess the intense discussion could lead to those interested to place on a watch list.

But its my opinion and observations from bottom picking in the past that by the time you see an answer to the fundamental possibilities affecting a stock you've missed the vast majority of any corrective move.

From a chart perspective Ive noticed a few volume spikes and these are the ones of interest.

I note that the initial fall to the 50c range didn't see massive selling---catching many no doubt by surprise and not wanting to liquidate a loss --hung on---the real volume appeared last week with 80 odd million. as it smashed lower.
In situations like these Ive found that it takes stocks like this forever to move forward as initial buyers trapped in badly losing positions take the opportunity to sell off on any move up---particularly a strong move.

Frustration at 3 steps forward then 4 back.
For me unless a number of things go away then you wont see accumulation--just minimising of loss.
So I suspect a long term ranging of this stock from 14c to 50c Could be lower if the could be's don't pan out.

Sure there could be a drink in there ---but not for me.

Seems like a lot of effort---particularly if you do this with a lot of stocks testing a bottom.


----------



## Ves (8 December 2014)

I think the business fundamentals are pretty much irrelevant at this point in time.  I have absolutely no faith in the thinking along the lines of this isn't an engineering business so it'll muddle through with its own cash flow.

It's pretty obvious that two immediate threats could wipe out 100% of the equity in this business:

1) The banks calling in the debt & assuming control of company after a covenant breach, especially with uncertainty around  point 2)

2) Unsuccessful class action result (Note: the litigator is also reviewing pre-IPO occurences, so could get very nasty fast) & director negligence breaching the insurance contracts.

It's probably highly unlikely that they could raise any more capital from the market to save themselves.

Yep,  there's a chance that 1) & 2) won't occur.... but sitting here I think it's absolutely impossible to get any gauge on that.

At this very point I don't think the company has much control over their own destiny.


----------



## galumay (8 December 2014)

I have taken a small position, my remaining concern for catastrophic risk is the legal action, the underlying business is good enough if they can pass the litigation hurdle. Therefore position is small and in my speccy portfolio.


----------



## McLovin (8 December 2014)

Founder has upped his stake from 9% to 15%.


----------



## tech/a (8 December 2014)

McLovin said:


> Founder has upped his stake from 9% to 15%.




Would have been smarter to sell out a year ago and buy in again today.

There was a company called Insight Trader years ago who made a big deal about notifying members when directors/owners increased their holdings.
Lasted until the crash and when you had a look back more equities fell than increased on this news.

Again it makes sense but in reality--


----------



## McLovin (8 December 2014)

tech/a said:


> Would have been smarter to sell out a year ago and buy in again today.




I doubt he was allowed to. I'm going through an IPO at the moment and the escrow agreement is 15 pages long.


----------



## tech/a (8 December 2014)

McLovin said:


> I doubt he was allowed to. I'm going through an IPO at the moment and the escrow agreement is 15 pages long.




It could be argued that he'd have known his position.
---thought of that myself


----------



## McLovin (8 December 2014)

tech/a said:


> It could be argued that he'd have known his position.
> ---thought of that myself




I don't follow, sorry.


----------



## tech/a (8 December 2014)

Obviously I'm missing something here?

As a founder I'm presuming he is a director.
As a director any sale before such a massive dive could be
viewed----Id have thought as insider trading.


----------



## McLovin (8 December 2014)

tech/a said:


> Obviously I'm missing something here?
> 
> As a founder I'm presuming he is a director.
> As a director any sale before such a massive dive could be
> viewed----Id have thought as insider trading.




He's not a director. There's some history with him and the current CEO.


----------



## DeepState (8 December 2014)

DeepState said:


> My to do list:
> - check the Endeavour model for outsourced third party exposure (this company targets a different segment within Higher Ed and Higher Ed is not VET.
> - Litigation settlement expectations.  This is probably the biggest downside swing factor not in my numbers.  Will need to check the case history and understand whether any of this exposure is insured or otherwise defrayed in some way.  They make some reference to an exposure which they were led to believe was negligible prior to the bombshell.  Hopefully I can find out what the basis was.  If solid, they have a viable mitigant.  If not, there will be a settlement.




Endeavour is all in house.  They are doing aaaaalright thank you very much.  No sign of contagion from BuildIt.  I'd be interested to know how many current and prospective students in Health and Beauty have even heard of BuildIt.

Litigation outcomes of $5-$25m are inferred from the case history of the last five years. That was for listed companies under failure to disclose and misleading conduct charges. Nothing comes vaguely close to the full face exposure (~240m). Lots of big names with big balance sheets. That's before recoveries from, say, PWC and Dawkins...or their insurers.  They will end up settling in a couple of years.  

Covenants remain an issue to review.  Have gotten some good colour of how the whole thing works.  Will get some more.  I'm not very comfortable.  However, if this thing breaches covenants, it is more for technical reasons than for any real risk of cashflow or accounting default.  A rebuild of the cash drain suggests that they are unlikely to hit the floor unless you are anticipating another 2x proportionate disasters of the H1 magnitude. 

Still looks cheap unless there is around 50% wipe out risk for zero recovery. Roughly assuming purchase value of Endeavour and Real remain intact (no value for the other little ones) and half of the bit that BAWM didn't kill remains alive with outer band for litigation (with zero recovery).  That doesn't look reasonable as a central case at all.  This is not a high NTA business.  Consequently equity and debt are more closely aligned.  The sorts of things I would want as a banker are not all that different to what I would want as an equity holder.  Cut to the chase as opposed to the bone, pay down debt.


----------



## AUSG (9 December 2014)

DeepState said:


> This is not a high NTA business.  Consequently equity and debt are more closely aligned.  The sorts of things I would want as a banker are not all that different to what I would want as an equity holder.




Sorry, newbie question here.

The lack of of NTA means that there is nothing for the banks to seize in the event of a default, so their interests are best served by keeping the company alive to keep paying interest and debt. Thus their interests are aligned with shareholders. Is my understanding correct?

Thank in advance


----------



## DeepState (9 December 2014)

AUSG said:


> Sorry, newbie question here.
> 
> The lack of of NTA means that there is nothing for the banks to seize in the event of a default, so their interests are best served by keeping the company alive to keep paying interest and debt. Thus their interests are aligned with shareholders. Is my understanding correct?
> 
> Thank in advance




You clearly aren't going to be a newbie for long.  Shall revert with more detail on how all this might work when I get more.  It's the final piece for me.  It's only a small position for me.  Other fish to fry...


----------



## DeepState (9 December 2014)

What I learned today:

Consensus is that the interest cover is based on EBITDA.  The debt ratio is based on market value, not book.

There is divergent opinion as to whether the company would be left alone, worked out or scorched in the event of covenant breach.  It would certainly be scorched in the event of high physical collateral.

There is no such thing as a standard covenant.  So it is unclear, and will not be revealed, what the specific detail is.


Thinking:

In the event of a total scorch the earth, the company would not be shut down in one second with all remaining tables and chairs brought to a second hand furniture place. If they did that, who would ever do business with them ever again?  It also crystalises the absolute worst case outcome. - total wipe out.  It would also be completely bone-headed.  If they want to scorch the earth, administrators would be brought in for an orderly sale of the operating businesses.  It is not actually insolvent.

The alternative is to take over management.  I can't see that.  Banks just want their money back and an insertion of management would not be for the purposes of a business turnaround.  It would be to liquidate in an orderly fashion.

If there is a breach of covenant and it leads to something material, it will need to be reported some time in mid-January after the half-year review.  This is the time when any breach would occur and any remediation would be announced.  After this, a major source of uncertainty is removed. 

Valuation:

Nothing complex is required here.  The company was floated at about $200m (much more, but I'll cut this stub off to start harsh).  Half of it was BAWM.  Assume a total write off.  The other half has Ebola.  It's now worth $50m.  

In the recent period, the company acquired Real for $57m and Endeavour for $84m.  

It has net debt of $55m (let's use UBS management call figure of $65m).  That's from a fully drawn facility of $123m.  So they've got cash outstanding of $58m balanced against $123m in debt.  Let's say the business actually needs cash of $20m which was what is was at FY2014 (but this was actually excessive - another harsh move).  Endeavour had virtually none.  In other words, stable long term debt is $85m at present.  But, there as been a draw on cash because of the restructure that has caused mistiming between earnings and cash in H1.  That was worth $20m....so we go back to long term to $65m.  Still with me?

Let's blow out the litigation figure.  They're completely toast.  It would be an Australian banner case and we should buy shares in Slater & Gordon as a pair trade.   $50m with no recovery.

Franking balance is worth $5m or so.  They aren't going to be distributing that in a hurry, but it is an asset that an acquirer would get.

Total asset value based on acquisitions, assuming BAWM is rubble and the rest at IPO is 50% is worth $50m.  Real and Endeavour are worth $138m.  Add $3m for the chump change..  The total asset base is $191m based on purchase prices in the last 18 months.  About half of this was within the last 7 months.  

Nonetheless, let's go bongo.  The liquidation value is 67% of the impaired purchase price (per above).  Busted asset value is $123m.  Take off $50m for Australia's most successful litigation case of the decade and decade to come.  We get $73m.

Take off stable debt on harsh cash assumptions, we get $8m.  Add franking....and our valuation becomes $13m.  That is what the company is worth if the sky fell on it. Got up. And fell on it again, this time from the top turn-buckle. The bankers would be made whole.  There would be 30% recovery for equity holders.

Armageddon.

On the same basis where we work on central case valuations based on recent transactions and, say, 2/3rds impairment of non-BAWM and 80% impairment of BAWM (close all the myVocation bit and a chunk of the RTO bit), central case litigation of $10m...everything else as is...we get:    like...$190m

So, if there are only two states of the world...Impaired IPO Value ("IAV") and Liquidation ("BLACK TOAST"), the current market valuation is pricing in an 85% chance of BLACK TOAST.  Maybe. Maybe not.  Could be some upside methinks.  

Anyway, I picked up some more.  I'll look at it again in January.  Whatever happens, I can say I was educated by the College of Natural Health.


