Diligent Boardbooks IPO

[blobbles]

" Volatile " Also used to be known as some thing capable of taking FLIGHT..

Which can be taken in many ways.. :-))


Ha haa, yes you are right :)

So I have summarised my figures as below, which takes out some major assumptions. Do NOT rely on anything in grey being correct, blue are variables I influence so I can model the other values. Note that this is a mock-up of a big sheet which I haven't checked for errors, so it could be riddled with them!

4954


Assumptions:
Oh - I am being conservative on here as much as possible. My subsequent year growth rates are intentionally quite low.
I am using total number of shares as 120 million, assuming all options taken.
All this is in USD so conversion to NZD is obviously required. I am being conservative again with a 1:1 exchange rate :)
The "Actual SP" at the bottom is used to model the P/E. I assume 30 for this year isn't bad but it drifts back the following years assuming this turns into a more "normal company"!
Cash Growth is all assuming there is no dividends...

And please someone pull me up for mistakes or for not being conservative enough, I still feel like I have got something wrong!

[janner]

bobbles..

To many ASSUME's.. !!!..





Ha haa, yes you are right :)

So I have summarised my figures as below, which takes out some major assumptions. Do NOT rely on anything in grey being correct, blue are variables I influence so I can model the other values. Note that this is a mock-up of a big sheet which I haven't checked for errors, so it could be riddled with them!

4954


Assumptions:
Oh - I am being conservative on here as much as possible. My subsequent year growth rates are intentionally quite low.
I am using total number of shares as 120 million, assuming all options taken.
All this is in USD so conversion to NZD is obviously required. I am being conservative again with a 1:1 exchange rate :)
The "Actual SP" at the bottom is used to model the P/E. I assume 30 for this year isn't bad but it drifts back the following years assuming this turns into a more "normal company"!
Cash Growth is all assuming there is no dividends...

And please someone pull me up for mistakes or for not being conservative enough, I still feel like I have got something wrong!

[janner]

bobbles..

To many ASSUME's.. !!!..

You may well be correct .. But this is not what we are all about.. Facts and figures will get you an audience.. :-)

[winner69]

What's the 'magic formula' that gives you future value?

Are you saying that 720 is your valuation? And by the looks of it that is pe driven .....yes?l

Your revue line is gross margin ......I assume growth rates allow margin expansion?

You have a cash figure .....where does this lead to?

No tax ....but you use a pe methodology?

Good of you to put something up and asking to be challenged

[blobbles]

What's the 'magic formula' that gives you future value?

Are you saying that 720 is your valuation? And by the looks of it that is pe driven .....yes?l

Good of you to put something up and asking to be challenged


The "magic formula" is a bit of heresy, some conjecture, some putting my thumb in the air and getting a gut feel (actually a bit more scientific!). I probably should have left it out as I knew it would cause some confusion!

And yes the 720 is P/E driven. I would be happy with a P/E at 30 or so with the growth rate @75%. The growth rate for this year though I think is looking a little worse than this, which means I may have to revise this figure downwards when the restatement happens... its entirely possible we will have a <50% growth rate, which may be a bad quarter or it may be an ongoing trend. If its ongoing, the target SP is still around 6-6.5 for me, so still considerably undervalued:

4955

Note that for this version I have revised the Operating Expenses downward as I would expect to happen if they grew less (i.e. they would hire less people to answer phones, not expand their office spaces etc).

[winner69]

Blobbles

Did you read this. http://www.nbr.co.nz/article/how-investment-bankers-determine-if-share-over-or-under-valued-weekend-review

You could apply this to DIL ... You have a free cash flow in your model already

[winner69]

Ah ....can't use that formula cause growth rate can't be more than discount rate

Need to do it the long way .....just extend your cash figure out a few years and do a NPV on that

[winner69]

Did you ever read this blobbles
http://img.scoop.co.nz/media/pdfs/1310/Clare_Capital__Xero_Thoughts_20131003.pdf

[blobbles]

Hey winner,

Thanks for those links, good info about how people test overvaluation, lots that I didn't know in there! Always good to keep learning!

I haven't done an NPV calculation on this yet because I think predicting subsequent years at this point in DIL's financial situation is a bit hit and miss. Hence people should take my next year/year after scenarios with a large grain of salt until the restatement comes out. I just see it undervalued in terms of todays values, let alone if I was pricing in next years values! But by this time next year, even if they only grow at 30% from now on my fundamental SP value is $8, so still damn good buying at these levels - a 70% increase in capital value in 1 year. If they announce anything big (like a new product or NASDAQ entry), there would be considerable upside to that...

[Whipmoney]

Hey winner,

Thanks for those links, good info about how people test overvaluation, lots that I didn't know in there! Always good to keep learning!

I haven't done an NPV calculation on this yet because I think predicting subsequent years at this point in DIL's financial situation is a bit hit and miss. Hence people should take my next year/year after scenarios with a large grain of salt until the restatement comes out. I just see it undervalued in terms of todays values, let alone if I was pricing in next years values! But by this time next year, even if they only grow at 30% from now on my fundamental SP value is $8, so still damn good buying at these levels - a 70% increase in capital value in 1 year. If they announce anything big (like a new product or NASDAQ entry), there would be considerable upside to that...

Sorry i've only just caught up on the thread but if you're not using DCF then how are you calculating the SP? Earnings multiple?

[blobbles]

Sorry i've only just caught up on the thread but if you're not using DCF then how are you calculating the SP? Earnings multiple?

Correct :)

[winner69]

Blobbles. .....globally SaaS companies are valued on sales multiples dependent on their growth

DIL got interest of global investors ...if so is that how we should value them?

Did you read this when I posted it earlier. Interesting profitability is seen as not all that important

http://kellblog.com/2013/06/05/what-drives-saas-company-valuation-growth/

[blobbles]

Blobbles. .....globally SaaS companies are valued on sales multiples dependent on their growth

DIL got interest of global investors ...if so is that how we should value them?

Did you read this when I posted it earlier. Interesting profitability is seen as not all that important

http://kellblog.com/2013/06/05/what-drives-saas-company-valuation-growth/

Yes, I had read that previously, thank you :)

Even using this guys definition, DIL is by FAR undervalued. Even at 30% growth, they should have a 4x multiple of revenue. As revenue is about $50 million a year currently, that means we should be pricing it for $200 million. I would predict a pretty high profitability rate of say 40% at the point where they are making $200 million, giving them a fundamental valuation of around $9.50.

Seems like no matter which way I look at them they are far undervalued....

[winner69]

Yes, I had read that previously, thank you :)

Even using this guys definition, DIL is by FAR undervalued. Even at 30% growth, they should have a 4x multiple of revenue. As revenue is about $50 million a year currently, that means we should be pricing it for $200 million. I would predict a pretty high profitability rate of say 40% at the point where they are making $200 million, giving them a fundamental valuation of around $9.50.

Seems like no matter which way I look at them they are far undervalued....

Ok ....but I'll use 60 mill revenues

So 4 times sales is 240 mill ......enterprise value

Add on say the 50 mill cash

Gives a market cap of 290 mill ......say 350 mill nz dollars

Divide by 82 mill shares gives 426. (On 120 mill shares that is 291)

Hardly far undervalued on this basis

Looks like market is assuming heaps more than 30% growth .....more like 60% it seems

[blobbles]

Ok ....but I'll use 60 mill revenues

So 4 times sales is 240 mill ......enterprise value

Add on say the 50 mill cash

Gives a market cap of 290 mill ......say 350 mill nz dollars

Divide by 82 mill shares gives 426. (On 120 mill shares that is 291)

Hardly far undervalued on this basis

Looks like market is assuming heaps more than 30% growth .....more like 60% it seems


Yes, you are right, I was combining my valuation (one based on profit) with their valuation method... and using that it would insinuate dramatic undervaluation. TBH, if I just treat DIL as a normal company then its undervalued at current rates based on 30% growth rates over subsequent years. As it has the potential to grab dramatically more market share, the SP should just be higher based on standard fundamentals.

Which gives me a thought - at what point to you start valuing an SaaS company the same as a normal company? Is it when their market share grows at less than 10%? Or is it when they start making profits but are still growing?

[winner69]

Things still don't seem to stack up if people reckon this years sales growth is going to be 60% plus

Yes things getting restated but they tell us the cash position, ie cash flows.

Free cash flows are essentially reported revenues plus/minus movement in deferred revenues account less cash expenses less tax less investment.



This year FCF seems to be heading towards 20 mill, maybe I'd Q4 is a boomer 25m

So we have the answer to the cash flow equation. Working backwards the most realistic reported revenue growth figure is 40% .......and the cash receipts from customers (reported plus deferred revenues) figure only 35%-40% up on last year.

So what does future growth trajectory looking like .... Definitely slowing and maybe yoy growth rate declining faster than mos hope.

I am a suspicious type ....in spite of DIL saying things won't change I just have that feeling that when final numbers a presented there might be disappointments ....remember they are redoing up to March quarter ....doesn't really matter if all those change ...it's what's happened in Q2and Q3 and Q4 that matters eh ......and maybe the redoing the numbers things has been a convenient thing and just delaying what could be disappointing results, in the context of a high growth company that is.

