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Director lifestyle (oops I meant to say oil exploration services) group Vialogy (LSE:VIY) needs to raise cash urgently or it is going bust. That is not just me saying that,. That is the bombshell from its auditors that the company snuck out over Christmas when no-one was watching. Its attempts since then to sucker private investors into buying the stock so that it can get a rescue placing away ( at a huge discount ‘natch) display a cynicism which is quite extraordinary. Anyone buying the stock in the market is being exploited shamelessly as I shall detail below.
The shock warning from the auditors came out on December 31st. Yup, New Year’s Eve when no-one was paying attention. I try to watch this company like a hawk but I missed it. The statement is pretty clear:
“Following the signing of three significant contracts with international companies since the year end the directors are confident that the Group’s pipeline of sales from current clients and potential new customers will help to fund the Group’s development and working capital requirements. However additional funding will be required in order to support the Group until we begin to see the benefits from this pipeline of contracts. There can be no certainty that additional funding will be available given the current economic climate and the risks associated with the oil and gas industry. While the directors are confident that additional funding can be raised in order to meet its development and working capital requirements, and ViaLogy’s capital development history demonstrates that this confidence is well founded, a significant uncertainty exists given the absence of any committed funding at the date of approval of these financial statements. This condition indicates the existence of a material uncertainty which may cast doubt on the Group’s ability to continue as a going concern.
I highlight a few phrases in bold for your benefit. How clear does that have to be made to you?
The statement came after the publication of first half results. The good news: revenues zoomed ahead by 107% from £40,915 to £84,967. The bad news: the direct costs of supporting those sales increased from £209,393 to £273,115. In other words costs increased by c£64,000 to increase revenues by c£44,000. I am sure that you can see a flaw in that business model.
The company says that second half revenues will be greater and in line with the three year plan as it will invoice for contracts completing after September in H2. I am not sure where this three year plan comes from. This company has been promising great things from oilfield services for 5 years. So when did the three years start? Who cares? How big will the H2 uplift be? It bet you 5 Albanian Lekke that it will be barely sufficient (if indeed it is sufficient at all) to cover gross direct costs of sales which are now running at an annualised rate of £550,000 per annum. And of course that is before the bloated corporate overhead.
In H1 the net cash outflow from operations was £1.177 million. Ouch. As at 30th September cash (plus trade receivables minus trade payables) stood at c£1.2 million. Do your sums. By March 31st and the year end even if there is a material uplift in revenues and even if those customers pay promptly Vialogy is more or less out of cash. It is game over. That is what the numbers tell you and that is what the auditors are telling you. Yet at 2.125p the company is capitalised at £19 million ( 113 times annualised sales).
So what to do? Clearly Vialogy wants to pump the price to get a placing away. The only way that it can do so given its dire track record is by issuing shares at a steep discount to bucket shops that will flip them on.
And that means the share price needs to be ramped something that has been underway for months as I explain here
And so on 2nd January Vialogy announced that Chevron had expanded its contract with Vialogy. Oooh a big name. Well bear in mind here two points.
1. Chevron’s first contract with Vialogy was ( we finally discovered) worth c£40,000, i.e. about 0.0000000000(I cannot remember how many 0s but it is a lot) of Chevron’s annual exploration budget. Vialogy never admitted to this but the 2011 accounts prove my point. So what is this extended contract worth? Naturally Vialogy will not say. This is a promote nothing else – it is the old tie up with a big name trick I explain here.
2. Is Vialogy really saying that Chevron agreed this between 7 AM on New Year’s Eve ( interims) and 7 AM on January 2nd? Like hell it did. Vialogy could have announced this deal with the interims. It elected not to in order to “spin” the story that it has momentum. “Hey, even if you noticed what was going on, on NY Eve, forget about the crap interims and the auditor’s report, this is 2013 and we are making progress.” This is pre placing ramp and spin.
And then today Vialogy announced that it has filed patents for its technology in nine countries. If its technology was that exciting I would kind of hope that it was patent protected already. Filing patents is just the sort of thing technology companies do all the time ( especially when they have been developing and using their kit for more than half a decade). There was no need to issue the release.
That Vialogy did so is because it wishes to show it has momentum. It hopes private investors will be excited enough to buy the shares so they go up. Get the stock to 2.5p and maybe you can do a placing at 1.5p. If the shares are only 2p maybe he placing is at 1.2p. I have no idea what the discount will be but it will be steep. The big losers will be the PIs who bought in the market ( maybe paying 2.5p even today, with the spread) only to see bucket shops offer stock ( which will be flipped onto retail punters) far more cheaply and pretty soon. This is exploitation. Nothing more and nothing less.
I have already pointed out that this company is chaired by a proven liar. Now its auditors tell you that its financial position is abject. Sell. My target price is still 0.1p
If you wish to buy shares in a proper profitable company in this sector where you will make money click here for an idea from a friend of mine.