----------



## VSntchr (24 December 2014)

More information on the Vocation story today.
$35m in debt shaved off by paying down from cash balance, but the big thing to note is they state: FULL SUPPORT OF BANK GROUP.

No dividend coming up - as expected.
Potential intangibles writedown - also pretty much expected.


----------



## galumay (24 December 2014)

VSntchr said:


> but the big thing to note is they state: FULL SUPPORT OF BANK GROUP.




Agreed, that goes a significant way to mitigating the catostrophic risk IMO, happy to continue to hold and see if there is a turnaround story in there somewhere!


----------



## craft (24 December 2014)

VSntchr said:


> More information on the Vocation story today.
> $35m in debt shaved off by paying down from cash balance, but the big thing to note is they state: FULL SUPPORT OF BANK GROUP.
> 
> No dividend coming up - as expected.
> Potential intangibles writedown - also pretty much expected.




Warning – devil’s advocate post.

I bet they wouldn’t have paid back the 35M if the bank didn’t force them to.

Companies always say they have full support – until they don’t.

You will only find out that they don’t during the trading halt that puts them into administration. (If it goes that way)

We can argue about the probabilities of the bank pulling support, but I don’t think it’s reasonable to say there is no risk of that happening. 

The class action around the last raising is the real risk issue in this case. Was it valid could it be unwound in its entirety if management withheld information?  What’s the probability of outcome. What’s the probability of magnitude What’s the insurance cover detail? Does it exist, what is the excess, does it cover fraudulent / deceitful actions?  Where will a successful plaintiff’s claim fall in relation to the banks claims?  Most importantly,what does the bank think of all the above? – They are unlikely to wait for a trial outcome to secure their debts if they think there will be a large negative outcome.  VET will be in breach of their covenants so the banks have ultimate control. 

I’m not saying don’t take an informed risk. Just that’s its pretty binary bet at this stage with one leg being 100% lose – position size accordingly.


----------



## DeepState (28 December 2014)

craft said:


> Warning – devil’s advocate post.
> 
> I’m not saying don’t take an informed risk. Just that’s its pretty binary bet at this stage with one leg being 100% lose – position size accordingly.




+1.  Thanks.

---- below was written previously whilst out of range ----

Just before Christmas (can you believe it), VET-AU announced the outcomes of negotiations with its banking consortium.  Excess cash above $20m (the amount assumed in the BLACK TOAST scenario as being a comfortable cash holding) was applied to reduce the outstanding balance and bring the facility down to $85m, now regarded as fully drawn.  This is in-line with the balance sheet estimates for tangible cash assets as previously posted.  The lack of borrowing capacity in a gross sense does not impact the break up valuations.  It does impact cashflow buffer for ongoing concern valuations.

Key points for me:
⦁	This stock remains deeply troubled but has passed a major hurdle in the near term.
⦁	The facilility was in breach.  The bankers ran the show.
⦁	The bankers could have cleaned their clock...but did not.  There isn't even any mention of punitive interest rates. Surely this would have been mentioned if so??
⦁	They did have a cash balance as per BLACK TOAST, confirming a key aspect of underlying financials under a disaster scenario.
⦁	They must have positive cashflow expectations sufficient to satisfy the bankers or the facility would have been jammed right now.
⦁	The facility remained essentially fully drawn in terms of net cash as it was previously and available despite knowledge of two class actions outstanding.  The bankers would know more about this than the public at large.  The bankers remain in place.
⦁	Management went fully drawn in terms of the gross exposure, increasing excess cash balance, to try and keep the facility at maximum knowing that something was going badly wrong. This simple rouse was reversed by the bankers.
⦁	They will take a stack of non-cash write-downs as expected.  This will be factored into the facility arrangements so reported earnings hits will not lead to another facility setback unless driven or accompanied by a deterioration of underlying EBITDA. There would be a credible plan to protect debt providers in the near term at least.  It will be interesting to see how much they write down things.  If it is worse than the figures implied by the BLACK TOAST scenario, a review of the ashes of this stock will be required as the existing thesis will be revealed as horse manure under the light cover of analysis.  The (step towards the) truth will be revealed along with a reduction in underlying EBITDA guidance in the New Year.  I suspect they will go hard at expense reduction and take another set of one-off charges associated with workforce reduction.  The figures did not suggest the H1 cuts were that deep and were hoping for a recovery rather than reflecting the new, more likely, baseline.
⦁	Dividend has been cancelled, as you would expect in this situation, to preserve cash. A good move, if obvious.  At least it wasn't a bad move.
⦁	This all occured as the CFO was in the process of leaving the firm and a temp replacement was being blooded in under fire.  I'm sure the queue for the permanent position stretches around the campus - hehe. It is hard to say if he was pushed or resigned under pressure from the bankers.  Probably found it all too much and pulled the pin.
⦁	They will be forced to cash drain the business with essentially no reasonable scenario for further acquisitions at any valuation.  Excellent. It clarifies the valuation proposition.  I wonder, though, if sales of existing busineses are in planning.  If these are tested and are favourable, expect a massive rally.  I'd say the scenario should be a live one under consideration and bids might be forthcoming.  
⦁	This disaster story remains intact...but is one that continues to live and breathe and is largely free to roam within an organic growth environment. Furthermore, its shortcomings are beginning to be better understood.  This is a major piece of uncertainty that has been passed.  That is far from saying the coast is clear and this is a blue ribboned ride to a multi-bagger.
⦁	Management remains in place. We are not in a liquidation/administration scenario. That's saying something.  OK for now - on a short leash.  I still feel that there is a degree of alignment between bankers and equity in this situation and am much more relaxed (if that's the word) than I would be for a high tangible asset situation where I would just write my investment off and move on.  Right now, the bankers are forcing management to act in an equity friendly manner.


----------



## Triathlete (29 December 2014)

VSntchr said:


> More information on the Vocation story today.
> $35m in debt shaved off by paying down from cash balance, but the big thing to note is they state: FULL SUPPORT OF BANK GROUP.
> 
> No dividend coming up - as expected.
> Potential intangibles writedown - also pretty much expected.





You know what the rule of thumb says: If a company stops paying a dividend it is time to get out!!
Let them sort there mess out first, then get back in....maybe.


----------



## ROE (12 January 2015)

Close to 1 bagger since the last low ...more to go


----------



## ROE (12 January 2015)

Triathlete said:


> You know what the rule of thumb says: If a company stops paying a dividend it is time to get out!!
> Let them sort there mess out first, then get back in....maybe.




General true but depending on the business ..
FLT stop paying dividend when it was $4ish during the GFC .... 
CCP reduce dividend next to nothing and people said it going bankrupt when it trades for $1

While everyone bailed out, directors buy in, the rest is history


----------



## Triathlete (12 January 2015)

ROE said:


> Close to 1 bagger since the last low ...more to go




Congratulations on your 1  bagger

Unfortunately I am not much of a speculator and a company that loses 86% of its value and stops paying a dividend does not give me much confidence at this stage although if it closes above 29c it may confirm a short term uptrend has commenced wait and see....good luck with it anyway.


----------



## galumay (12 January 2015)

ROE said:


> Close to 1 bagger since the last low ...more to go




LOL! yes, i put some in at 19c so pretty happy when it tipped 30c today, we are a way form being out of the woods, but the deal with the banks helped the cause.

It looks like another case of the irrational market mispricing a change in the fundamentals, hoorah for that!


----------



## galumay (12 January 2015)

Some serious buying by 2 entities in the last few days, no doubt that volume has helped push the price along. Mayfair Management and Gerhana, not sure whether they are holding companys for directors?


----------



## skc (19 January 2015)

DeepState said:


> If there is a breach of covenant and it leads to something material, it will need to be reported some time in mid-January after the half-year review.  This is the time when any breach would occur and any remediation would be announced.  After this, a major source of uncertainty is removed.




In trading halt today pending a trading update: looks like you are getting the timing right. Let's see what the outcome is.


----------



## TPI (21 January 2015)

DeepState, interested in your thoughts on this now they are in suspension? Can any good come of this?


----------



## JTLP (21 January 2015)

TPI said:


> DeepState, interested in your thoughts on this now they are in suspension? Can any good come of this?




Now I'm not DeepState..but this doesn't sound too good:

Vocation has extended its trading halt to January 28 at the earliest, pending a board meeting “to evaluate the progress of the financial reviews and discussions with its financiers” which is scheduled for January 27.
Even then, the troubled education services provided noted in its ASX statement this morning that “the significant nature of the reviews underway and the discussions with financiers means that the company will only do so [make an announcement] if able on a fully informed basis”.

Read more: http://www.smh.com.au/business/mark...day-of-2015-20150121-3oj1f.html#ixzz3PRrtUjwC


----------



## DeepState (21 January 2015)

TPI said:


> DeepState, interested in your thoughts on this now they are in suspension? Can any good come of this?




Theoretically, it could.  In reality?  The fact that they have ongoing issues with their finance arrangements so soon after the last announcement is weird.  Weird, as in, not good. It was only a month ago that the facility was adjusted. Less. They will have to take some massive write-downs so a suspension pending such a material announcement would have been reasonable, especially given that they are a target of two class actions for not providing adequate disclosure.

All this hangs off the debt arrangements.  It's a big X factor with class actions being the next. We have next to no visibility on the detail of the debt so the range of possible outcomes is wide. They have not mentioned the class actions, but these take years to sort out. I still think the coin is loaded to heads, but tails could easily be pulled. 

The following is some blather for your amusement ahead of the announcement and possible re-listing in a week:


If one member of the syndicate pulls, the others are toast.  So any move tends to be coordinated;
Perhaps there was some sort of misrepresentation made by the company to the financiers that has come to light.  The arrangements were being reviewed as the CFO quit and a new guy just started.  Stinkers take a little bit of time to emerge and the new guy does not have to carry the can for past misdeeds.  If this occurs, the former CFO should be sued and jailed.  However, we will take a hit;
If all was as presented in Dec then what we are looking at here is different.  It could relate to creating additional credit lines perhaps (outside case).  More central will be the write downs for earnings expectations and carrying values.  It is possible that these are so horrendous that they need to go back to the bankers again in a negative sense (more likely).  Most central is that this was always in the planning.  If I was their banker, I would do exactly this...tighten the surplus loans facility, keep the existing in place given expectations of positive cash, and review the situation at every material development.  A material development is the determination of the carrying values of businesses and revised guidance. So, in many ways, why is this surprising?

