VET - Vocation Limited

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?

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.

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.

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

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.

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.

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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.

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

TPI said:

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

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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?

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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.

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

DeepState said:

my 0.1%, at cost, portfolio investment

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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?

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!

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

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?

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?

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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.


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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.

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

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.

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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.

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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.

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:

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:

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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

ROE said:

hahaha ...

I think they come out of it dont worry,

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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!!

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.

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....

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Deal. Done. Final.

DeepState said:

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

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Too late :grinsking

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....


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

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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.

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?

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