Daily notes

Daily Notes – 3PL, RFG, MOC, PPS, CLH, KGN

3P Learning (3PL) – Learnosity gets less than expected… Retail Food Group (RFG) – New CEO, profit downgrade… Mortgage Choice (MOC) – More unhappy franchisees… Praemium (PPS) – New customer, independents ascendant… Collection House (CLH) – Strong PDL supply, wind at its back… Kogan (KGN) – Founders trying to bail

3P Learning (3PL) – Learnosity gets less than expected

3P Learning Limited announced that it had sold its 40% interest in Learnosity, a provider of SaaS-based tools for digital assessments to Battery Ventures, a global investment firm for $25.0m. Not a great result given that the market was clearly expecting more. Adding insult to injury, the company expects to recognise a loss on sale of approximately $24.8m.

Following completion of the transaction, the company should be close to debt free, which puts it in a good position to buckle down and focus on executing on its core growth strategy.

The share price has dropped back to where it was at the end of 2017 and volume has been relatively subdued since the announcement. The uptrend has clearly been broken, as those that expected a more robust price for Learnosity look to the exits. The company will now need to demonstrate growth in core business in order put a floor under the share price and get things moving in the right direction.

Retail Food Group (RFG) – New CEO, profit downgrade

New CEO announced. With a Senate inquiry into the business model, a (very public) franchisee network uprising and profits tumbling, this looks like it might be one of the toughest CEO jobs in the country.

The Group now expects FY18 underlying NPAT to be $34.5m, and statutory NPAT to be a loss of $87.6m, taking account of the substantial impairment charges booked at the HY.

This is what a business under pressure looks like. With $260m in net debt and a crumbling business model, it’s hard to see this business surviving in its current form.

Mortgage Choice (MOC) – More unhappy franchisees

This one has come as more of a surprise, but a report in the media has revealed more unhappy franchisees and more unfair practices by a franchisor, this time Mortgage Choice. Whether true or not the share price has taken a tumble. Macquarie thinks this represents one of several risks that could put further pressure on the stock, although it notes that its balanced by support from cash and trailing commissions owed to the company that alone amount to $1.09 a share. We tend to agree.

Praemium (PPS) – New customer, independents ascendant

Praemium has signed on Morgan Stanley and its 110 advisers to its SMA platform. This is consistent with the thesis that advisers will increasingly move away from the traditional platform providers (big four banks, AMP, IOOF and Macquarie) preferring instead to deal with the independents (Netwealth, Hub24, Praemium and OneVue).

Collection House (CLH) – Strong PDL supply, wind at its back

Upgraded guidance for PDL purchases to $80-$84m from $70-$75m. This follows guidance already having been upgraded in February from $63-$65m. The increase in the  PDL investment is due to the opportunities that have arisen from the requirement for Australian Banks to fully comply with the provisions of AASB 9 from 1 January 2018.

Pricing levels are reported to be within historical range, but due to improvements in collection efficiencies, technology adoption and improved data analysis, the company expects to generate higher returns on these purchases.

Further the company announced that its subsidiary Thinkme Finance had upgraded it’s credit licence to enable it to provide credit to consumers.

The expectation revision cycle has turned positive for CLH. One to watch as consensus expectations continue to drift.

Kogan (KGN) – Founders trying to bail

Media speculation that Ruslan Kogan and David Shafer were trying to offload $100m worth of KGN stock, representing roughly a third of their combined holding in the company.

Following the reports in the media, the company advised that the pair did not receive a bid that was acceptable to them and, as such, no transactions occurred. They went on to say that Mr Kogan and Mr. Shafer are not currently in discussions to sell any shares.

The stock is down 16%, with relatively heavy volume, in the 4 days following the report. In due course, it’ll be interesting to reflect on how history judges the decision by Kogan and Shafer not to take the bid that was offered (if one was offered at all?).

By Danny Sandler

Founder of Ocean Asset Management.