The thing I am most concerned about it that the cash drain is worse that anyone had been saying or assuming three weeks ago. That is Armageddon.  Otherwise, if the issue is mostly non-cash write off, it should be ok.  

With the start of a new year, course intakes would be gaining visibility and maybe these are not favourable.  This is the contagion scenario.  I had checked up on this but, who knows? More data arrives and you do what you do.

What I am looking for is a scenario where the bankers force these guys to cutting out the parts of the businesses which have become smashed and forget about rebuilding them. The last data announced suggested some sort of meaningful rebound was hoped for. Then, milk cash from the business.  Don't buy anything new.  

What could happen is that the bankers are not comfortable and will choose to liquidate.  The alternative which was discussed in my investigations is that they will sell their debt to a hedge fund or some other specialized work-out vehicle. They will sell the businesses as running concerns where possible.  Shuttering is not sensible.

Let's wait and see.  For me, the position is speculative and sized accordingly (you'd laugh). Anything can happen including total write-off.  We might be getting a VET-style education yet not be in line for a refund.  Whatever the case, we can't trade it!  However, we could form an ASF grey-market.... shall we say 12.5/20?


----------



## TPI (22 January 2015)

Thanks DeepState, what are your thoughts on a capital raising to wipe out the debt and increase working capital?

I was thinking that the significant shareholders and institutional level shareholders, who are already heavily invested in the stock, would be likely to support it even if somewhat reluctantly, as it may help support the value of their shareholding by giving the company greater financial flexibility to trade out of their current predicament. 

If they didn't support it they could potentially say bye byes to their stakes in the company if the financial situation gets worse and the banks decide to close up shop?

Here's something below from Morningstar showing the heavy substantial shareholder buying in recent months.

The Future Fund and IOOF are still listed as substantial shareholders.


----------



## DeepState (22 January 2015)

TPI said:


> Thanks DeepState, what are your thoughts on a capital raising to wipe out the debt and increase working capital?
> 
> I was thinking that the significant shareholders and institutional level shareholders, who are already heavily invested in the stock, would be likely to support it even if somewhat reluctantly, as it may help support the value of their shareholding by giving the company greater financial flexibility to trade out of their current predicament.
> 
> ...




I think it is possible for a deeply discounted equity raising to take place in that scenario and not for expansion purposes.  Certainly, I would take up my allotment as I think the financial uncertainty relating to the debt arrangements is causing a huge discount to the price. If not diluted, I would gladly take out this uncertainty. I hope they do it. It would not be adequate to have one of those accelerated insto placements only so it would come to retail as well.  It would be one of those 1 (or more):1 style recapitalization fund raising efforts.  The prior retail placement was scrapped as the price fell away.

Really, this is probably happening because the H2 FY15 will report yet another EBITDA loss as opposed to the previous expectation which was total BS. This is expected.  Some sort of suspension pending announcement of the review and the H1 results was always on the cards. The key part that pisses me off is the continued mention of a potential revision to debt arrangements so soon after the last one was announced only 3 weeks ago.  That's almost as bad as the SNB announcing the peg would hold and then breaking it a couple of days later.  Except not quite as systemically important. 

The key question is what is the underlying cash expectation.  Everything hangs off it.  This business is almost entirely variable cost, so it is within their control to cut and cut until this is achieved.  Even if it is the detriment of long term value to survive the cash requirement, that's what they have to do. The belief being that it doesn't destroy the entire franchise as some of it must surely be alright. Will they do this though?  The bankers will force them, I think.  

Future Fund and IOOF are essentially fund of funds so it won't generally be them which decides whether to participate as this is delegated.  Still, as a number of directly significant insto managers dumped their holdings, it is interesting to note that underlying that are clearly some managers who are accumulating though not yet required to make substantial holding disclosures.

In my investigations, certain leading credit managers suggested a scenario would be the appointment of a new CEO who comes in on the basis of a capital raising and a slash and burn agenda as per my preference.  Anyone up for the challenge?  I'd say this is a very viable scenario too.

There was an article written in The Australian today about VET-AU.  Looks like they have stuffed up again with an attempt at re-branding.  Oh, the pain.  However, they had nice things to say about the new CFO - albeit he is currently only temporarily filling this position at present.  A couple of other articles just repeat the news release.


----------



## tinhat (22 January 2015)

So John Dawkins turned out to be as good a company chair as he was education minister. He was studying law part time while education minister as I recall. Why can't this country turn out just one decent education minister?


----------



## TPI (23 January 2015)

DeepState said:


> I think it is possible for a deeply discounted equity raising to take place in that scenario and not for expansion purposes.  Certainly, I would take up my allotment as I think the financial uncertainty relating to the debt arrangements is causing a huge discount to the price. If not diluted, I would gladly take out this uncertainty. I hope they do it. It would not be adequate to have one of those accelerated insto placements only so it would come to retail as well.  It would be one of those 1 (or more):1 style recapitalization fund raising efforts.  The prior retail placement was scrapped as the price fell away.
> 
> Really, this is probably happening because the H2 FY15 will report yet another EBITDA loss as opposed to the previous expectation which was total BS. This is expected.  Some sort of suspension pending announcement of the review and the H1 results was always on the cards. The key part that pisses me off is the continued mention of a potential revision to debt arrangements so soon after the last one was announced only 3 weeks ago.  That's almost as bad as the SNB announcing the peg would hold and then breaking it a couple of days later.  Except not quite as systemically important.
> 
> ...




Thanks DeepState, we'll wait and see what happens next week, should be very interesting!


----------



## TPI (28 January 2015)

Interesting update today, a possible light at the end of the tunnel perhaps?

DeepState, looks like asset sales, mergers and recapitalisation are all on the cards now, with some level of banking support and modest underlying performance... your thoughts?

Full year FY15 figures could be anyone's guess at this stage.


----------



## skc (28 January 2015)

What does today's announcement mean?

The underlying numbers are bad... while not unexpected you have to wonder if the banks have had the same expectations. i.e. Surely VET couldn't release one set of numbers in public and have another set of numbers for the  creditors?!

So now VET is saying...







> “With the ongoing support of our banks, Vocation has initiated a strategic assessment of the Company structure with the view to the possible sale of some assets”, Mr Halley said.




My read is that it is close enough to a forced administration in everything except in name. In other words... "The banks are making us sell assets". The question is now whether there'd be anything left for equity holders (apart from a contingent liability from the class action) at the end of it.

On a brighter note... the CEO is finally stepping away. But did VET really have to say this about the departure?


> “The Board thanks Mark for his contribution to the formation of the Group and his work as Group CEO, as well as the *integrity *and commitment he has shown to the Company during difficult circumstances”, Mr Halley said.




P.S. 333 Capital is the corporate advisory arm of KordaMentha... may be just an unfortunate coincidence :dunno:


----------



## DeepState (28 January 2015)

TPI said:


> Interesting update today, a possible light at the end of the tunnel perhaps?




Probably a train.  I can hear the horn complete with rising pitch.



TPI said:


> DeepState, looks like asset sales, mergers and recapitalisation are all on the cards now, with some level of banking support and modest underlying performance... your thoughts?




Everything is on the table.  However, with a relatively new Chair, temporary (but hard-nosed) CFO, outgoing CEO and irate bankers, whatever is on the table is likely to be liquidated until the bankers are made whole.

This accounting development is atrocious.  A class action is basically being agreed to when they restate the FY14.  I am lining up in the class action to sue myself.  I had expected major downgrades to FY15 expectations but not restatements. Sorry, we lied. As did our incompetent, syncophantic, external auditor.  Now that the previous liar has gone, we can reveal the truth as we now see it. Meanwhile the guy who signed the FY14 accounts is calling for reforms to universities, having resigned last year. No wonder cash drew down faster than earnings in H1.  H1 numbers were fabricated or compiled with little regard to what was actually happening...like revenue not arriving or settlement figures that were magically higher than they had understood them to be a few weeks ago.  What?  From $5m to $17.8m?  WHAT?!! Each of those was a very large component of my ascribed valuation.  The prior CFO must not have been able to count on his own fingers.  Utterly and unequivocally disgraceful.

Apart from what shocked me on the above, what shocks me more is the extent of EBITDA in FY2014 which relates to 'discontinued businesses'.  That is a shocker on top of a shocker.  Essentially the great bulk of the IPO company has now been closed with the remaining encountering some downdraft in enrolment numbers too uncertain to talk about right now. You cannot fix what is dead. I had thought something like 2/3rds to 3/4ths of the IPO company was trashed.  It is closer to 90%. Talk about contagion. Not bad for a year’s work.

The only bright (less dark) spark is really the Endeavour Higher Ed part.  However, its valuation is unlikely to cover the debt outstanding.  Whilst it is probably unreasonable to value everything else at zero, the residual value relates to largely the Real Institute component (purchased for $57m in 31 May 2014), the Vocational Ed component of Endeavour and the balance of the IPO company from which admin fees and a figure like $20m for misleading and deceptive behavior might be taken.  There are tax assets available too (haha…I might ignore those, although VET-AU will likely become a tax asset for me). It likely still leaves a positive residual value, but not justifying the last price traded.

It's not a good development.  I have been defrauded and underestimated the extent of inability to contain the effects of a negative development in a key part of the business.  They are both large and negative developments.  Either one of those alone would have been ‘alright’ given the margins available on what was ‘known’ at the time of my decision to deploy capital. I can only act on what I know at the time, so don’t overly regret that decision at the time even with the benefit of hindsight.  You get good breaks and bad ones. However, having both occur is a killer to the business model and valuation premise. There is a significant chance this thing will never re-list. They will more than likely enter into the kind of involuntary administration known outwardly as voluntary administration. 

I am mentally writing off my 0.1%, at cost, portfolio investment although I expect to get some form of residual payment back eventually. I do size portfolio exposure to perceived risk, hence the fairly tiny exposure to this sprawling mess from the outset. Something like 5-10 cents looks about right.  Ultimately, I doubt I will have an opportunity to act on what has developed.  