All I am saying is stil a good company and will make decent profits going forward .....but hoe much you pay for decent profits v fantastic profits is the question

Go on guys ...best th **** out of me

[blobbles]

Things still don't seem to stack up if people reckon this years sales growth is going to be 60% plus

Yes things getting restated but they tell us the cash position, ie cash flows.

Free cash flows are essentially reported revenues plus/minus movement in deferred revenues account less cash expenses less tax less investment.



This year FCF seems to be heading towards 20 mill, maybe I'd Q4 is a boomer 25m

So we have the answer to the cash flow equation. Working backwards the most realistic reported revenue growth figure is 40% .......and the cash receipts from customers (reported plus deferred revenues) figure only 35%-40% up on last year.

So what does future growth trajectory looking like .... Definitely slowing and maybe yoy growth rate declining faster than mos hope.

I am a suspicious type ....in spite of DIL saying things won't change I just have that feeling that when final numbers a presented there might be disappointments ....remember they are redoing up to March quarter ....doesn't really matter if all those change ...it's what's happened in Q2and Q3 and Q4 that matters eh ......and maybe the redoing the numbers things has been a convenient thing and just delaying what could be disappointing results, in the context of a high growth company that is.

All I am saying is stil a good company and will make decent profits going forward .....but hoe much you pay for decent profits v fantastic profits is the question

Go on guys ...best th **** out of me

I mostly agree with you, except I expect growth to be slightly higher than 40, @50% for the year. I feel the SP has been derisked at this level though, with my calculations (if you consider it like a normal company) showing that even at 30% growth it has a +$6 intrinsic value. With a 97% client retention rate, I can't see why it won't reach back up to real worth after restatement.

[blakecb]

What ever happened to the guy that sold his house and car in Palmy? He waiting for the restatements or already piled in?

[stoploss]

What ever happened to the guy that sold his house and car in Palmy? He waiting for the restatements or already piled in?
He needs the price to fall further , he only sold a house in Palmy .....

[winner69]

Blobbles

You'll love this guy

Profitless tech companies have nose bleed valuations ...but many tech stocks making money are boring and undervalued (global trend that is)

http://www.citywire.co.uk/money/hendersons-ogorman-tech-stock-valuations-terrify-me/a710417?re=26009&ea=314347&utm_source=BulkEmail_Money_Daily_Summary&utm_medium=BulkEmail_Money_Daily_Summary&utm_campaign=BulkEmail_Money_Daily_Summary

[winner69]

Current 1 year chart of DIL says run run far away.
I am not a chartist and still like DIL medium term at current levels but the chart points to it testing $4 again.

Snapiti ...the chart is a great representation of irrational behaviour ...right?

Amazing for how long the masses can get it wrong

[blobbles]

Blobbles

You'll love this guy

Profitless tech companies have nose bleed valuations ...but many tech stocks making money are boring and undervalued (global trend that is)

http://www.citywire.co.uk/money/hendersons-ogorman-tech-stock-valuations-terrify-me/a710417?re=26009&ea=314347&utm_source=BulkEmail_Money_Daily_Summary&utm_medium=BulkEmail_Money_Daily_Summary&utm_campaign=BulkEmail_Money_Daily_Summary

Yep, good post! He certainly makes a lot of sense. I find it amazing that we often value loss making tech companies often dramatically more than profit making ones. Its like investors have the idea that if a tech company is making a profit then it's not doing enough on the growth side so must be valued low. If they are making dramatic losses though and will for years, that is a sign of good management. Tech company valuations are like the antithesis to normal valuations or logic!

If DIL goes below $4 I will be pleased because it means more damn good buying for me...

[blobbles]

Oh yeah baby, in DIL's case I actually like dropping share price. I may just have to liberate some funds from elsewhere, particularly if this heads down to $4... I am only a 2k holder though so I feel for those who hold a hell of a lot more! But be strong, shares always return to their fundamental valuation. Hopefully this restatement business gets sorted out in the next few weeks and we can return to normal...

I read in one of their documents though (it was a bit vague) that the restatement might not come out until mid December? Is that right? I would then ask what on earth they are doing... sure they may have to manually process 30k bits of paper, but just hire some temps and it should be done and dusted in a couple of months. What's happening?

[Lorne Ranger]

Oh yeah baby, in DIL's case I actually like dropping share price. I may just have to liberate some funds from elsewhere, particularly if this heads down to $4... I am only a 2k holder though so I feel for those who hold a hell of a lot more! But be strong, shares always return to their fundamental valuation. Hopefully this restatement business gets sorted out in the next few weeks and we can return to normal...

I read in one of their documents though (it was a bit vague) that the restatement might not come out until mid December? Is that right? I would then ask what on earth they are doing... sure they may have to manually process 30k bits of paper, but just hire some temps and it should be done and dusted in a couple of months. What's happening?

December 12 I think is the final date. Well, I say final, its the latest final. Fingers crossed. Yes I tend to agree about the odd delay, but I also don't think they are delaying on purpose or bu ineptitude. Some have mentioned Deloittes delaying mean more cash for them, but I cant imagine DIL board being quite that naieve. More likely, and wishful thinking, they are just making damn sure its right. Some suggesting it's in preparation for a US listing too, but little evidence i have seen. Maybe. Either way, Santa will be coming early, either to drop his presents or drop his pants, time will tell. December 12.....

[Lorne Ranger]

Hmmmmm board was nieve enough to get the company in this position in the first place.
Has to be some level of incompetence for this to occur.

Hard to argue against that one.

Still, even the best of us make errors, it's what you do to correct it that counts in the long run.

44 days.....

[winner69]

Here's a potential boardbooks customer .....Auckland needs technology she says

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11150308

[Jay]

I thought the same when I read it W69

[winner69]

jesus, who did you guys elect up there??? living in the stone age AND chucking away taxpayer money. DIL is going to have a field day in this country with a new product. cheers for the article winner.

Porirua City has a young mayor .... all their stuff is on a iPad but not Boardbooks ..... prob Belg helped them come up with a in house model

Even seen the Wellington councillors using iPads at meetings ... supposedly the meeting stuff was on there but John Morrison was open at the Cricinfo page or something even worse (jeez Morrison is a wally)

[winner69]

if the DIL sales team is half as good as we know they are, selling to these muppets will be like taking candy from a baby


esp if they package it up as a leather satchel .... or maybe just throw the satchel in as a freebie

[winner69]

Agree but not too happy that it is at my exspence.

Hope they were made in NZ jobs

[Xerof]

There were rumours of more than one person knocking......it might be all coming to a climax.....moosie, whats that lingerie dangling from your antlers for?

[Roadrunner]

RR bouht up large at $5.75. still trying to sell the porsche I believe. his investment will come right one day, but right now that red must be looking a bit painful.

Hello!Well I recently made the decision to sell around half of my Diligent shares at a loss and put the proceeds into Pacific Edge.I have not changed im my view that next year DIL will announce a great new product and list on Nasdaq.I could be wrong but I don`t expect that good news to come until after all the restatements are completed and possibly in Januarys Fourth Quarter results.Fortunately I`ve made a lot of money on DIL in the past so I will take this on the chin and it won`t be the end of the world. This is probably as close as I get to diversifying!I have long been a fan of both companies so it will be interesting to see how things unfold.Still trying to sell the Porsche but not too gutted it hasn`t sold with summer coming :)

[apac]

the moose is back in the hoose! now have even more shares than I did the first time around :)

have bought in on seller weakness today and the support line of $4.30. I am not in ling term here unless we get a sufficient buffer between my buy price and when the re-audit comes out. just looking for a quick in and out ;)

Interesting, how many % do you want to make from your trades?

Why not trade XRO or GEO?

[apac]

Hello!Well I recently made the decision to sell around half of my Diligent shares at a loss and put the proceeds into Pacific Edge.I have not changed im my view that next year DIL will announce a great new product and list on Nasdaq.I could be wrong but I don`t expect that good news to come until after all the restatements are completed and possibly in Januarys Fourth Quarter results.Fortunately I`ve made a lot of money on DIL in the past so I will take this on the chin and it won`t be the end of the world. This is probably as close as I get to diversifying!I have long been a fan of both companies so it will be interesting to see how things unfold.Still trying to sell the Porsche but not too gutted it hasn`t sold with summer coming :)

Buy some XRO too perhaps?

[blobbles]

nah, had my dabble with XRO twice last week and week before, risk vs reward doesn't add up for me now. GEO gave me agreat return as well, but that is just crying out for more fools to come rushing in before the house of cards collapses. DIL is suggesting a triple bottom here with sellers very weak and far between the past two days. I'm looking for 20-30% percent but id take 15 if it tops out sooner ;)

btw, I'm looking to protect my capital here, so not tooooo risky and not tooooo volatile. if I was in GEO right now and it fell to its doom (and it will happen sooner rather than later) I would never forgive myself for being the greater fool. I don't chase silly money :p

Or you could wait for a year moosie and probably double your money :)

[goldfish]

Im always looking to get back into dil, i did well trading it in the downtrend, catching the knife. Will be great to trade it in a uptrend, or hold if/when they sort themselves out.
I just dont know if now is the best time to buy.

[blobbles]

meanwhile, while everyone is busy watching the pie in the sky stocks...