Tom Winnifrith writes for 10 US and UK websites. You can get alerts on all of his articles by following him on twitter @tomwinnifrith.
All of Tom’s articles or links to his articles appear on his own website www.TomWinnifrith.com
The TW@ has been adopted for euthanasia!
Intrigued by reference to payment of £40,000 from Chevron. Can’t find reference in the accounts, can you help this novice?
Calm down. Companies at this stage of development (ie cash burn) routinely have such auditor warnings in their statements and these remain until cash has been raised. Which it hasn’t in the case of VIY, yet. Your so-called ‘bombshell’ is just a fairly bog-standard statement of fact that any half-competent auditor would require.
Talking of competence… Pretty much anyone taking an interest in this stock has been expecting another round of fundraising for a while. Anyone investing right now without bearing this in mind would have done almost no research. Even the release date of 31 December has been public knowledge for months with the potential content of the release freely and openly debated. I know this and I only follow the stock casually. If you really follow this stock ‘like a hawk’ I’m not sure why any of these things is such a big ‘shock’ to you. It seems to me that you’re a strangely deaf, dumb and blind hawk.
This is a risky investment, yes. And either someone believes in its potential or they don’t. Equally people that do see potential may have very different views on when and under what conditions it is wise to invest. But even for someone that sees no potential your hysterics are, once again, ridiculous.
Perhaps you might indulge us by answering Phil Hooks’ question about the source of your statement regarding the supposed £40k payment from Chevron? I’m guessing not since you chose not to respond to valid questions about the veracity of key points from your last VIY rant.
Rotor
Chevron v simple. The contract finished in second half of the last financial year ( ended March 2012). So all revenue on that contract ( as per VIY guidance on when revenue booked) happened in those 6 months.
The company splits out its revenue by net imcome on those small texas fields vs consultancy.
So if one substracts the oil royalty income from total revensues one gets a consultancy figure. The chevron contract is worth a maximum of 100% of that number – hence my figure.
Best wishes
Tom
Tom,
Are you American? You state “in nine European countries” whereas the RNS clearly states “The nine countries are Brazil, China, Russia, India, Canada, Mexico, Qatar, Bahrain and Israel”. Please explain or is it a deliberate attempt to mislead?
Peter
Heaven help us I used to be good at geography. Error on my part now corrected. Hardly thinks it alters investment case.
Tom
Well Tom, thanks at least for the breakdown.
But it tells me you don’t know the value of the Chevron contract at all. Why are you claiming you do?
I’ll wager the income booked for the work undertaken by VIY for Chevron to March 2012 is much lower than the £40k you’ve calculated which, as you’ve now admitted, is the total consultancy income not just the Chevron ‘contract’ (actually a project undertaken as part of a contract that probably had no defined value). This project was, indeed, completed by March 2012.
In fact it is quite possible the Chevron project to which you’re referring has little or no value and I hardly see why that is a big issue. Why? Because it was, in Vialogy’s words, a ‘demonstration project’.
Such a demonstration project is an absolutely standard way for a company like Chevron to assess whether a company like Vialogy can do what it claims. Why would Chevron start shelling out ANY % of its exploration budget if Vialogy wasn’t prepared to complete such a demonstration?
Income for Vialogy on such a project would plainly be low or non-existent. And such low/no income, in my view, is what any level-headed observer of the situation would have been expecting in the circumstances.
This ‘demonstration project’ for Chevron (ie little or no money) was followed by a ‘commercial contract’ for Chevron (ie paid for) announced in April 2012. And then another this month. No we don’t yet know the value of these contracts and that is hardly surprising. There are very good reasons why at this stage neither Chevron nor Vialogy would want that to be public. But this is yet another plain example of how you are twisting a pretty simple set of facts in your continued and rather desperate deramp here. Or have you really struggled to get your head around some fairly simple facts? Which is it?
But here’s the big point… The claims Vialogy makes for the capabilities of its technology are impressive and very specific. Chevron asked it to demonstrate that it could do what it said. It did. And that has led to further contracts which are in themselves both expandable and likely to expand. And Chevron is far from Vialogy’s only client. It isn’t even the only super major client.
And while we don’t know specific contract values, Vialogy has made it clear that the technology can now command revenues at premium prices. Specifically that means charging more than other seismic analysis technologies for the same area analysed. This is quite logical if it can outperform its competitors as it claims. And if it can’t why is the relationship with Chevron, for one, continuing? Vialogy is a very small player after all.
Yes more money will be needed for the company to hit break even. That won’t be news to anyone taking even a passing interest in Vialogy. And yes it is still a risky investment. Again this is a pretty obvious point for a whole series of reasons. But you appear to me to be spouting misleading nonsense repeatedly.
I don’t expect any of these facts or any of this logic will make the slightest bit of difference to your appetite for twisting facts and making grandiose and melodramatic statements.
Poor.