This has truly sucked and is hereby inducted into the Hall of Shame subject to your objection. Is there a thread for that?  If not, one should be established.



TPI said:


> Full year FY15 figures could be anyone's guess at this stage.




My guess is that a meaningful FY15 account will not be produced.


----------



## craft (29 January 2015)

DeepState said:


> my 0.1%, at cost, portfolio investment




Hi Deep state.

Obviously things have taken a turn for the worse and whilst its a positive that it's currently in defacto administration rather then actual, there's a reasonable chance this thing won't come back on the board, but at the risk of being off topic what I'm really interested in is if you thought at any stage the potential for upside on 0.1% of your portfolio justified the time spent on this company? 

I ask because I have waxed and waned but I now have as a *rule*, a minimum exposure (at end of building position) to avoid wasting time investigating/managing insignificant exposures. 

Your thoughts?


----------



## McLovin (29 January 2015)

The announcement on 4 December was essentially not worth the paper it was written on. The fall off in higher education is pretty concerning because I made the assumption, incorrectly as it were, that the businesses were somewhat siloed from eachother, but it seems that it's not completely contained. My thesis was that if everything else was bombed Endeavour and Real would be able to stand on their own two feet (with a cap raising for the brave, to take the debt down). This was about 1% of my portfolio, so I won't be starving. If it doesn't come back it's going to be one of the more spectacular implosions I've witnessed.

The only positive I can take is that Stewart Cummins (the new straight talking CFO) kept the wolves at bay at TPI and the fact that they've produced this review and the banks are still talking says something, not much though!


----------



## ROE (29 January 2015)

Things doesn't look good, CEO gone.
probably need equity injection if things don't turn in the next 6-12 months

but I think this is it, the new management want to clear the deck
bring everything out from the closet and start fresh again.

as long as they can stay afloat I believe this business can turn


----------



## DeepState (30 January 2015)

craft said:


> Hi Deep state.
> 
> Obviously things have taken a turn for the worse and whilst its a positive that it's currently in defacto administration rather then actual, there's a reasonable chance this thing won't come back on the board, but at the risk of being off topic what I'm really interested in is if you thought at any stage the potential for upside on 0.1% of your portfolio justified the time spent on this company?
> 
> ...




In my/our personal situation our investment objectives are quite modest relative to the targets and expectations frequently expressed in this forum.  I have retired from executive office.  Whilst PV of future income was once my largest asset, the PV of it now is essentially zero.  As a result, the aggression level of my portfolio is somewhat de-tuned.  Further, it is so because my objective is really more about real wealth preservation rather than trying to materially increase my real wealth in any near term sense.

So, if we begin by saying that the real return objective is something like 6% pa, we end up with something like an 8-9% long term pre-tax return expectation/target(more accurate).

As recorded on this thread, I saw the release of H1 15 results as a key information date in relation to securing a decent set of accounts to work from and to assess a key variable relating to the banking covenants.  I was looking at this as an opportunity to increase exposure (maybe to around 0.3% of portfolio).  Your question would still be pertinent in any case.

If I am expecting/targeting a return like 8% per annum from all other parts of my investment arrangements, what am I to put at risk for what is an essentially binary outcome?  My question to myself at the time was, “if this piece of cr@p went to zero, what would I be prepared to lose and not be too concerned?” So, if you consider that 8% is the sum of a stack of moving parts (in my case, I own exposure to just about anything with a positive expected return including ETFs with highly diversified underlying).  An exposure to a major Australian bank is about 0.4% of my portfolio, to give you an idea.  

So, if a bad outcome for an Australian bank is to lose 25%, that would be about 0.1%.  Voila.  If, as the situation became clearer such that I was surer about the ability to assess VET-AU’s future and, in my view, the outcomes weren’t so binary, I would have scaled accordingly.  

I think there is a balance between proportion and dollar value.  As a proportion, this was clearly tiny. As a dollar amount, the potential upside was judged to be worth my effort at the time.  It was only a few days and the upside was whatever.  In aggregate, my daily implied rate was worth it in an expectations sense.  If you consider that there are 365 days in a year, where I work maybe 300 of them (yep, still can’t let go), then we are talking about 1% of my working year.  If I am expecting 8% overall return, one percent of that is 0.08% - which is to suggest I was hoping for something like (less than) a one-bagger off my 0.1% investment to justify it.  For a joke, the stock did reach 28 cents and I bought in at 18.5 cents, so it was pretty close to the required return!  Well, joke’s on me.

I think another point is that it’s not like my portfolio is loaded with these special situations.  It’s not.  I fully agree with you on the need for focused attention.  Where we might differ is that a position for you might represent a single stock.  For me, it is mostly a risk factor expressed as large quantities of securities.  VET-AU was an individual speculative position and sized as such.  As it turns out, it was a total waste of time and has become a tax deduction.


---

My take-outs from this experience:

This was catching a falling knife.  I justified it on the basis of a break up value informed on the basis of the annual reports, disclosures relating to subsequent acquisitions and statements related to the impact of the settlement.  Based on the information available and disclosed, the assessment was basically correct.

I understood the position to be high risk from the perspective of operations, finance and litigation.  The operational elements were supposed to be disclosed.  I made allowance for massive write-downs for H2 15 outlooks.  I assumed that cash would be positive on the basis that this was what was actually occurring and supposed one-off impacts from the settlement would wash through.  What was disclosed was not of a company killer magnitude at all.  The extent of business closures outside of BAWN were not indicated as overwhelming,  I did checks on contagion to the Endeavour business, their jewel in the crown, which suggested the contagion was not hitting them.  I also checked with several people in the credit industry who told me variously about how the caveats would actually work and what the underlying detail might be as the disclosures are wholly inadequate for this purpose.

I had expected that the bankers would stay supportive and allow the break-up value to be realized.  In essence, that’s what came out just before Christmas.  The bankers were clearly operating on what I thought to be true. They are insiders. They stayed. The stock subsequently rallied as if to confirm the thesis.  I had made allowance for the fact that cash would rebound based on the excessive drawdown from revised earnings expectations that were formed only weeks prior to the end of H1.  That was worth $10m. Tax assets still had value.  Genuine margins allowing for visible risks were actually present through this time, based on the information disclosed relating to history.

Then, just weeks later, we discover the extent of fraud.  It is fraud.  An additional $12m in settlement costs that cropped out of no-where.  A chunk of it backdated to FY14 despite no mention of any adverse material developments in the annual report.  A further $5m in professional fees for litigation and finance arrangements which just materialized from no-where.  The massive increase in settlement impact and disclosure of actual discontinued businesses (which was massively at odds with the H2 FY15 forecasts and baseline) point to nothing other than deceptive and misleading behavior.  The perpetrators should be individually brought to account.  This is not incompetence.  It was against the law, in my opinion.

Thus, the biggest risk did not turn out to be anything other than fraud.

Should I have allowed for this?  Well, alarm bells were definitely visible.  Class actions were outstanding, relating to lack of timely disclosure.  A chairman departs following a downgrade.  A CFO resigns just as we head into banker negotiations.  Earnings expectations kept getting ratcheted downwards. Actual disclosures were expressed in ways which made analysis a little challenging rather than being very clear as the latest one actually was.  This was clearly a high risk proposition and totally stank.  However, I was working off historical accounting data and heavily discounted announced future expectations for growth…not for the fact that the real starting base itself was way below where it was portrayed to be.  If you like, I allowed for incompetent.  All they needed to do was bring in 333 Capital and sell everything off at patient prices.  What I got was fraud. Here lies my massive mistake.

What has worked in my favour was my belief that each edge we have is generally small and to size my positions in the context of a wider, ocean-liner (as opposed to speed boat), portfolio.  Overall, these small edges have added up for me.  This loss is regrettable.  Fraud of this magnitude is infrequent.  I will encounter it again and have actually profited from short selling some in my prior life where fraud was not in the thesis but proved a windfall.  It cuts both ways and this stuff washes out over time.  Time to move on.


----------



## Ves (30 January 2015)

Hi DeepState

I really admire your honesty on this one and publically sharing where you thought you went wrong.   It is great to not only see someone who is good at winning,  but knows how to be a good loser (no offense, of course!!).  

I think we need more of it in today's society.  We all screw up (often),  but most people are scared to show any sign of weakness and try to hide it.

I also like your conservative approach overall:  maybe we will talk about it at some point. But not here.

As an aside:  I feel like Forge Group and Vocation have been good lessons for me early in my investing career.  I avoided both due to perceived risks,  but watched them both closely for future reference.

Cheers
V


----------



## craft (30 January 2015)

DeepState said:


> If I am expecting/targeting a return like 8% per annum from all other parts of my investment arrangements, what am I to put at risk for what is an essentially binary outcome?  My question to myself at the time was, “if this piece of cr@p went to zero, what would I be prepared to lose and not be too concerned?” So, if you consider that 8% is the sum of a stack of moving parts (in my case, I own exposure to just about anything with a positive expected return including ETFs with highly diversified underlying).  An exposure to a major Australian bank is about 0.4% of my portfolio, to give you an idea.
> 
> So, if a bad outcome for an Australian bank is to lose 25%, that would be about 0.1%.  Voila.  If, as the situation became clearer such that I was surer about the ability to assess VET-AU’s future and, in my view, the outcomes weren’t so binary, I would have scaled accordingly.
> 
> I think there is a balance between proportion and dollar value.  As a proportion, this was clearly tiny. As a dollar amount, the potential upside was judged to be worth my effort at the time.  It was only a few days and the upside was whatever.  In aggregate, my daily implied rate was worth it in an expectations sense.  If you consider that there are 365 days in a year, where I work maybe 300 of them (yep, still can’t let go), then we are talking about 1% of my working year.  If I am expecting 8% overall return, one percent of that is 0.08% - which is to suggest I was hoping for something like (less than) a one-bagger off my 0.1% investment to justify it.  For a joke, the stock did reach 28 cents and I bought in at 18.5 cents, so it was pretty close to the required return!  Well, joke’s on me.




Hi Deep State

Thanks for your reply and I Echo Ves’s comments as well.