You timed that one nicely didn't you Moosie :)

[blobbles]

Don't you find it fascinating that the one SaaS company that is growing and making a big profit is the one that is dragging its heels in terms of SP rise though? I am looking at GEO and XRO here vs DIL.

It seems that if you are a business that is doing well and has good fundamentals, you most certainly don't have as good a prospects as those that aren't! Seems like quite a lot of insanity on the market these days.

[PlatnuM195]

It seems like it's more to do with publicity right now rather than pure fundamentals. DIL doesn't have quite the public exposure that Xero has which may be affecting it somewhat.

[blobbles]

It seems like it's more to do with publicity right now rather than pure fundamentals. DIL doesn't have quite the public exposure that Xero has which may be affecting it somewhat.

I think you are right and as such each attracts a different kind of investor. Investors in hype and hope that use emotion to make short term profits vs those that use fundamentals and calculations to make mid-long term profits.

[blobbles]

Well, nice big positive hammer confimed by todays price action. nice big blue candle sitting above the 10 day MA is very near term bullish as buyers were in control all day long. RSI going up fast, stochastic way up and the short MACD is crossing bullish over the long MACD (although its still well in negative territory overall). think we should finish up this week testing the 30 day MA of $5.00. a cross above this would also be bullish short term. last time went on a run like this we went from $4.75 to $6.00 (25% rise; also my target here).

DIL may be riding on XRO's coattails but who cares? feels better making money on this rather than XRO where its pretty much guaranteed, more work involved.

Think I might have picked our short term bottm, haven't done that for awhile! :)

Nice to see the charts are aligning! Sometimes it sounds like astrology getting shareprices right... with Venus in a waxing phase and Jupiter drawing to a close...

[blobbles]

Well, nice big positive hammer confimed by todays price action. nice big blue candle sitting above the 10 day MA is very near term bullish as buyers were in control all day long. RSI going up fast, stochastic way up and the short MACD is crossing bullish over the long MACD (although its still well in negative territory overall). think we should finish up this week testing the 30 day MA of $5.00. a cross above this would also be bullish short term. last time went on a run like this we went from $4.75 to $6.00 (25% rise; also my target here).

DIL may be riding on XRO's coattails but who cares? feels better making money on this rather than XRO where its pretty much guaranteed, more work involved.

Think I might have picked our short term bottm, haven't done that for awhile! :)

Nice to see the charts are aligning! Sometimes it sounds like astrology getting shareprices right... with Venus in a waxing phase and Jupiter drawing to a close...

[goldfish]

Good work picking that moosie. I didnt think it was going to do anything for a while.

[Longhaul]

Never held DIL, and never been that keen. If the key thing for SaaS is scalability, then I just can't see DIL ever being used by a massive number of customers. That's why they talk of customer growth in the 100s and not the 1000s. XRO on the other hand is targeting tens of millions of potential customers and based on their execution to date, they have a really good chance of securing a significant market share.

[Xerof]

Maybe use this to find an exit level.... If its harmonic, its on CD leg now

[baller18]

a W bottom here huh moosie?
Wonder if goes on the same run as CAV did... hmmm...

[blobbles]

Never held DIL, and never been that keen. If the key thing for SaaS is scalability, then I just can't see DIL ever being used by a massive number of customers. That's why they talk of customer growth in the 100s and not the 1000s. XRO on the other hand is targeting tens of millions of potential customers and based on their execution to date, they have a really good chance of securing a significant market share.

True, but will XRO ever make money? At least DIL proved that they can by providing a premium service to a niche market...

[RTM]

Found there new product. Obviously been studying Apple and will start with younger generation as per iPod -> iPad -> iMac evolution4988

[Mobius]

Let's be clear here: the number of potential users of Boardbooks IS measured in millions.

For there are hundreds of thousands of organisations who can benefit from it. Boardbooks has no downsides in use, except for the team who assemble, copy, and distribute the materials, who are no longer required, and can be reassigned or made redundant. Just one person, working part time can do the work which used to take a team of people weeks of full time work. Also, the stress associated with late documents, and late changes is completely removed from the process. What's that worth?

Version 3 of the software was specifically designed to scale well into the hundreds of thousands of users, and the (lower) added cost of increasing user numbers is reflected in the increasing margins as user numbers escalate.

Please keep in mind that some of DIL's clients have very small numbers of users (Say 4 or 5) while others have more than 1,000 users. So the system remains economic and beneficial for any number of users within an organisation.

Also, expect DIL to keep penetrating further into their existing client's meeting groups: it is entirely typical for just a Main Board to adopt Boardbooks initially, and then for committees to be added later on. This is shown by the ever-increasing number of client upgrades reported each quarter. As client numbers increase, so does the revenue from upgrades.

As was reported earlier, there is no automated way for existing clients to upgrade their accounts: a major hole in the system, which costs Diligent too much when dealing with upgrades. Expect this to change as online tools for clients to manage their own accounts are added to the suite of software tools available. This was a feature I pushed for while at Diligent, but it was not considered a priority at the time. That priority must have changed already (as we can see by the time it has taken the bean counters to trawl the tens of thousands of manually created upgrades) and internally, there must be a great deal of work taking place to fill the holes which are now appearing.

[Mobius]

RTM: that's funny!

I used to manage the Boardbooks.com web site back in the day, and it was always this kind of "board books" which would show up in Google natural search results when we first launched the product, and the site didn't show up in the first 30 results. We spent a lot of time optimising the site for natural search, and over time the site floated to the top of the results, pushing the very many listings for the kids books down the rankings.

Initially, the only traffic to the DIL site was via the USD200,000 per annum Google Adwords campaign, which I also managed. I have to say that Adwords was utterly brilliant, and a real factor in driving high quality traffic to the site in the early years.

[iceman]

DIL
07/11/2013 12:26
DIRECTOR

REL: 1226 HRS Diligent Board Member Services INC (NS)

DIRECTOR: DIL: Diligent - Appointment of Independent Director

November 7, 2013

Diligent Board Member Services, Inc. (Diligent)
Appointment of Independent Director - Mr. Larry Jones

The Board of Directors of Diligent met today. At that meeting the Board
resolved to increase the size of the Board to seven and to appoint Mr. A.
Laurence (Larry) Jones to fill that casual vacancy as an independent director
pending the next annual meeting of Diligent. Mr. Jones' appointment as a
director of Diligent will be voted on by shareholders at the next annual
meeting.

Mr. Larry Jones has over 25 years of experience in building, operating and
growing world-class public and private companies in the Enterprise Software,
Marketing and Internet Services, IT Serices and Security, Financial
Information Services and Business Process Outsourcing industries. Mr. Jones
currently serves as the Executive Chairman of Coalfire Systems, Inc., a
provider of IT audit, security and compliance solutions. He is a certified
National Association of Corporate Directors (NACD) Fellow and is also
chairman of the Advisory Board of the Deming Center for Entrepreneurship and
on the board of the Leeds School of Business, both at the University of
Colorado. Over the past 10 years, Mr. Jones has served as director of
numerous public and private companies including Comverge, Work Options Group,
StarTek, Exabyte, Activant Solutions, Realm Solutions, SARCOM, WebClients,
DIMAC and Fulcrum Analytics.

Mr. Jones is based in the United States. He graduated from Worcester
Polytechnic Institute with a degree in computer sciences in 1975 and earned
his MBA from Boston University in 1980.

Mr. Jones will be a member of the Compensation and Audit and Compliance
Committees. He replaces Mr. Carrabino on the Compensation Committee and will
be the Chairman of this committee. Also, Mr. Greg Petersen will become
Chairman of the Audit and Compliance Committee.

Diligent Chairman David Liptak said, "We are pleased to have Larry Jones join
the Diligent Board. His experience in the software industry, as both a CEO
and a director of a number of different companies, will add notable value to
the Board."

Mr. Jones will join the board from today and the changes to the committees
will occur simultaneously.

Investor inquiries:
Sonya Joyce
Phone: +64 4 894 6912

Media inquiries:
Geoff Senescall
Phone: +64 21 481 234
End CA:00243479 For:DIL Type:DIRECTOR Time:2013-11-07 12:26:03

[winner69]

Good news that announcement... Hope he tells them they have stuffed up big time and this is how you put the house back in order

[iceman]

Good news that announcement... Hope he tells them they have stuffed up big time and this is how you put the house back in order
Yes lets hope so winner. I particularly liked this sentence "Mr. Jones currently serves as the Executive Chairman of Coalfire Systems, Inc., a provider of IT audit, security and compliance solutions." :)

[iceman]

Interesting that DIl was in freefall this morning and stood at $ 4.25 when this announcement was made. Has recovered to $ 4.50 in the half hour since. A coincidence or is the market reacting favourably to this announcement ?

[jonu]

Yes lets hope so winner. I particularly liked this sentence "Mr. Jones currently serves as the Executive Chairman of Coalfire Systems, Inc., a provider of IT audit, security and compliance solutions." :)

My thoughts exactly Iceman. I just dipped my toe back in the water at 436.

[blobbles]

My thoughts exactly Iceman. I just dipped my toe back in the water at 436.

Agree, sounds positive!

Looks like DIL is missing out on the irrational exuberance infecting another 2 SaaS stocks. As I am a long term investor I am pre happy about that, but the short term part of my brain is scratching itself!

