An update on Automotive Solutions Group
Yesterday I signed up for Listcorp, a free + very useful service that emails ASX company updates straight to your inbox. That means I now receive breaking news ‘as it happens’. Sitting at work on my lunch break, I’m divided as to whether improved access to information is going to actually improve my investing, or simply lead to more activity.
Anyway, the very first update I received was highly topical. Automotive Solutions Group (ASX: 4WD) has published an updated cash flow forecast for next quarter. In my piece about this company on Monday I wrote “The (forecast cash) outflows are so egregiously large, and above expectations, that I actually wonder if they are an error. Or maybe the business is just a basket case.”
I ended up emailing management to say ‘hey, so, cash flow forecasts look bad…when are you raising capital?’ and today I got my answer. The actual forecast outflows are not as bad as previously suggested:
Forecast outflows are cut by approximately half. At a guess I’d say the business will still see cash outflows, but will likely be able to cover it with existing cash + a small amount of debt, unless sales deteriorate materially further. Shares were up 10% at the time of writing, and no wonder.
The more important question is: ‘Why did this happen?’
My guess is that it is an error. If that is true, seeing errors in the financials so early after an IPO is usually a sign to run far away as fast as possible. Yet I think with the above, I’m actually looking at forecast half year cashflows in the left hand image. That would suggest a fairly simple typo/substitution error (uploading 6 month instead of 3 month forecast), which is what I currently believe. I can handle that.
The alternative possibility is that the previous forecast was accurate and that the changes are due to the ongoing strategic review. There’s also the disturbing chance that management isn’t quite sure exactly what they’ve got on their hands, which I think is another plausible explanation given the limited operating history of the businesses since they’ve been associated with it.
I’ll need more time to digest it, but if these forecasts are accurate 4WD could be back in contention for the 10foot portfolio. You’ll read about it if it happens.
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