I understand your response 

The counter point is; would it be more efficient to spend that time on the other 99.9% of the portfolio to try and extract that extra .08%?  My conclusion is that it’s better (yet less exciting) to produce more overall dollars by concentrating the time on the efficiency of the whole portfolio rather than chasing spectacular returns from a tiny proportion of the portfolio.  [yet like a moth to the flames – I’m still attracted to situations like VET, even if all I can do now due to my minimum exposure rule is live it vicariously, which is what I have done through some excellent posts in this thread.]




DeepState said:


> Time to move on.


----------



## seattle0099 (10 February 2015)

I don't think this company will have any future. In my point of view, they may announce bankrupt soon. 

We are one of their students brokers. Normally, they should issue a student status statement for us in every month, as this statement is relating to our payment. Now, it has been long time since we got statement last time. 

We still have connection with their management 2 weeks ago. However, when last time we mentioned about the statement, their management had blocked our contact. 

Their existing RTOs may focus on business related courses, but we all know they have very low demand.


----------



## galumay (12 February 2015)

Good news today! A further suspension to trading, at least until the 23/2, so we wont realise our losses for at least 2 weeks!!!   :grenade:


----------



## ROE (12 February 2015)

galumay said:


> Good news today! A further suspension to trading, at least until the 23/2, so we wont realise our losses for at least 2 weeks!!!   :grenade:




hahaha  ... 

I think they come out of it dont worry, if they close up shop they have done it by now
also AFR article feature the founder has 15% and he has his own deal table for consideration

and that involve keeping the business a float via re-cap  and he said investors will wear the pain
for a  while but he can turn and regain value as he know some of the business still very good.

this things goes I lose 50% of my trading gain this year so have to content with 50% less  profit 
but I dont intend to lose on this one


----------



## galumay (12 February 2015)

ROE said:


> hahaha  ...
> 
> I think they come out of it dont worry,




I agree ROE, I was only being light hearted. I am not stressed either way, they were a very small position for me given the attendant risk, and I got in at 19c so I suspect I may well still come out of it ok. 

Meanwhile they are locked at 25c and showing a nice 30% gain as long as they are suspended!!


----------



## DeepState (12 February 2015)

I'll put all my VET-AU against those of any comer that wants to take a position against mine that this company is dust and worth zero.

If I win the bet, I get all your stock.
If you win, you get all of mine....


Hang on a minute....something isn't quite right about this.


----------



## VSntchr (12 February 2015)

DeepState said:


> I'll put all my VET-AU against those of any comer that wants to take a position against mine that this company is dust and worth zero.
> 
> If I win the bet, I get all your stock.
> If you win, you get all of mine....




Deal. Done. Final.



DeepState said:


> Hang on a minute....something isn't quite right about this.




Too late  :grinsking


----------



## skc (12 February 2015)

DeepState said:


> I'll put all my VET-AU against those of any comer that wants to take a position against mine that this company is dust and worth zero.
> 
> If I win the bet, I get all your stock.
> If you win, you get all of mine....
> ...




Haha. Tails I win. Heads you lose.

Or... since you lose either way, your VET-AU will indeed be worthless. In which case you are correct, and you win the bet anyway.


----------



## Faramir (23 February 2015)

VET is back on the market. Trading range from 7 cents to 19 cents as of 11:30am. Roughly 16 cents about 10 minutes. I thought about. No - I am too busy. Maybe I am missing out on an opportunity. I miss lots of opportunities. Not educated/experienced enough to take advantage of this situation. It would have been a decent trading opportunity.

I still think this company is pathetic. (just read all of the above posts as well as reports in AFR.) I have no idea what will turn it around. Then again, some companies do turn around despite their dreadful outlook (can't think of any at the moment). Will VET be one of these companies to turn around?

Anyone with more valuable feed back?


----------



## ROE (23 February 2015)

I think it survive a near dead experience but banks now give them time
so the next thing they do is probably capital raising and slowing turn the ship

and if works out there is no need for them to sell any of their prize asset.

The business model isn't bad, the people executing them and running them is
they just need to clean the deck and get good people in.

Plenty of these business in private hand and make good money.

Look at CCP and TLS and see how bad management can cause massive destruction for good business


----------



## DeepState (24 February 2015)

DeepState said:


> Something like 5-10 cents looks about right.




Well, some upside.

High/Low/Close over the last two sessions 19/7/12c. Pretty much in line on an EV basis.  And it's re-listed whilst on oxygen and selling its organs to pay for it.  It is in liquidation, just not quite in the hands of administrators, only the corporate advisory arm of some liquidators.  After all, the company is having trouble hanging on to any management with each announcement made, so how are the liquidators supposed to get any to work this out.  No mention of any candidates for CEO, I notice.  Must still be auto-correcting their CVs.

Buffett: “What’s the secret of a great marriage? It’s not looks, nor intelligence, nor money ”” it’s low expectations.”
Apparently it works for stocks too.

Taking a look.  Can't stand to open my eyes actually.

Here are some thoughts that will flow through my head looking for answers:
1. What is left after the write-downs (A: it is the equivalent of Endeavour.  Everything else is wiped)
2. What's that worth? (A: not enough to cover the debt, actually. Nervous vendor: "So, 333 Capital, how many people have actually asked for the Section 32 from the 30 that took a brochure?")
3. What's the value of all these new initiatives now that the old initiatives didn't work?  (A: Uhhh) 
4. Will they be able to finance the whopping growth of fledgling initiatives without external finance? (A: Uhhh)
5. What exactly is the valuation of the tables, chairs and overhead projectors? (A: eBay, Cash Converters, Local Kinder)

On the upside, they still have $20m in cash.  Who knows what's going on with working capital.  Maybe the federal marshals haven't been able to get warrants organized yet to seize those assets.

This is probably an option play with zero strike and negative underlying. Known prosaically as a long-shot, moon-shot, mars-shot, crap-shoot, lottery-ticket, punt, long term investment.  If they recap, it is essentially a new company and should issue another Prospectus in the form of a Fully Underwritten non-renounceable Rights Issue, complete with all the paraphernalia.  Any recap from how far underwater this looks right now better come with some really good and colorful slides and a very glossy document with lots of smiling students.  It also has to come from a new CEO whose strategy for massive value creation has, strangely, not yet been formulated.  Maybe it could come without a CEO. If only it did in the first place...by-gones. 

It's massively bullish (could be misspelled).


----------



## skc (24 February 2015)

DeepState said:


> It's massively bullish (could be misspelled).




Lol. Gold.


----------



## TPI (24 February 2015)

DeepState said:


> Well, some upside.
> 
> High/Low/Close over the last two sessions 19/7/12c. Pretty much in line on an EV basis.  And it's re-listed whilst on oxygen and selling its organs to pay for it.  It is in liquidation, just not quite in the hands of administrators, only the corporate advisory arm of some liquidators.  After all, the company is having trouble hanging on to any management with each announcement made, so how are the liquidators supposed to get any to work this out.  No mention of any candidates for CEO, I notice.  Must still be auto-correcting their CVs.
> 
> ...




DeepState, are you still holding onto what's left of your holding or have you exited the position? I assume you did not average down into this freefall...


----------



## DeepState (24 February 2015)

TPI said:


> DeepState, are you still holding onto what's left of your holding or have you exited the position? I assume you did not average down into this freefall...




Have not moved pending investigation.  Would be happy to accumulate if the analysis indicates that's the right thing to do. Would be happy to abandon too...  We'll see.


----------



## DeepState (3 March 2015)

I'm out.  Sold my last parcel earlier today.  Hard to move this stuff.

To the best of my knowledge, this thing actually has a negative central case valuation.  It is arguable that, given the lowest value that equity can take is 0 (forgetting about accounting and admin hassle) you are left with an option value in case some upside scenarios occur.  I still think that option value looks expensive.

Here are some features that swayed my thinking.

They have written off $254m in g/w.  To give you some idea of the magnitude, that was the float value of the IPO company.  In reconciling the movement in g/w from FY14 plus Endeavour g/w on acquisition less this writedown, we are left with a positive g/w development over the period that doesn't seem well explained.  This figure amounts to a newly created ~26m worth of g/w that materialised.  In the prior reports, they are prepared to capitalise 'investments' into customer relationships and other such, incl value of course development IP (!!!)...I think they have done similarly in this period.

The assumptions behind the g/w review include zero growth for VET forever beyond the next two years.  That's what they think should go into the carrying value....zero.  This is the part of the business they hope to turn around.  They don't even think they can grow it beyond the hopeful turnaround in the near term.

The discount rate for the HE component is too conservative for this situation.

They are in a forced sale. The bankers have required an undisclosed liability reduction in a couple of months.  There is no point charging punitive interest rates because they are in liquidation.  There is no way they will get full value for Endeavour which they bought for $83m.  There are already impairments to the value of their HE component...the jewel...that occured as part of the write-down and they represent a healthy chunk of the acquisition value.  This is the only bit they can sell for something materially beyond taking chairs and tables to Stan Cash.

Three major banks are in the syndicate.  They will not lend to the carcass.  It will be toxic.  The fourth major bank, ANZ, was a major customer....can you believe it.  They will not be able to finance growth via debt.  Hence, it's massive dilution all the way from here to keep on going.  Good luck with that.

Here is another example of delusion:





What about the other businesses that were once core, Mark?  This is the guy that is CEO leading into the divestments.  The same guy who is prepared to give value to investments in customer relationships when there is no growth factored into their own VET g/w valuation. Who time and again said "all is pretty good" before ripping out more downgrades of enormous magnitude.  I don't know how many strikes that makes it. It's a lot.

This, from their auditor, who is not actually giving an audit opinion on this occasion but was nonetheless asked to write a note saying there is nothing he is aware of that would be untoward.  The same guy whose accounts have now been subject to fairly hefty restatements.




At least he is covering his butt, despite this not being a qualifier to their position.

----

This company is defunct.  It is trading as if, after a sale of Endeavour as a whole, has a goodwill figure that is not far off the acquisition g/w of endeavour before everything fell apart.  In other words, somewhere in this carcass is another Endeavour which has been fully priced.  No way, Hose. VET is stuffed in the long term by their own reckoning.  The HE component, already impaired, is discounted as if there was no issue. They are capitalising expenses as investments.  Of course, you can then go to option value explanations to justify the premium.  Do the math, it still looks high.