[winner69]

Some 111 trading days since the highs in July and DIL is still almost on the linear regression line .... spooky eh

Downward trend for 111 days .... at the rate of 0.5% per day ....ouch

How long can the market remain so irrational .... whatever that means

[robbo24]

How long can the market remain so irrational .... whatever that means

Haters gonna hate

[Whipmoney]

Haters gonna hate

The Markets turning a blind eye on this one due to the dazzling lights of Xero and GeoOp. Perfect time to start acquiring, because if she hits above 200 licence agreements in the next quarter shes going to take off again...

[blobbles]

Kind of want it to stay lower and fly under the radar for now TBH, if it keeps low I will soon by swapping some from another investment.... so please everyone ignore DIL for a little while longer! Go invest in XRO, I am sure it will fly up to the $45 valuation and beyond :)

[robbo24]

The Markets turning a blind eye on this one due to the dazzling lights of Xero and GeoOp. Perfect time to start acquiring, because if she hits above 200 licence agreements in the next quarter shes going to take off again...

Are the lights of GeoOp really that dazzling?

I still hold DIL and have done in varying amounts all year.

DIL makes a profit, invests wisely in R&D and has a good foothold in the industry.

All of this hullabaloo is just that - hullabaloo.

The only sincere shame is that is has knocked the confidence of investors. I am hopeful it will all come out in the wash.

[iceman]

Are the lights of GeoOp really that dazzling?

I still hold DIL and have done in varying amounts all year.

DIL makes a profit, invests wisely in R&D and has a good foothold in the industry.

All of this hullabaloo is just that - hullabaloo.

The only sincere shame is that is has knocked the confidence of investors. I am hopeful it will all come out in the wash.

My thoughts exactly robbo24. While I am very disappointed with recent events to do with restatements and how long we've been kept in the dark, I have yet not seen any indication that the restatement will change where the company is and where it is going. Many big name software companies have been caught out in the same way DIL has and have had to restate their accounts. Not a big deal but of course has had a very negative result on market sentiment. It doesn't concern me too much though as the fundamentals seem to be pretty much the same as when I invested some time ago. The profits and cash keep on coming in !

[Toasty]

you buy next week sub $30 and get a 50%+ return when Credit Suisse target is hit (come on, we all know it will...). I'm not in though; other people to do and things to see ;)

These threads are really starting to cross pollinate now. I am assuming that this is a Xero comment. Its getting hard to keep up.:)

[robbo24]

you buy next week sub $30 and get a 50%+ return when Credit Suisse target is hit (come on, we all know it will...). I'm not in though; other people to do and things to see ;)

Moosie is on that forest brew again

[winner69]

Everybody deserted the ship

No posts for nearly 3 days

What's up?

[Balance]

Everybody deserted the ship

No posts for nearly 3 days

What's up?

Hard to trade or talk about a downtrending stock?

[Lorne Ranger]

I'm still in here, gathering twigs and keeping the fire going. Its a dark cold cave, but still more fun than the Xero thread, those guys are joyless!

[Lorne Ranger]

hmmmm Moose steak... been eating nothing but roots for a month now....

[couta1]

Own 12k shares at purchase price of 7.16 each I think you can work out what that means but I'm standing firm on this one I'd rather put up with accounting errors than a stock being controlled by bleaters and people pushing their own agendas ie CNU

[blackcap]

With my vegetarian partner, tasty meat is hard to come by!

You poor bastard. My mate used to be vegetarian but has recently switched to eating meat again. Much happier having him round for a barbie now.

[JohnnyTheHorse]

righto people, any estimates for upcoming quarterly profit and new users? need to get this thrwad up and running again!

I have absolutely no idea on that one. Has been far too variable. I'm hoping for one more drop to around $4 before the restatement, that would make a nice trade. Don't think I'll buy back in for a longer term hold until after the restatement and sentiment turns positive again.

[Lorne Ranger]

righto people, any estimates for upcoming quarterly profit and new users? need to get this thrwad up and running again!

Ha just like old times eh? OK I'll play. Well, if I remember rightly you suggested 90 new customers for the 4th quarter based on the trend of recent figures, but I'm expecting a little climb from the last quarter, Dil specified a slow July and August (but not September) so there is reasonable optimism for a better following quarter. Feels like a loooong way there though. If it hits 140 that is a reasonable result in my opinion, but hardly a cause to crack open the bubbly. Given the trend I cant see people buying into Dil much prior to that announcement though, or perhaps only the very brave. I'm still holding but it is as much from a weird hybrid of stubbornness and pity more than it is genuine excitement.

[Lorne Ranger]

yup still betting 90ish. better to play this one conservatively, but fortune favours the brave, and I hope it pays off for you lorne ;)

Fair enough. So youre clearly not in this for the medium term then if you have that expectation? Why are you back in Dil? It's volatile, are you just trading on the highs and lows in the interim? I could understand that, and heck Dil owes us both a fair packet im sure, so is that the plan for now?

[Monty]

Haven't diligent brought on extra sales staff some months back? I can't find the link ( and don't have time to look for it) but if some months back additional sales people were brought on board, then hopefully that investment is going to pay dividends and the number of sales will increase. I still have faith that Diligent will recover but getting quite tired of the waiting. Maybe time to ignore this stock until late January 2013.

[JayRiggs]

30 more days to the half year result on 12th December.
Countdown 30 days to go!

[Monty]

30 more days to the half year result on 12th December.
Countdown 30 days to go!

Well I bought at $3:40 eighteen months ago. It has been a roller coaster. But one I prefer to earning 3% in the bank. Yes the next announcement will be nice, and Nasdaq and new product. So I'm not selling or buying. Just watching.

At at present I am waiting in anticipation of the 21 nov when a company I invested in over a year ago finally lists. That is my countdown.

[Harvey Specter]

At at present I am waiting in anticipation of the 21 nov when a company I invested in over a year ago finally lists. That is my countdown.who is that. Which exchange. Compliance listing or raising extra cash?

[blobbles]

cant get a handle on the dirrection of DIL share price.
One thing is for sure it wont be anywhere near the current SP at the end of the year.
whether that is up or down is a flip of a coin.
disc hold a few bought for less than current share price but not prepared to risk anymore on the flip of a coin.

Yep, depends how you value the company. But my valuation for these guys as a normal company stands at worse case as about $6 with 30% growth rate. As a SaaS company though with this growth rate everyone is irrationally scared!

[robbo24]

Today is such a god-awfully slow day on the NZX... I am so sick of DIL pottering along too. Yawn.

[winner69]

Today is such a god-awfully slow day on the NZX... I am so sick of DIL pottering along too. Yawn.


Easy solution ......sell the flea ridden dog called DIL

And out th cash to productive use

[Whipmoney]

Yep, depends how you value the company. But my valuation for these guys as a normal company stands at worse case as about $6 with 30% growth rate. As a SaaS company though with this growth rate everyone is irrationally scared!

Yeah I did a quick comparison of DIL and SUM (Summerset) and DIL has more sales, roughly equal profitability (~$10m) and spits out more cash due to deferred revenues yet is valued at roughly half the market cap.

The big difference of course is the large amount of Property Sum has on its balance sheet which admittedly makes it a much less risky venture than DIL but in terms of earning power, growth trajectory and underlying cash-flow, DIL is way ahead.

[fiasco]

I'm still definitely learning on how comparisons can be made, but is there any particular reason why you would compare two entirely different industries? I understand the only thing these two organisations have in common is the profitability? :)

[winner69]

Yeah I did a quick comparison of DIL and SUM (Summerset) and DIL has more sales, roughly equal profitability (~$10m) and spits out more cash due to deferred revenues yet is valued at roughly half the market cap.

The big difference of course is the large amount of Property Sum has on its balance sheet which admittedly makes it a much less risky venture than DIL but in terms of earning power, growth trajectory and underlying cash-flow, DIL is way ahead.

The deferred revenue shown in DIL financials is already in the cash flows shown

Or do you mean the future income if retention rates are high?

[Whipmoney]

The deferred revenue shown in DIL financials is already in the cash flows shown

Or do you mean the future income if retention rates are high?

Both:
1) The deferred revenues contribute to underlying cash-flow over and above the traditional revenues reported in the P&L.
2) All else being equal (e.g. rentention rates) deferred revenue should automatically convert to recognised Revenue meaning that there is already organic growth in the forward sales numbers, over and above that achieved from new licence sales.

[blobbles]

Easy solution ......sell the flea ridden dog called DIL

And out th cash to productive use

Yep I hate companies which make bucket loads of profit, have good growth and big potential. Hate them :-p

Would rather be in a company that has great growth but no profit in sight? You must be joking. Calling DIL a flea ridden dog is dangerous as we are likely to call you out on that in the future.

[Whipmoney]

I'm still definitely learning on how comparisons can be made, but is there any particular reason why you would compare two entirely different industries? I understand the only thing these two organisations have in common is the profitability? :)

Just out of interest I guess. I know they're Apples and Oranges is the largest sense as one generates income from physical property and the other generates all of its income from an intangible product that sits in somewhere in the cloud.

That being said, business is business and cash is king so I made a quick comparison to see how the cash-flows stack up relative to their market caps, and from that I could deduce DIL is relatively undervalued (even after taking into account the difference in their balance sheets).

