Follow-up: 11 88 0 Solutions AG (telegate AG)

Q4 2016 – 0,48 € – ETR:TGT

After my thirteen months follow-up I have decided to sell my position in TGT. After brokerage fees and currency effects the return amounted to -51,7 %.

1kr50öre11 88 0 Solutions AG, formerly Telegate AG, is a Germany-based provider of directory assistance and call center services. The Company operates through two segments: Directory Assistance and Digital. The Directory Assistance segment provides services related to inquires made at by phone for information regarding to phone numbers, pre-dial numbers and addresses. The Digital segment receives revenue from advertisements on the Company’s platforms and Websites. The Company also offers online marketing services related to Google AdWords, Google My Business, social media Websites and company profiles on platforms, as well as tools and market analyses, and software for data, address and network management. – Google Finance.

1. The company is currently a net-net with an adequate margin of safety: 

  • P/NCAV < 1x
    • 0,75x ✓ 
      • MoS = 25 %
    • 1,7x (incl. operating leases).

Assessment of margin of safety:

Although the company is still a net-net and makes it through the rest of my checklist I regard the current margin of safety as inadequate. This is based on an assessment of the NCAV-brun rate that is negative for both YoY = -41 % and QoQ = -20 %. In other words, there is a high probability that the NCAV will continue to erode in a quick pace and that the 25 % margin of safety is gone by next follow-up. Also, taking operating leases into consideration the company is no longer to be regarded as a net-net as it is selling at a premium, 1,7x. This is relevant since TGT uses IFRS and the changes to be effective as of 1 January 2019 with IFRS 16 (operating leases are to be capitalized). Based on these notations and that I haven’t found any other value creation catalyst I have decided to sell my position in TGT.

2. The risk of permanent loss is low:

2.1 The risk of bankruptcy is low (criterion a) or b) must be met):

a)

  • Debt/Equity < 25 %
    • 0 % 

b)

  • Z-score ≥ 3
    • 0,2 X

2.2 The company’s business model has historically been profitable (criterion a) or b) must be met):

a)

  • Positive retained earnings:
    • -28M € X

b)

  • Positive aggregate operating income for the last ten years:
    •   118M € 

3. The company does not have a shareholder unfriendly capital allocation:

  • Shareholder yield TTM ≥ -2 %
    • Dividend yield TTM = 0 %
    • Net buyback yield TTM = 0 %
      • =  0 % 

MoS

Disclosure: The author doesn’t own any shares of ETR:TGT when this analysis is published.