Although closer to the truth, this picture is a truly ugly one whose true horror has not been revealed yet in black and white.  Their 'we expect recovery' story doesn't wash. Their best assets will be sold or they will be shut down anyway. What is left is not worth the g/w of Endeavour in the current situation. 

I'm out.  I feel fortunate to have taken the haircut that I got. Not bad given how much of this was fake when I bought in.


----------



## McLovin (4 March 2015)

DeepState said:


> I'm out.  I feel fortunate to have taken the haircut that I got. Not bad given how much of this was fake when I bought in.





You lasted a while. I got out when it came back on the boards and the punters were piling in and pushed it up to 19c. Managed to get out for 16-17c, with a buy price at 18c, I think I just used up my get out of jail free card.

I see Mayfair have recduced their shareholding today too.


----------



## VSntchr (4 March 2015)

DeepState said:


> I'm out.  Sold my last parcel earlier today.  Hard to move this stuff.





McLovin said:


> You lasted a while. I got out when it came back on the boards and the punters were piling in and pushed it up to 19c. Managed to get out for 16-17c, with a buy price at 18c, I think I just used up my get out of jail free card.




Question for both of you, and don't feel obliged to respond...

What stopped you from exiting on the open of the first morning? 
The open function provides a good liquidity view and I thought this would be where anyone with a pre-set intention of exiting based on the news provided would be selling.

Sometimes (usually) stocks under these conditions open low, rally a bit then smash even lower...exactly what has happened with VET...but for me, I don't mind taking that opening price as I feel it becomes to psychologically difficult to hold while the price gyrates.


----------



## galumay (4 March 2015)

VS, i also have held since my entry, so maybe my perspective is relevant to your question above, although I got in very low so its a bit different. I took a small position at 19c prior to the suspension, my position size was relative to a believe that there was real catastrophe risk with the company, but that there was also some chance they might be able to salvage enough to see a move back up towards 50c over time.

Given the small amount of capital, the speculative nature of the entry and the miniscule gain to be made by getting out at around 25c I held on to them.

Now I just wait and see, if I get my play money back then I play somewhere else, if not I have to find a little more play money! I find it helps relieve the boredom of long term investing to have a little play every now and then.


----------



## DeepState (4 March 2015)

VSntchr said:


> Question for both of you, and don't feel obliged to respond...
> 
> What stopped you from exiting on the open of the first morning?
> The open function provides a good liquidity view and I thought this would be where anyone with a pre-set intention of exiting based on the news provided would be selling.
> ...



--

1. I try not to act unless I have the facts to hand and have had a chance to ballpark what's going on.  Despite my tone, a company is not a stock.  The company can suck a#se and be a good stock. I (try to) act on the basis of assessed value relative to price.  I had no idea what the value was on re-list so trading on open would, in my view, would have been trading uninformed on a position that is not a killer for me. Hence, the bias is not to trade as the only certainty is cost.

I have never traded short term price action (maybe I should).  With the price shooting from 7.1c at re-list to a reasonable distance above my best prior guess on re-list (topped at 19c), I also felt that I was missing something in the pricing anyway. I am not the smartest guy in the room by default, so someone took the opportunity to profit from panic sellers.  What did they know that I do not?   When the price moves outside of my expectations, I assume that it is me that is missing something as a starting point.  So I look at this with the freshest eyes I can bring to it.  Also, if I dumped during normal trading, I would have had a noticeable impact on the price, so I could not scalp.  This thing is bloody illiquid for sellers.

I've never looked at the general experience of companies which re-list like this on a systematic manner and am not aware that they behave as you describe as a statistically valid strategy.  Do you have something that is systematic research in orientation to this and are prepared to share?  I do not know what would drive price action of the type you describe which would not be gamed out pretty quickly.

To me, the swings in price in the immediate period post listing are a crap shoot which I just cannot capitalize on without knowing what I am supposed to be capitalizing on. You could have pulled the trigger at any time during the first three days and been a hero or an idiot. You could have day traded and made or lost a small fortune. My recorded open price on re-list was 7.1c.  That would have been a bad outcome if I dumped at open.  I also try hard to forget anything about my buy-in price.  It doesn't matter after the trigger is pulled.  For me, what generally matters is whether what you know makes the current price a level which is good to hold or not.  I would hold a stock if it got trashed but fell below my assessed value post the bad news that caused the thrashing. I would buy it too, if there was a significant margin in it. Every decision is nil-all at the start of every day.  That said, the decision process should be reviewed as outcomes develop to test whether it has any validity.

--

2. I started selling not long after the re-list announcement (after my post of 24 Feb) and left some in the bag for the HY as it was an important information point. It turned out to be negative when scrutinized, but my certainty about this was much higher than on the pre-list release.

--

Overall, your call for reflection gives me this:

I am happy not to have acted without analysis.  It saved me from getting out at the worst point.  However, it did not give me any reason to get out at the best point.  With my knowledge of trading dynamics on this type of situation (less than yours, evidently), there was no reason for me to trade just because it listed well below the pre-delist price, or then rebounded to well above Open or only a relatively small cut relative to the de-list price.  There is just nothing in that information.  

I ignore the price I got in at as not relevant as there is no impact on my liquidity etc. I am super-close to risk neutral on that. It's just anchoring. I guess this is an area of difference between an investment and trading mindset.  I think both are valid depending on context.

The delay in trading, including keeping some for the H1 announcement with the benefit of hindsight, cost me around 10% of the purchase value relative to close on Day 1.  Given what was going on at the time, I do not view it as an ex ante error.  Pre-releases of info going into an earnings announcement usually wash out the worst news, from my observations.

An ex ante error would be not knowing that this is how stocks in this situation trade as a systematic pattern which is sustainably tradable. Have I made this error?

--

I neglected to add that the assessed central case value being negative made no allowance for outcomes of the class actions which are pretty assured given they re-stated accounts.  Who knows what they figure is.  However, it cannot be less than zero.

If the company remains viable after all this fire sale process, as they hope, it will remain a target to be fried.  Fry it almost certainly will.


----------



## McLovin (4 March 2015)

VSntchr said:


> What stopped you from exiting on the open of the first morning?




That's pretty much what I did, but at 6-7c I thought there'd be a bit of support as the "value" investors chased it, and if there wasn't I didn't have much to lose. Sure enough there was. I consider myself lucky on it.


----------



## VSntchr (5 March 2015)

Thanks for the responses lads


----------



## galumay (19 March 2015)

VET annouced that they have sold Endeavour Learning Group to Study Group for $75m so this will basically get the balance sheet pretty clean, although not sure what is left to make any profit!


----------



## skc (19 March 2015)

galumay said:


> VET annouced that they have sold Endeavour Learning Group to Study Group for $75m so this will basically get the balance sheet pretty clean, although not sure what is left to make any profit!




I was wondering about the same. The holders must love the fact that they will issue another financial guidance in the next few weeks. I wonder if they will make a provision for the class action.

Perhaps it's time to re-do a bit of research (if it's possible to get a clear picture) now that the bankruptcy risk is cleared. 



DeepState said:


> Litigation outcomes of $5-$25m are inferred from the case history of the last five years. That was for listed companies under failure to disclose and misleading conduct charges. Nothing comes vaguely close to the full face exposure (~240m).




NUF once settled a non-disclosure class action for $46.6m.
https://www.slatergordon.com.au/class-actions/recent-class-actions/nufarm-limited


----------



## DeepState (20 March 2015)

skc said:


> ...NUF once settled a non-disclosure class action for $46.6m.




FYI, my calculations were based of settlements relative to the total estimated value of the claim.  In a relative sense, the range for VET was around $5m-$25m based on the case history.  Other claims were over the high end of this because the claim exposure was higher in that case.

---

Note they have gone silent on cash. It was $20m. They would have sold a stack of cash along with the firms they were offloading making prices look nice on face value, probably leaving a small operating amount suitable for what is left of the firm.  It would be well sub $5m. The thing floated with about $10m, if I recall, before IPO proceeds to beef up the acquisition funds.  The upside surprise potential from asset sales is now past.  This is relevant because this stock is trading on option value.

$10m in debt.  Very little in tangible operating assets.  Who knows what working capital is.  Market cap of $19m. Implied goodwill of...something like 3/4ths of Endeavour at purchase...really?  Best assets gone (all recent acquisitions unwound.  What is left is the shadow of the original IPO company...where student re-enrolments were a bit too uncertain to update the market on at last report)... before class actions which are surprisingly absent from the accounts despite restatement along the lines of the accusations in the class actions... without ability to raise debt for all intents and purposes... without a CEO in place to take it forward or any mention of how the process on this critical matter is proceeding.  No disclosure on expenses related to the disposal process. If the past legal expenses are any guide...it will be large. Still looks a bit on the rich side.  

Interested in your findings if you choose to post them.


----------



## buffet (28 March 2015)

Hey guys price has skyrocketed volume has multipled by 80 anyone know something

cheers


----------



## tech/a (28 March 2015)

buffet said:


> Hey guys price has skyrocketed volume has multipled by 80 anyone know something
> 
> cheers




http://www.stocknessmonster.com/


----------



## galumay (28 March 2015)

buffet said:


> Hey guys price has skyrocketed volume has multipled by 80 anyone know something
> 
> cheers




Given the news released by VET there is clearly a belief in the market that they can survive and create a 'turn around' story with this company. Likewise there are speculators, traders and shorters who come into play once the market forms a new view of the fundamentals of the company.

Emotion is a funny thing, a couple of weeks ago this company was written off as a dead duck, no hope of recovery, if the banks didnt get them then the ambulance chasers would, now its all great, the core business is what was in place before the float, no debt, sky is the limit!! Hold on for *insert price here*!!

At least my gamble of entering at 19c looks like it might have some payoff after all.


----------



## tech/a (28 March 2015)

Not buying more?
Thought you'd be loading up!