[fiasco]

Ah I see, excellent. Appreciate this :)

I suppose my interest with DIL is still there, I did buy some before the downtrend and sold for a profit, but I think they still have great capability, especially given the new products that seem to be in development for next year.

Hoping to get in again at some stage, just unsure when as the SP seems to be fluctuating from the low $4 to around the $4.50 margin. I suppose as a mid to long term investment I shouldn't worry about the fluctuations. Once the renstatement is completed I think that will ease my decision.

[Harvey Specter]

Yeah I did a quick comparison of DIL and SUM (Summerset) and DIL has more sales, roughly equal profitability (~$10m) and spits out more cash due to deferred revenues yet is valued at roughly half the market cap.NOt sure 'spiuts out more cash' is correct. Residents pay upfront for their units and only get a refund of 75% when they leave whil SUM gets teh 25% plus any capital growth.

[blobbles]

Just out of interest I guess. I know they're Apples and Oranges is the largest sense as one generates income from physical property and the other generates all of its income from an intangible product that sits in somewhere in the cloud.

That being said, business is business and cash is king so I made a quick comparison to see how the cash-flows stack up relative to their market caps, and from that I could deduce DIL is relatively undervalued (even after taking into account the difference in their balance sheets).

I do the same analysis with current growth too and find the same result. As long as nothing big comes up from their restatement they should return to their fundamental forward value. Any good news (new product, faster growth) and this will sky rocket in the current market.

[winner69]

Both:
1) The deferred revenues contribute to underlying cash-flow over and above the traditional revenues reported in the P&L.
2) All else being equal (e.g. rentention rates) deferred revenue should automatically convert to recognised Revenue meaning that there is already organic growth in the forward sales numbers, over and above that achieved from new licence sales.

1) correct

2) correct

You seem to be getting cash flows and (Recognised) Revenues mixed up when you talk about spitting out heaps more cash from deferred revenues

Never mind ...both look they are going up eh

[robbo24]

I think the restatement will make the company appear smaller in the past but bigger in the current day analysis.: page 4, https://www.nzx.com/files/attachments/185208.pdf


The Company previously disclosed that revenue attributable to particular customer agreements was recognized from the beginning of a month rather than from the date of contract signing, and that the Company failed to defer revenue recognition until customers are provided access to the Company's hosting environment, as required by U.S. GAAP. The Company will correct these errors. The effect of the errors was to accelerate the time when revenues were recognized under the Company’s customer agreements.

The Company will make an additional correction as a result of a comment letter received from the Staff of the Division of Corporation Finance of the SEC in connection with its review of the Company’s filings. In response to the comment, the Company plans to recognize revenue from installation fees under the Company’s customer agreements over the period during which the customer receives the benefit of the installation services, which is a longer period than the twelve month contract term over which the Company previously recognized such revenue. The effect of the Company’s prior policy also was to accelerate the time when revenues (in this case installation fees) were recognized.

[robbo24]

Another late filing form, what a surprise!

This is the one for the Yanks... Settle down Moose. Says the same thing except to expect more revenue recognized in later years!

[winner69]

I think the restatement will make the company appear smaller in the past but bigger in the current day analysis.: page 4, https://www.nzx.com/files/attachments/185208.pdf

OMG that will confuse whipmoney

Says don't worry about the P&L and what that says .... just focus on the Cash Flow statement to see how things are going

[pierre]

This is the one for the Yanks... Settle down Moose. Says the same thing except to expect more revenue recognized in later years!

Yes, stay calm Moose - the cash is in the tin - we just need to know which accounting period(s) it actually relates to. Don't really think there's much to see here.

Now waiting for the restatement and for a rebound in the SP once the announcement is made next month - hope the audit fees aren't too high though!

[robbo24]

OMG that will confuse whipmoney

Says don't worry about the P&L and what that says .... just focus on the Cash Flow statement to see how things are going

I don't understand what you mean, man... Plz expln

[Mista_Trix]

... ...hope the audit fees aren't too high though! ...

...we shall see, it could be awfully painful.
Here's hoping not.

[winner69]

I don't understand what you mean, man... Plz expln

First part - Just that whipmoney seemed a bit confused the other day about cash flow and spiting out deferred revenues. This announcement will please him no end if deferred revenues are even better.

Second part - the inflows part of the Cash Flow statement is essentially revenues as per the P&L plus/minus the movement in the Deferred Revenues in the Balance Sheet. I am just saying the best way to track how thing s are going are just tracking the Operating Cash Flows (the real money) and forget what they report as revenues. After all if anybody was doing a DCF they use cash flows anyway.

[Whipmoney]

First part - Just that whipmoney seemed a bit confused the other day about cash flow and spiting out deferred revenues. This announcement will please him no end if deferred revenues are even better.

Second part - the inflows part of the Cash Flow statement is essentially revenues as per the P&L plus/minus the movement in the Deferred Revenues in the Balance Sheet. I am just saying the best way to track how thing s are going are just tracking the Operating Cash Flows (the real money) and forget what they report as revenues. After all if anybody was doing a DCF they use cash flows anyway.

I wasn't confused about deferred revenues.

What I was saying was that deferred revenues is cash the company receives up front for services not yet rendered. This is real cash-flow over and above the cash-flows from the company's traditional revenue stream. Furthermore the company will likely retain a decent percentage of this deferred revenue as gross margin (which will effectively be recorded in the future when the revenue is recognised).

What i'm saying is that deferred revenue is additional cash-flow over and above the cash impact transactions recognised in the P&L.

Also in terms of your first point above, this doesn't have any impact as the mix between deferred revenues and recognised revenues may change but this will have no bearing on overall cash-flow.

[pierre]

I wasn't confused about deferred revenues.

What I was saying was that deferred revenues is cash the company receives up front for services not yet rendered. This is real cash-flow over and above the cash-flows from the company's traditional revenue stream. Furthermore the company will likely retain a decent percentage of this deferred revenue as gross margin (which will effectively be recorded in the future when the revenue is recognised).

What i'm saying is that deferred revenue is additional cash-flow over and above the cash impact transactions recognised in the P&L.

Also in terms of your first point above, this doesn't have any impact as the mix between deferred revenues and recognised revenues may change but this will have no bearing on overall cash-flow.

Hmmmm... I'm not sure that clarifies much for me.

I think it's best we all wait patiently for the beanies at Deloitte to complete their unravelling of the accounting issues and for an announcement of the outcome from DIL early-mid December - hopefully not on Friday 13th though!

[winner69]

I wasn't confused about deferred revenues.

What I was saying was that deferred revenues is cash the company receives up front for services not yet rendered. This is real cash-flow over and above the cash-flows from the company's traditional revenue stream. Furthermore the company will likely retain a decent percentage of this deferred revenue as gross margin (which will effectively be recorded in the future when the revenue is recognised).

What i'm saying is that deferred revenue is additional cash-flow over and above the cash impact transactions recognised in the P&L.

Also in terms of your first point above, this doesn't have any impact as the mix between deferred revenues and recognised revenues may change but this will have no bearing on overall cash-flow.

Correct ... I agree

Suppose we just the same thing differently methinks

[winner69]

Hmmmm... I'm not sure that clarifies much for me.

I think it's best we all wait patiently for the beanies at Deloitte to complete their unravelling of the accounting issues and for an announcement of the outcome from DIL early-mid December - hopefully not on Friday 13th though!

Cash flow won't change .....even quarter by quarter .....maybe take some r&d stuff out of operating cash flow and put in investment cash flow ....but total stays th same .......and this year so far not as good as last year

[Monty]

I truly believe the restatement of the accounts is not much more than an ongoing red herring. A major distraction. That has led to minimal information being released and as a consequence nervous shareholders. But the real issue is sales and product development, and hopefully the NASDAQ listing. We know a product is in development, hopefully advanced, we know they have brought on additional sales staff, so hopefully sales will pick up, and together with the SaaS model and 97% retention! I believe good news is just around the corner. And finally the NASDAQ listing. This year has been a pain in the a*** hurdle. hopefully 2014 will be a good year.

[Balance]

Growth is your sp driver right now. if you don't believe me, look at what stocks are in winning mode right now. if new clients are even less than last quarterly, expect more sp pain. nothing else matter, unfortunately, in such a market. put your irrational thinking cap on ;)

Not true, Moosie.

What you are seeing with so-called growth punts like Snakk, GeoP etc are traders punting in and out, and working their views accordingly to suit.

Seen it too many times before.

DIL is in holding pattern with short term traders bailing out because the institutions are on the sidelines until the restatements are out.

Watch when the institutions get back in, the short term traders will be waxing lyrical again.

Notice how a single large buy order sends the sp up rapidly? Short term traders are watching this stock like a hawk because of its volatility.

[blackcap]

Growth is your sp driver right now.

Do you mean EPS growth Moosie? Because that is generally correct. EPS growth drives share prices....

[winner69]

Do you mean EPS growth Moosie? Because that is generally correct. EPS growth drives share prices....

Those were the old days black .......these days aren't things valued as a multiple of sales?

[Harvey Specter]

Those were the old days black .......these days aren't things valued as a multiple of sales?Sales sometime but definitely not earnings (ie. Profits).

[blackcap]

Those were the old days black .......these days aren't things valued as a multiple of sales?

I may just have to go back to school and re-do my finance courses and learn the new way of valuing things.

