London-based travel services Ten Lifestyle Group (LON:TENG) today issued a double whammy of bad results for FY18: adjusted EBITDA has swung from positive to negative and to add insult to injury guided expectations for FY19 lower than expectations. On a day where Ramsdens Holdings (LON:RFX) could fall 10% for posting an in-line update, the market saw a massive loss in confidence in Ten, sending the shares crashing a massive 65%:
Ten Lifestyle will be a new one for a lot of people. It describes itself as a ‘leading technology-enabled lifestyle and travel platform for the world’s wealthy and mass affluent’. In reality this is more like having a concierge on call, who can arrange travel and entertainment for both corporate and personal customers – for a fee, of course. It has sought to differentiate itself from others by using its size (it operates globally) and proprietary technology platform to offer a superior service to clients.
They have had some success: 1.6 million users are registered, and more impressively have come back from adversity already, with the company entering a CVA in 2003. The shares listed on AIM in 2017, raising £25.1m in cash. But since IPO a familiar story has crept in of disappointment. The shares traded for several months at around the 150p level, but its first trading update in April was a profit warning, sending the shares down to around 110p. Since then the decline has been constant, and steady – until today, when the price quite literally fell of a cliff.
The warning is more of an re-hash of April’s, but the preliminary results are not pretty: revenues only grew 13%, and losses increased to £8m. The main cause of this was investment in its proprietary platform: £10.5m was spent here. But this does not seem to have improved forecasts for 2019, with the trading update noting:
Adjusted EBITA for 2019 is also expected to be below previous expectations, largely due to continued investment in the platform and lower than expected Net Revenues. The Board expects the Group’s operational gearing to increase as the year progresses, especially in the second half as the investment in the technology platform takes effect.
It should be noted that the improved platform was rolled out only in November 2018, which suffered a delay from June. Combining this failure with little growth must have led to a serious loss of confidence here and a suspicion of another IPO dud.
Coming so close to IPO, it is clear that the business is not in too much immediate danger. The latest statement says there is cash of £20.7m; combining that with a healthy working capital position, there is no issue of their immediate investments being compromised.
The issue whether this could somehow become a viable enough business. The business has already struggled and failed before in its relatively short life, and in an age where big data is making the product offering even more diverse than ever, would it be hard to maintain an advantage?
It splits its focus by 3 regions: Americas, EMEA, and Asia. Of these, EMEA contributes almost half of revenues. Most notably, it is the Americas which is driving most of the losses here as shown from an excerpt in the half-year report:
This is explained away by the fact that investment has gone in to building content, supplier and delivery capacity. But those figures do not look pretty: painting a picture of a firm that has plenty of success in Europe, but is gambling on making it big in America, whilst doing a lot of work for not much cash in Asia. Why should these markets be any different?
The business also suffers from concentration of customers, listing 6 ‘Large’ contracts and 18 ‘Medium’ contracts among their customers. There is also an additional risk that some of the large contracts, typically large multi-nationals, may take their services back in-house.
The balance sheet is of little worry. Debts have been repaid from the IPO proceeds, and the company capitalises a large chunk of development costs as intangible assets.
I do see a case for something like Ten. Rather than a concierge for the rich and famous, it seems to have found a use as a bespoke offering for larger companies, arranging their travel plans and client hospitality.
That said, I don’t see it as a particularly lean organisation. They have 800 staff around the world, and this undoubtedly eats into the bottom line, requiring a large increase in revenues to become profitable, which doesn’t seem like happening this year, or the next. Visibility of revenues must be quite difficult as I’d imagine that few organisations would like to commit to a new service such as this for a long time initially, instead taking a ‘wait and see’ approach.
Just because a platform is proprietary does not drive competitive advantage. In truth, whilst the global reach of Ten might infer some kind of additional knowledge, in reality this might not transfer to value for the end customer. In part, I do think that is behind the struggles outside of Europe, as the experience and contacts built up here do not mean much to a client, for example whose activities are based in Bangkok. In that case there may even been better local firms to choose.
The company can point to long-term customer satisfaction as a metric, but I am not entirely sold on this, and this can be easily gamed. With so many staff for so few big clients, it would be little challenge to offer a close personal experience, but if revenues were to head towards £100m and profitability, things might be different.
Given the figures shown in the Europe region, plainly there is a decent business in here that can serve needs as well as make a profit. My worry is that in the need to justify the IPO cash, the firm might see worldwide expansion as some kind of immediate target, when it may be the case that much more money is required to establish a firm in a market as diverse and mature as America. On this, I will rate this as 2/5.