----------



## DeepState (28 March 2015)

galumay said:


> .
> 
> Emotion is a funny thing, a couple of weeks ago this company was written off as a dead duck, no hope of recovery, if the banks didnt get them then the ambulance chasers would, now its all great, the core business is what was in place before the float, no debt, sky is the limit!! Hold on for *insert price here*!!




Apparently the appointment of the existing CFO as CEO is worth $18m.  

Out of curiosity, I took another look.

ASM/ACAE and Endeavour recently sold for $90m.  In H1 15, they had combined underlying EBIT of $3.5m. Zero corporate costs were linked to this figure.  Endeavour had tangible assets of $34m at acquisition (Cash was negligible). ASM/ACAE had tangible assets of $1.4m (Cash was this figure).  Cash has been drained from VET-AU as part of these acquisitions.  Let's say $10m of cash was tacked on.  Sale price $90m less tangible assets of $34m+1.4m+10m) leaves implied goodwill of abt $45m.  That was for the good bits.


VET + VETtrak has combined EBIT of $1.2m.  Prior to VETtrak sale, the debt was around 10m The EBIT is before corporate costs. Cash would be negligible now. Consider the fees that 333 Capital would extract and other professional fees.  

Net Assets (excl g/w and add back debt) as at 31 Dec 2014 was $10.8m. That was before the net assets related to ASM/ACAE and Endeavour were disposed of.  Getting the feel of this?

So now you have a corporate entity (this time including corporate) which pretty much makes nothing in EBIT (prob still in significant losses), cannot borrow materially to grow, is in a turnaround...trading  with a market cap of $36m.  All this works out as having goodwill at least as large as AS/ACAE + Endeavour.  All this to be built from ashes of a company which has less operating capacity.  Around half of which is a CEO announcement effect.  None of which includes any provision for the class actions.

I checked, the stock is unborrowable...dammit.


----------



## galumay (28 March 2015)

DeepState said:


> Apparently the appointment of the existing CFO as CEO is worth $18m.
> 
> Out of curiosity, I took another look.
> 
> ...




Dont disagree with any of that, as I said emotion is a funny thing in the market. Plenty out there convinced its on its way again now!


----------



## Wysiwyg (28 March 2015)

galumay said:


> At least my gamble of entering at 19c looks like it might have some payoff after all.






tech/a said:


> Not buying more?
> Thought you'd be loading up!



Nice one smarty pants.


----------



## tech/a (28 March 2015)

Wysiwyg said:


> Nice one smarty pants.




Yeh I thought so.
If it was good at 19 and still holding
Why isn't it good now!

I've read the commentary but that didn't coun for
Much at 19 so why would it now?


----------



## galumay (28 March 2015)

Really cant help yourself can you? Just jump in to another thread and play your usual game. 

I feel sorry for someone with such an arrogant and nasty streak, you must be a lonely little duck.


----------



## tech/a (28 March 2015)

I think it's a legit question

Inspite of pretty strong evidence the stocks a dog 
You decide to take a trade at 19
You continue to hold as it's value halves.
Then when it turns and rises quickly you still hold
Waiting to reach your buy price???

If it was a buy at 19 why wasn't it a bigger bargain at 10 c?
Or
Why wasn't it a sale?

If your still holding why haven't you belted it at such
Low prices?

Your rhetoric says one thing 
Your actions something completely different

Conclusion
Gambling


----------



## skc (29 March 2015)

DeepState said:


> So now you have a corporate entity (this time including corporate) which pretty much makes nothing in EBIT (prob still in significant losses), cannot borrow materially to grow, is in a turnaround...trading  with a market cap of $36m.  All this works out as having goodwill at least as large as AS/ACAE + Endeavour.  All this to be built from ashes of a company which has less operating capacity.  Around half of which is a CEO announcement effect.  None of which includes any provision for the class actions.




Assuming they are in a zero net cash/net debt position... I'd pretty much neglect the rest of the balance sheet items. The class action is the big one that isn't there... but can a class action bankrupt a company? Or they will work out a payment plan (like James Hardies)?

So the company is left with AVANA, Real and Customer Service Institute of Australia. Are you saying they make nothing in EBIT (before corporate)?

I mentioned it before that it may be worth reassessing... I had a quick look but couldn't really pin down a valuation. I was hoping the company would give guidance in numbers (which will almost certainly create over- or under-reactions) but the stock has ran on the back of the CFO -> CEO appointment, which I agree with you and didn't think was worth that much in market cap.

Perhaps long term shorters were just looking to cover now that bankruptcy isn't imminent. But the volumes are much larger than the outstanding shorts so there's plenty of real buying as well.



DeepState said:


> I checked, the stock is unborrowable...dammit.




We have some available to us. Outstanding shorts are now down to 1.73% so probably plenty been returned? 

http://www.shortman.com.au/stock?q=vet


----------



## DeepState (29 March 2015)

skc said:


> 1. Assuming they are in a zero net cash/net debt position... I'd pretty much neglect the rest of the balance sheet items. The class action is the big one that isn't there... but can a class action bankrupt a company? Or they will work out a payment plan (like James Hardies)?
> 
> 2. So the company is left with AVANA, Real and Customer Service Institute of Australia. Are you saying they make nothing in EBIT (before corporate)?
> 
> ...




1. Don't know.  It's a weird one.  All I can say is that an allowance should be made for this as there is a world of pain coming.  However, will shareholders who got duped then and still hold now be best served by bankrupting the firm (suing themselves to pay themselves) etc..  I'm just adjusting whatever valuation I get for this.

2. H1 15 says they made EBIT 1.2m before corporate as underlying.  Corporate was abt 8m.  This would be sliced to bits now, but would not be zero.

3. I can't develop a DCF style valuation worth anything.  That's why I choose to value via embedded goodwill instead vs recent transactions.  It just looks ridiculous on that measure.

4. Bankruptcy risk probably dropped a lot following the sale of Endeavour.  Moving VETtrack off is pretty much nothing.  The announcement of Cummins as CEO (fairly uncontroversial) has to be the attribution.  $18m bucks for that just for turning up?  No way.  There aren't even enough operating assets left.  What they have is some concept of brand value in repeat students.  For something with EBIT of 1.2m in H1 15, in turnaround, can't borrow etc... can you believe what you are looking at?  This looks really stupid.  What am I missing in this?

5.   Lucky you.  I was checking with IG who claim the stock is unborrowable.  I suspect that they use the same prime broker as you guys.  Reduction in outstanding borrow might come as a result of institutional investment declining somewhat and the borrow being pulled.  Don't really know.


----------



## ROE (30 March 2015)

I still hold, I throw money at a dozen of these scenario and hold till the dying light 

Once I am in I am committed and  I write it off against other gain if it doesn't work out but never

ever I sell at a loss because of some bad press or headlines else I be dying with a thousand cut with these sort of scenario.


----------



## tech/a (30 March 2015)

ROE said:


> I still hold, I throw money at a dozen of these scenario and hold till the dying light
> 
> Once I am in I am committed and  I write it off against other gain if it doesn't work out but never
> 
> ever I sell at a loss because of some bad press or headlines else I be dying with a thousand cut with these sort of scenario.




I cant see why people aren't belting it.
You'll soon see where it reaches a point where people start to take profit it reduce current losses.
Right now with another 28% gain today you don't get that every day.
And the 2 days before were far more!

Get in milk it --get out!


----------



## tech/a (30 March 2015)

Price action today indicates its hard going for buyers.
Sellers seem to be able to push it off its highs.
If a bullish start tomorrow Id be inclined to sell at the first sign of weakness
tomorrow.

So far its over 100 % in 3 days!
This could come off hard.


----------



## McLovin (31 March 2015)

DeepState said:


> 1. Don't know.  It's a weird one.  All I can say is that an allowance should be made for this as there is a world of pain coming.  However, will shareholders who got duped then and still hold now be best served by bankrupting the firm (suing themselves to pay themselves) etc..  I'm just adjusting whatever valuation I get for this.




When VET was still whole a class action was a risk but the payout would have probably amounted to less than normalised EBITDA. Now that there's not much left I have no idea what sort of crater a class action could potentially leave, and having just watched Deep Impact it could even be an ELE. Can a court force a company into insolvency through a class action? I think in the US some states don't allow them to, but I have no idea what the case is in Australia.

Cummins seems like a pretty good war time CFO but how good will he be at actually getting this company back on a growth footing? IMO, that's a pretty big task especially given they're probably frozen out of equity markets in the short/medium term.

With such little forward vision I don't understand the big run up in SP.


----------



## Triathlete (31 March 2015)

McLovin said:


> With such little forward vision I don't understand the big run up in SP.





I believe everyone is just speculating and hoping!!! 

Some will make money trading the stock and some who do not know what they are doing are going to get caught out...!!


----------



## tech/a (31 March 2015)

Triathlete said:


> I believe everyone is just speculating and hoping!!!
> 
> Some will make money trading the stock and some who do not know what they are doing are going to get caught out...!!




Seeing weakness now Under 17c
Had a good run up.


----------



## Triathlete (1 April 2015)

tech/a said:


> Seeing weakness now Under 17c
> Had a good run up.




I agree Tech/A .

Having your stop at 17c would have been a good place to exit after the current run up.


----------



## tech/a (10 April 2015)

Rational maybe out the window but 
30% moves = opportunity.
Buy dips 
Caution at tests
Look to volume and range for hints


----------



## tech/a (16 April 2015)

tech/a said:


> Rational maybe out the window but
> 30% moves = opportunity.
> Buy dips
> Caution at tests
> Look to volume and range for hints




*Boom* ---anyone else trading this?


----------



## skc (18 May 2015)

Qualifications of 1,100 studends recalled... the company announced that they need to pay back some $9m to the State, but there was no mention of any compensationto the students?

Of all the time wasted, actual expenses incurred, change in income and job prospects etc etc.

I wonder if there are any precedence on this kind of "class action"?


----------



## VSntchr (26 November 2015)

Game over for Vocation.
Market-darling to market-no-more in under 2 years. Couldn't write this stuff!


----------



## McLovin (26 November 2015)

VSntchr said:


> Game over for Vocation.
> Market-darling to market-no-more in under 2 years. Couldn't write this stuff!




Bam! IQE isn't having a fun week either, down 50%.