[Baddarcy]

hi there, Just want to make sure everyone notice this little gem hidden on the last page....haven't seen any comments on it, im guessing the $$$ value was so low it wasn't worth the effort?


-----
The Company previously stated that it would capitalize certain costs associated with software developed for internal use, which costs were previously
expensed. Based on additional work in connection with the restatement and reaudit, the Company does not plan to capitalize such costs and accordingly no correction will be made in respect of this item.

[Baddarcy]

hi there, Just want to make sure everyone notice this little gem hidden on the last page....haven't seen any comments on it, im guessing the $$$ value was so low it wasn't worth the effort?


-----
The Company previously stated that it would capitalize certain costs associated with software developed for internal use, which costs were previously
expensed. Based on additional work in connection with the restatement and reaudit, the Company does not plan to capitalize such costs and accordingly no correction will be made in respect of this item.

[Harvey Specter]

hi there, Just want to make sure everyone notice this little gem hidden on the last page....haven't seen any comments on it, im guessing the $$$ value was so low it wasn't worth the effort?


-----
The Company previously stated that it would capitalize certain costs associated with software developed for internal use, which costs were previously
expensed. Based on additional work in connection with the restatement and reaudit, the Company does not plan to capitalize such costs and accordingly no correction will be made in respect of this item.Technically you don't get a choice - you have to follow the accounting standard so I assume the Auditors didn't think it met the criteria (or they convinced the auditor it didn't meet the criteria).

[Citizen Erased]

I initially bought into DIL in early July at $6.81, just before the string of bad news was announced (whoops). Added to my holding today at $4.26, to lower my average cost, as it seems to have settled around this price level. That will either turn out to be a good move or a really dumb move. Guess I'll know in a few weeks. :mellow:

[baller18]

I initially bought into DIL in early July at $6.81, just before the string of bad news was announced (whoops). Added to my holding today at $4.26, to lower my average cost, as it seems to have settled around this price level. That will either turn out to be a good move or a really dumb move. Guess I'll know in a few weeks. :mellow:
I have learnt, never average down in a downtrend , average up

[blobbles]

I initially bought into DIL in early July at $6.81, just before the string of bad news was announced (whoops). Added to my holding today at $4.26, to lower my average cost, as it seems to have settled around this price level. That will either turn out to be a good move or a really dumb move. Guess I'll know in a few weeks. :mellow:

Recommend you wait for a year Citizen Erased, hopefully by that time we may have this new product people are talking about and the price will reflect fundamentals again. Of course if the story changes for better/worse get in/out quick!

[Corporate]

Guys I haven't been reading the DIL thread. However, in the background I have been pulling together a model to attempt to forecast the FY13 EBITDA and ultimate NPAT. To do this I started with FY12 and Q12013 and rolled it forward using the information in the market updates regarding, net new customers, closing cash and other large cash movements such as tax in Q2 and special committee costs.

The result, by my calculations is that DIL is treading at about a PE of 24x. This IMO is about right at the current customer growth rate of 6% per quarter combined with the accounting irregularities. However, of growth in customer numbers can pick back up then DIL is very cheap!

[couta1]

Don't worry citizen erased I'm sitting on 12k shares at average price of 7.16 won't be averaging down anymore did that when it was 6.20, sitting on $30k loss is enough for me but not realising this loss.

[blobbles]

Guys I haven't been reading the DIL thread. However, in the background I have been pulling together a model to attempt to forecast the FY13 EBITDA and ultimate NPAT. To do this I started with FY12 and Q12013 and rolled it forward using the information in the market updates regarding, net new customers, closing cash and other large cash movements such as tax in Q2 and special committee costs.

The result, by my calculations is that DIL is treading at about a PE of 24x. This IMO is about right at the current customer growth rate of 6% per quarter combined with the accounting irregularities. However, of growth in customer numbers can pick back up then DIL is very cheap!

Similar to my calculations, yes, DIL is quite cheap, particularly considering its good growth and future prospects. Get in with a grin, I say, I will be topping up again in the rather near future...

[Wolf]

I'm waiting for the restatements before buying in again.

[Citizen Erased]

I have learnt, never average down in a downtrend , average up

I know/agree, but I'm only a small holder, so it would be more accurate to say I bought a small holding at $6.81 and another small holding at $4.26, rather than averaging in. I'm taking a risk/gamble the next announcement will be a positive one.

[Citizen Erased]

Recommend you wait for a year Citizen Erased, hopefully by that time we may have this new product people are talking about and the price will reflect fundamentals again. Of course if the story changes for better/worse get in/out quick!

One year is about what I'm planning on. In fact, I plan on completely exiting the share market by early 2015. I believe 2015 will be the year of bank bail-ins and when that time comes I want to own hard assets only, no paper assets.

Bank bail-ins are being openly talked about now like it's no big deal. You could say what happened in Cyprus was just a practice run. All western economies are preparing for it with the necessary legislation.
http://in.reuters.com/article/2013/11/12/us-ecb-weidmann-idINBRE9AB0KU20131112

[Corporate]

Similar to my calculations, yes, DIL is quite cheap, particularly considering its good growth and future prospects. Get in with a grin, I say, I will be topping up again in the rather near future...

Only if growth in customer numbers picks back up. Otherwise there isn't enough upside for me!

[ddrone]

Technically you don't get a choice - you have to follow the accounting standard so I assume the Auditors didn't think it met the criteria (or they convinced the auditor it didn't meet the criteria).

Materiality rules. Clearly this isn't material.

[Harvey Specter]

Materiality rules. Clearly this isn't material.i am not sure materiality comes into it when determining a policy and restating. It might not be material one year but over a period of time, it may become material. Unless it is really small.

[Ginger_steps_]

One year is about what I'm planning on. In fact, I plan on completely exiting the share market by early 2015. I believe 2015 will be the year of bank bail-ins and when that time comes I want to own hard assets only, no paper assets.

Bank bail-ins are being openly talked about now like it's no big deal. You could say what happened in Cyprus was just a practice run. All western economies are preparing for it with the necessary legislation.
http://in.reuters.com/article/2013/11/12/us-ecb-weidmann-idINBRE9AB0KU20131112

That is scary! However I think if this were to happen then: A, there would be good money to be made buying in to the right banks - albeit risky. And B, If it were to become common practise the public would go wild - I think with the benefit of hindsight round 2 of "Occupy wall street" would be a hell of a lot more effective - and this time it would be the ones with money/power leading the protests!

[Stranger_Danger]

Citizen Erased - I share your concerns, to a point.

So, if you sell all your shares, you can't go to cash, as that takes you back to the banks?

Hard assets will have some value, but that is well telegraphed.

Which ones? Houses? House prices are largely a function of debt and low interest rates. What will bank bail ins do to these?

Plus, your hard asset prices are set by the market - - most participants will have debt, even if you don't, which takes us back to failing back.

So what is the answer? I did alright with gun makers during the GFC (yeah, it isn't ethical investing) but you should check out the valuations on some of those bad boys.

Debt collectors have been great since 2008, but people can refinance and there hasn't been widespread bankruptcy or failure.

The other thing is, say there are widespread bank bail ins and everyone loses 40%, for example. Are you sure everything else - virtually all assets, especially those funded by debt - won't fall more than 40%? What if the whole world is actually overvalued by 40%, due to interest rate manipulation and money printing, and a 40% bail in is just a jubilee in reverse?

Don't get me wrong - I share your concern. But I struggle to see a single magic bullet that avoids exposure.

[winner69]

Citizen Erased - I share your concerns, to a point.

So, if you sell all your shares, you can't go to cash, as that takes you back to the banks?

Hard assets will have some value, but that is well telegraphed.

Which ones? Houses? House prices are largely a function of debt and low interest rates. What will bank bail ins do to these?

Plus, your hard asset prices are set by the market - - most participants will have debt, even if you don't, which takes us back to failing back.

So what is the answer? I did alright with gun makers during the GFC (yeah, it isn't ethical investing) but you should check out the valuations on some of those bad boys.

Debt collectors have been great since 2008, but people can refinance and there hasn't been widespread bankruptcy or failure.

The other thing is, say there are widespread bank bail ins and everyone loses 40%, for example. Are you sure everything else - virtually all assets, especially those funded by debt - won't fall more than 40%? What if the whole world is actually overvalued by 40%, due to interest rate manipulation and money printing, and a 40% bail in is just a jubilee in reverse?

Don't get me wrong - I share your concern. But I struggle to see a single magic bullet that avoids exposure.

So we all stuffed then?

[Stranger_Danger]

I don't know.

I also don't think you can just plan around one outcome.

The two broad views are

(a) Too much debt and all our other problems are nothing new. We'll muddle through. We always have.

(b) That line has worked for decades. One day, the can won't let you kick it any further down the road.

My strategy, as much as I have one, is

(a) Stick to my knitting. Focus on trying to buy undervalued assets and sell them when they become overvalued.
(b) Demographics and industry trends matter.
(c) Sitting on cash isn't wrong, but diversify across banks and currencies.
(d) Never consider the risk free rate of return when considering whether an asset is overvalued, because the risk free rate of return has been manipulated to juice up the price of everything else.
(e) Selling is harder than buying - even if you pay brokerage, then pay more the next day to buy the asset back, you've made two clear decisions. Sitting on your hands, especially when your instinct says not to, is no decision at all.
(f) No "all in" bets.
(g) Have a little faith, which is hard for me. The truth is, is true calamity comes (ie widespread bank failure, depositor haircuts), I'm not sure there is anywhere to hide. Portfolio decisions which purport to hide will be disasters in almost any climate but widespread failure (bunkers, anyone?) so have a spread of assets, try and retain your intellectual freedom and don't be married to any one outcome or thought.

[klid]

Yeah back to Diligent.

I bought these bad boys when they suddenly dropped to $5.50 in mid July and sold a couple of days later for $6.50.
That was good!
Then when it fell to $5.50 again I bought more. Held during August and September of course thinking by now why oh why didn't I get Xero instead/as well!?

Topped up a little more at $4.27. I think I have still made a (slight) profit over all.

I really do like their prospects. The price was over $8 near the start of this year, prior to that it kinda nearly exactly mirrored Xero, all until this restatement business and the other small news.
Is this restatement and the drop in customers (which are related at least to some degree right!?) reason enough for the difference between XRO/DIL to be so great!?! Maybe XRO is overvalued (or just assuming that everything is going to go right -- maybe it will), but I do think the DIL price is cheap and can't go a hell of a lot lower.

But I don't know much. But, I do know they have ~83.5m shares on issue and have about $65 million in cash and growing. So the cash is $0.76 a share -- is that kinda correct to say that? And given the future..... yeah!

I am excited and will most definiely hold and even accumulate if I can! :D

Oh and I think it's good about the fact that in the limited update for Q3 it was mentioned that the 121 new clients were mainly due to slower sales in July/Aug -- leading to believe that Sept was better averaged and therefore the final quarter will deliver a modest improvement on the 121! :)

[Corporate]

Klid

Be very careful, on a fully diluted basis the DIL shares on issue total more like 127mln rather than the 83.5mln you have quoted. This changes the calculation significantly.

Also XRO and DIL are not comparable.

The accounting issues haven't helped confidence. But IMO the large drop in customer growth is the biggest problem right now.

[robbo24]

Things can't be all bad... Nice new digs...


November 19, 2013

Diligent Board Member Services, Inc. (Diligent)
Change of US Registered Office

Diligent Board Member Services, Inc advises that in accordance with Rule 10.8.1(e) of the NZSX Listing Rules with effect from November 18, 2013 (EST), its US Registered Office will be changed to:

1385 Broadway,
19th Floor,
New York,
NY 10018,
United States of America

The new office at 1385 Broadway is located between 37th and 38th Streets in New York City. The company signed a 10-year lease for a full floor, measuring approximately 22,000 square feet in the 23-story office building, to meet the needs of its rapidly expanding employee headcount and continue to deliver award-winning client service.

Diligent increased its employee base in New York by 36 percent over the last year, growing to about 90 employees in the third quarter of 2013 up from 66 employees a year earlier. At its previous office location, Diligent started with one floor and expanded to three isolated floors totaling 13,500 square feet of space over a seven-year period.

“Our new, larger office space will facilitate greater collaboration amongst our employees, and the better work environment will further boost satisfaction and aid our recruitment efforts,” said Alex Sodi, Diligent’s president and CEO. “We wanted to move to a location that caused minimal disruption to our employees’ commutes, and was large enough to accommodate our business needs.”

Diligent’s expanding service and support team has scaled to match its global client growth rate over the past year. Instead of one account manager for each customer, Diligent assigns each client a complete service team for the duration of the relationship. In June 2013, Diligent was awarded a Gold Stevie Award in the “Customer Service Team of the Year” category and a Bronze Stevie Award in the “Customer Service Department of the Year,” recognizing the company’s continued dedication to exemplary client service.

[muss1]

Looks like from DILs point of view growth is going well. Makes the next quarter results look like something to look forward to

[iceman]

Yes it is nice to see a little more positive and steady as she goes business announcements returning. The new offices and big growth in employee numbers will need to be funded from client and revenue growth, which we will hopefully see confirmed in December !

[Monty]

CBRE did a study some years ago in respect of office upgrades and moves. The study found a 20% uplift in productivity. This was brought about be better employee engagement, nicer offices, collaboration etc. the move also represents a confidence in the business. While 2013 has been a dog, I fully expect 2014 to be a great year for diligent as the stars and planets align.

[Harvey Specter]

Things can't be all bad... Nice new digs...A lot larger too 13,500 to 22,000 sqf so eitehr very big corner offices or lots of room for growth.

They are pretty much as the top too as the top few floors aren't full footplates.

[jonu]

I think there is some good news to be read between the lines here. They're basically saying they need the space because of their sustained growth, which I think is what the market has been worrying about.

[Mista_Trix]

Good lift first thing from this news as well.

[Harvey Specter]

I think there is some good news to be read between the lines here. They're basically saying they need the space because of their sustained growth, which I think is what the market has been worrying about.or that they need more space for an enlarged accounting team - just jokes

[jonu]

Regular amounts of 5000 shares being unloaded. An insto unloading?

[psychic]

C'mon now Moosie, you are up to your old bagging tricks again. $15000 worth of shares going through at $4.15 does not really justify the "watch out below" call eh.

[TimmyTP]

retest of $4.00 on its way. watch out below people!

the market can stay irrational much longer than you can stay solvent. I reiterate, wait for a great announcement before buying back in to DIL. noone knows how far down it may go!
VWAP was $4.26, previous close $4.25 (don't have yesterday's VWAP though).
What's your rationale for stating it's looking to test $4 - soon, presumably?

[psychic]

Sure Moosie, not a lot of Buyer depth there. But did you look at the other side? Holders are not stacked up to sell at this level either...

[psychic]

$249k for the day is not really much is it?

[JohnnyTheHorse]

I'm with Moosie here. $4.25 was the support, which has now been broken. This indicates that the odds are that we will be testing $4 again very soon. I watched the trading late this afternoon, and I saw that the person unloading the 5k parcels moved from $4.25 (the support) down to $4.20. This indicates that they are willing to sell below the support line. Careful treading here folks, stops may start getting hit again which could see us possibly go below $4, although I would suspect that a nice hammer will form if that does happen.

[psychic]

Well I'm not gonna argue with a Moose AND a Horse...

[couta1]

I don't really care if it drops toward $4, with an average buy price of 7.16, I'm sitting this one out ,except on good news may do a large buy to drive down my average but this time next year I think we will be looking at a very different share price I like this company and believe the accounting problems are a momentary blip and they have a very large audience to attract (after all every company on earth holds board meetings don't they)

[robbo24]

I'm with Moosie here. $4.25 was the support, which has now been broken. This indicates that the odds are that we will be testing $4 again very soon. I watched the trading late this afternoon, and I saw that the person unloading the 5k parcels moved from $4.25 (the support) down to $4.20. This indicates that they are willing to sell below the support line. Careful treading here folks, stops may start getting hit again which could see us possibly go below $4, although I would suspect that a nice hammer will form if that does happen.

They changed from 5000 to 2000 sized parcels below the 425 support.. Or it was someone else?

[psychic]

Damn robbo. You saying there are TWO sellers??

[winner69]

Price just loves hugging that linear regression line eh June seems so long ago

Weren't Milford real guru's eh - probably used the DIL money to buy their 18m Zero? That would be funny

Isnt the market irrational .... have you guys read the book Predictably Irrational by Dan Ariely. Fascinating

[Citizen Erased]

I thought today's news would have been positive (or neutral at worst) for the share price. Increasing employee numbers by 36% may be an indication a new product is getting ready to launch.

[robbo24]

Damn robbo. You saying there are TWO sellers??

Two - or maybe more. Or maybe one seller exercising his or her discretion to sell parcels at any given size or price...

[Corporate]

Like others I think this announcement is fairly neutral.

It is great to have new office space and all of the staff on one floor. However, this new office space and a 33% increase in staff numbers come a huge cost to margins at a time when quarterly net new customer growth has slowed to 6%.

This is probably why when I modelled DIL out to 30 September I was showing higher cash than management reported. Highlighting to me that my estimate of September YTD ebitda was probably overstated and be consequence my valuation metrics.

Don't get me wrong - I think that DIL could be a great investment....if, and only if they can grow customer numbers at a faster rate.

[psychic]

quote:

Diligent increased its employee base in New York by 36 percent over the last year

and

Diligent’s expanding service and support team has scaled to match its global client growth rate over the past year.

perhaps means??

[Corporate]

Yes, but the net new customer numbers don't lie!

[robbo24]

quote:

Diligent increased its employee base in New York by 36 percent over the last year

and

Diligent’s expanding service and support team has scaled to match its global client growth rate over the past year.

perhaps means??

The term "employee base" is equivocal about what part of the business the employees work in. They may have employed more cleaners for their new office space.

The "service and support team" (note: conceptually different from the "employee base", "in New York") has been scaled to match client growth rate - which means it could be a sum different (either higher or lower) than 36%.

This proposition is reinforced by the fact that the employee base "in New York" has increased.

Interestingly, for several reasons, Wall Street is in New York... And NASDAQ HQ is in the Wall Street area... And lots of awesome companies have HQs in that area too.

[iceman]

Like others I think this announcement is fairly neutral.