----------



## skc (26 November 2015)

VSntchr said:


> Game over for Vocation.
> Market-darling to market-no-more in under 2 years. Couldn't write this stuff!




Yup... looks like the class action was probably their downfall. Banks simply wouldn't loan them the money to settle class action.

I am pretty sure the company said they had a strong balance sheet... 



DeepState said:


> I'll put all my VET-AU against those of any comer that wants to take a position against mine that this company is dust and worth zero.
> 
> If I win the bet, I get all your stock.
> If you win, you get all of mine....
> ...




You win!!!



McLovin said:


> Bam! IQE isn't having a fun week either, down 50%.




And ACO is still suspended. Have you ever seen a sector crash and burn so bad and so comprehensively in such a short period of time.

It goes back to how silly our government is with their (our) money. The intention was good... the governance and control thereafter = non existent. Every men and their dog saw the scam and went hard with it... then dump it onto the public with a fistfull of IPOs.


----------



## galumay (26 November 2015)

galumay said:


> At least my gamble of entering at 19c looks like it might have some payoff after all.




Hmmm...time to revisit my decision journal and see if there is some learning away to take from this experience.

First point is that my rule of only applying 'play' money I am happy to lose to speccy, currently unprofitable businesses saved me from real harm.

In my DJ I noted that the "Catastrophic Risk" was very real due to debt covenants and litigation, so I sized my position understanding there was a very real risk of total capital loss, but I also obviously saw some upside, if it could trade its way back from the brink.

I think my main learning here is a reminder that when gambling the house nearly always wins!


----------



## McLovin (26 November 2015)

skc said:


> And ACO is still suspended. Have you ever seen a sector crash and burn so bad and so comprehensively in such a short period of time.
> 
> It goes back to how silly our government is with their (our) money. The intention was good... the governance and control thereafter = non existent. Every men and their dog saw the scam and went hard with it... then dump it onto the public with a fistfull of IPOs.




Correct on that, mate. The government considered that even after the profit motive was introduced the industry would be driven by altruism and a desire to teach. What happened was the cowboys got in and decided hairdressers needed to do a course on touch-typing and tree surgery "to complement their skill set".

The implosion has been pretty spectacular.



			
				galumay said:
			
		

> I think my main learning here is a reminder that when gambling the house nearly always wins!




Sorry to hear you lost out, gal.


----------



## McLovin (26 November 2015)

skc said:


> And ACO is still suspended. Have you ever seen a sector crash and burn so bad and so comprehensively in such a short period of time.
> 
> It goes back to how silly our government is with their (our) money. The intention was good... the governance and control thereafter = non existent. Every men and their dog saw the scam and went hard with it... then dump it onto the public with a fistfull of IPOs.




Almost forgot ASH! Down 66% since the start of October.


----------



## galumay (26 November 2015)

McLovin said:


> Sorry to hear you lost out, gal.




Should probably have taken the money to the casino - would have had more fun losing it there!


----------



## skc (26 November 2015)

galumay said:


> Hmmm...time to revisit my decision journal and see if there is some learning away to take from this experience.
> 
> First point is that my rule of only applying 'play' money I am happy to lose to speccy, currently unprofitable businesses saved me from real harm.
> 
> ...




You can certainly choose not to be involved in this type of binary punts in the future... but I don't think it's worth being too upset with your decision. Noting the fact that you recognised it was binary. You saw an opportunity and assuming you made sensibly sized bet - it was the correct course of action.


----------



## galumay (26 November 2015)

skc said:


> You can certainly choose not to be involved in this type of binary punts in the future... but I don't think it's worth being too upset with your decision. Noting the fact that you recognised it was binary. You saw an opportunity and assuming you made sensibly sized bet - it was the correct course of action.




Thanks skc, your points lead to another observation, my position size was so small that even if it had recovered, it would have needed to be a multi bagger to really make any meaningful money from. So that makes me wonder even moe about the value of binary punts like VET.


----------



## Faramir (4 December 2015)

Damm you VET. Why were you so tempting and seducing for a stock purchase? As you hovered around 12c-20c mark, I thought I could buy just $500 worth. Let's wait until you drift below 10 cents first. You even infected me with FOMO because this year as each "good" news appeared - you said "I am going to fix myself - better get in now!"

How I managed to think "there must be some temporary bad news to send the price below 10 or 9 cents"? I will get in there. Well - the bad news was voluntary administration. It sent the price to nothing. Maybe the management fought as hard as they could to keep you alive and your staff employed.

Thankfully I brought nothing. There are many contributors to this thread I admire - was I thinking like them. VET - the great turnaround story of year 2018 (or years 2019? 2020? 2021?)

Why must NVT be punished for your sins? I think maybe it was Victorian Government, etc sins for setting poor auditing standards initially?

I feel for the staff and the students. What would they do now? I missed the good old days of TAFE.

Irrelevant and trivial rant over.


----------



## galumay (4 April 2016)

Can anyone tell me the process with writing off my failed punt on VET? Do I have to wait for some event to occour before I can record a capital loss? 

Its the first time I have had a company I held shares in go under so I am unaware of the process from here!


----------



## McLovin (4 April 2016)

galumay said:


> Can anyone tell me the process with writing off my failed punt on VET? Do I have to wait for some event to occour before I can record a capital loss?
> 
> Its the first time I have had a company I held shares in go under so I am unaware of the process from here!




The receiver needs to declare the shares have no value, or you wait until the court dissolves the company. Bit of a pain in the a$$.


----------



## skc (4 April 2016)

McLovin said:


> The receiver needs to declare the shares have no value, or you wait until the court dissolves the company. Bit of a pain in the a$$.




Or you can make an off market transfer of shares to someone like delisted.com and claim the loss earlier.

http://www.delisted.com.au/sell-worthless-and-other-securities


----------



## McLovin (4 April 2016)

skc said:


> Or you can make an off market transfer of shares to someone like delisted.com and claim the loss earlier.
> 
> http://www.delisted.com.au/sell-worthless-and-other-securities




Ha! Never knew about that. I thought you couldn't transfer shares in a company under admin. Guess I was wrong.


----------



## DeepState (28 November 2017)

DeepState said:


> As did our incompetent, syncophantic, external auditor.



  You got off lightly Steve.  All the best with your new job as a cost centre.

The ASIC actions against Dawkins and Hutchinson remain ongoing. 

....not that I am particularly bitter and twisted about this episode of my investment experience...


----------



## galumay (29 November 2017)

DeepState said:


> You got off lightly Steve.  All the best with your new job as a cost centre.
> 
> The ASIC actions against Dawkins and Hutchinson remain ongoing.
> 
> ....not that I am particularly bitter and twisted about this episode of my investment experience...




Thanks for reminding me of my disasterous investment with VET,.... not!


----------



## Value Hunter (13 October 2018)

Reading this thread I still cannot believe Deepstate expended all of that time and brainpower to take a 0.1% position in the stock.  I read his explanation for it but it still baffles me. Deepstate, you said you work 300 days a year. Do you not think it would be better to get rid of all positions under 0.5% and rebalance (concentrate) your portfolio a little so you can have more free time? Or are you that addicted to markets?

I am of the opinion that research of this nature is mentally draining and if you overwork your brain the quality of analysis will go down (and you will likely burn yourself out eventually). To me life just seems far too short to bother taking 0.1% positions.

Personally I have a rule I developed where I do not buy into stocks with questionable management no matter how apparently enticing the valuation/financials.  Sometimes this has meant I missed out, other times I dodged a bullet. Overall though the rule has served me well.

I remember years ago there was an audio presentation with Fleetwood's (FWD) managing director and during question time an analyst asked him about the company doing a share buyback. He said he would have loved to do a buyback but the company was not in a financial position to do so but that the stock was cheap and he said something to the effect of "At these prices I encourage everyone to go out and buy shares in the company". That just seemed like such an overly promotional thing to say. That combined with a few other red flags at the time meant I avoided the stock (which subsequently more than doubled).

Another example many years ago I attended a microcap conference where Blue Sky was presenting. I spoke to the managing director after the presentation and he just struck me based on a number of comments he made as the sort of person who was more interested in promoting the stock than actually running the company well. Over the many years subsequent to that I watched the shares skyrocket to over $10 per share (was kicking myself a little), only to then crash back to one dollar something.

Long before Retail Food Group (RFG) plummeted I posted in the thread that given seemingly every year management flagged "one-off" costs and talked about "underlying earnings" that they could not be trusted. Some of the analytical posters would just look at the numbers and adjust them accordingly to arrive at a real figure for earnings and continue with their investment process. To me its a waste of time even analyzing a stock if management is not trustworthy.

It reminds of some of the things said by the mighty J.P. Morgan:

"Samuel Untermeyer: "Is not commercial credit based primarily upon money or property?"
Morgan: "No, sir; the first thing is character."
Untermeyer: "Before money or property?"
Morgan: "Before money or anything else. Money cannot buy it.” From Morgan’s testimony before the House Committee on Banking and Currency in December 1912. (For background reading, see: _A History of U.S. Monopolies_.)

"A man I do not trust could not get money from me on all the bonds in Christendom.” From the same testimony.


----------



## galumay (13 October 2018)

Good post VH, its an area of my analysis I am starting to try to pay more attention to, and give a greater weighting to. I have bought into some businesses that had what looked to be good financials, as well as an enticing narrative, but in the end management with incentives that didn't align with shareholder and business interests caused a destruction of shareholder value. 

One level worse is the management that is deliberately seeking to defraud retail investors, I think that is a bit easier to spot because they tend to be active in small speccy businesses with undeveloped financials.


----------



## Huskar (21 May 2019)

Value Hunter said:


> To me its a waste of time even analyzing a stock if management is not trustworthy.
> 
> It reminds of some of the things said by the mighty J.P. Morgan:
> 
> ...




Call me a nerd but great to re-visit old threads and see lessons learned and not forget them myself... A study on sectors that have boomed and then crashed and burned could be on the cards. Also trying to revisit ASF more.


----------



## greggles (7 June 2019)

A legal postscript for those interested. 

*19-124MR Federal Court finds against Vocation Limited (In Liquidation) and three officers*


----------