It is great to have new office space and all of the staff on one floor. However, this new office space and a 33% increase in staff numbers come a huge cost to margins at a time when quarterly net new customer growth has slowed to 6%.

This is probably why when I modelled DIL out to 30 September I was showing higher cash than management reported. Highlighting to me that my estimate of September YTD ebitda was probably overstated and be consequence my valuation metrics.

Don't get me wrong - I think that DIL could be a great investment....if, and only if they can grow customer numbers at a faster rate.

A good and very valid point Corporate.
One of the things I took from the knowledgable posts from Mobius, was that recent very fast growth had somewhat swamped the Client Services team and as DIl was fanatical about very good client servies, it wasn´t surprising that client growth had eased of from recent highs while they sort that out.
I am hopeing that this increase in employee numbers will be a mixture of Client Services staff to release this bottleneck and to ensure continued 97% retention rates, and an increase in sales staff to accelerate the growth again with the bigger and better Client Services team ready to receive them !

[Monty]

my experience (limited as it is) is that organisations that increase staff numbers when they are relatively small are doing so because of genuine demand and growth. Diligent is still not a large company - especially in the context of the USA. And also given the difficult past year and the world wide recession carrying on, to me the increase is nothing but positive news. There will be a component of overhead (HR) but hopefully the vast majority of the staff increase is due to increased sales, and support and service to those new clients. I wonder if Mobius has any information about where and why the additional staff are working. hopefully all good news.

[Whipmoney]

I actually think DIL is looking relatively cheap and presuming it can maintain 5-6% growth per quarter and a 97%+ retention rate then at current prices its a bargain.

That being said, I'm considering waiting for further Dips or otherwise at least until the restatements are out. As it stands I can't see the restatements adding anything positive to the SP, however it may represent an opportunity to partake in a further dip or at least know the share is fully discounted.

The real kicker will be the Dec 13 results which will show how their growth trajectory is tracking.

[Lorne Ranger]

Coming back to this forum on Diligent feels like visiting a sick relative in hospital.

"The real kicker will be the Dec 13 results which will show how their growth trajectory is tracking." - Is this going to include sales figures? I thought it was just the restatement deadline? Sorry its been so long parts of my brain have died in the interim.

Disc: Holding, but getting slowly pissed on....

[Lorne Ranger]

just sick not dying and not on the critical list

Hmmm, well that's an encouraging opinion, thank you.... Doctor (?).

I wouldnt mind a second opinion, but I admit she looks perky some days but cant seem to string a couple of decent days together and always seems to feel worse after feeling better. I guess the labs results on the 13th will help, meanwhile, im down the pub.

[psychic]

retest of $4.00 on its way. watch out below people!

the market can stay irrational much longer than you can stay solvent. I reiterate, wait for a great announcement before buying back in to DIL. noone knows how far down it may go!


moosie_900
Retest of $4.00 next week? buyers looking very tired of the wait, traders making miniscule gains and slowly driving the price down. if $4.00 is broken we might see a bit of panic again. no real reason for this, bu hey, that's how the market works sometimes.

WHY exactly? Of course it may happen, but compared to many others DIL has done pretty well since your last dire warning. Tired of your willing DIL down Moosie, and sadly losing respect for your posts :t_down:

[robbo24]

WHY exactly? Of course it may happen, but compared to many others DIL has done pretty well since your last dire warning. Tired of your willing DIL down Moosie, and sadly losing respect for your posts :t_down:

He balances it out with talking good about SNK though man :t_up:

[blobbles]

I don't mind a retest of $4 and neither should you.

Remember that shares almost always, eventually, return to their fundamental value. Hold this one for a year and if it keeps going the way it is, we will still be sitting on a fundamental value of about $8 - so sayeth my spreadsheet of lies and distortions. The current "crisis" for me is simply a good time to top up and keep doing so :)

DISC: Hold, buying as many as I can get my dirty little fingers on :)

[winner69]

I don't mind a retest of $4 and neither should you.

Remember that shares almost always, eventually, return to their fundamental value ........


Maybe current action is just doing that !!!!!

Buffett formula says 333 is 'true' value

And at 333 is still 6 times sales

[winner69]

i used the buffet calculator a month ago and got 333 as well, and im like, it can't be, dead wrong! Look at where its heading...

Back in August from baller

[winner69]

That formula essentially a busy persons DCF model ...using whatever cost of capital figure is appropriate

Works for 'stable' companies ....whatever 'stable' means these days. But in most analyst models things are always 'stable' as generally they estimate earnings/cash flows growing at constant rates anyway (cheats).

As DIL cash flows have stopped growing at exponential rates maybe this formula is appropriate.

FCF about 20 cents divided by sparks 6% gives a value of 333. Most would use a higher rate than 6% to allow for risk ...like 10% to give a value of 200

What a load of rubbish these valuation techniques are ....can't even give a decent number for DIL

That was in reply to one of your posts

[winner69]

Exactly, and as I stressed at the time, Buffett hasn't actually revealed his formula, it has been extrapolated out by others. For those who want to know what this is, it is free cash flow divided by the risk free rate (assumed to be the US 20 year AA corporate bond rate). One can assume also that it is aimed more at smokestack rather that software businesses, but I'm happy to progress this further. The US 20 year AAA corporate rate is 4.5%, approx.

Rather than rely on what Baller asserts as "333", I would like you to kindly show us your inputs to arrive at this figure of "333"?

because if you are using a "Buffett formula" not actually attributable to Buffett, that is aimed for smokestacks and not SaaS companies, plus changing the risk free rate to something different to that intended, and perhaps not even getting the free cash flow sum right, then I'd be leery of the number "333".

As in the post - FCF about 20 cents divided by sparks 6% gives a value of 333. Most would use a higher rate than 6% to allow for risk ...like 10% to give a value of 200

FCF last years accounts US$20.3m or US$0.17 a share (used the 120 mill number as that a few always remind us is the real number) so about NZ 20 cents a share. The 6% is a rate you use. So 20 divided by 6% is 333.3333........

FCF this year ( 3 quarters) running below this year but I stuck with the 20 cents.

You/I agree (I even said it in post) probably an old fashioned way of looking at things, even Grahams methodology is not always appropriate for 'modern' companies.

Whatever somebody bought Buffett (attributed) methodology up and I did the calcs for them and it came out at 333. As I mentioned this is a cheats DCF valuation and I still see many astute financial people (even young ones) use this quick and easy way to assess value ..... before they go off and put the detail into their models and do cash flows on mid year basis and all that sort of stuff (long way instead of typing in NPV(rate,range) in Excel .... and surprise surprise its generally not far away from the cheats way ..... suppose that's how rules of thumb come about

[bull....]

my 3.50 looking possible still after that short term bounce, will have to wait an see i guess if it doesnt get there before the announcement guess it becomes a red or black senario based on the announcement not my cup of tea

[winner69]

The Buffett formula is more simple than that - simple enough that Buffett can assess most companies on a formula he can do in his head.

He has never officially revealed what his formula is, but based on hints, many have guessed that it is free cash flow divided by a risk free rate. In Buffett's case, that would be a 20 year AAA rate like the municipal rates found here.

http://finance.yahoo.com/bonds/composite_bond_rates

In other words, free cash flow divided by 4.6.

Now, remember that Buffett has many other tests, like quality of management, moat, and businesses he can innately understand (not tech stocks!). Hence I personally would not use it for a tech company like DIL.

Sparky - it was you who pointed us to the formula attributed to Buffett .... I just did the calculation for them and it came to 333. So is the formula wrong or not?

Whatever I agree with most of your comments about the pros and cons of this formula when looking at high growth company's. And as always what discount rates to use and what growth rates to use are subject to rigorous debate and discussion.

[blobbles]

SPARKY! Stop telling people how much this thing is worth, please exhibit a little greed and get in while all these fools sell! :) :p

Actually my spreadsheet of blobbles based formulae is giving me very similar numbers to your Ben Graham formula. And based on how we are going toe to toe in the stock picking contest, we seem to be valuing things closely and both winning. I guess others can believe what they want and we can just keep making money!

(FY value for DIL for me is 6.2,next year about 8.5 from memory)

[winner69]

No, it was Wolf who first used it, see post 3058. (http://www.sharetrader.co.nz/showthread.php?5408-Diligent-Boardbooks-IPO&p=424183&viewfull=1#post424183) I merely explained how it worked, and I also noted I said it was not suitable back in post 3064 (http://www.sharetrader.co.nz/showthread.php?5408-Diligent-Boardbooks-IPO&p=424211&viewfull=1#post424211), and again cautioned against using Buffett theories for SaaS companies in post 3625 (http://www.sharetrader.co.nz/showthread.php?5408-Diligent-Boardbooks-IPO&p=426253&viewfull=1#post426253).

I would like to think I've been entirely consistent in using Ben Graham's IV formula as the best of the fundamental screener formulas for a stock like DIL.

Agree ..I think we have (consistently) said the same thing this morning.

[winner69]

I think Sparky and I agree that the Buffett formula and its variants are not suitable for high growth companies.

As i have mentioned before i dont think the Graham intrinsic valuation model is suitable either.

Think about the maths that Graham devised way back in 1962. It is saying we will double the growth rate and add 8.5 and that is the PE multiple we shall apply to get a valuation. Later versions discount this to allow for interest rates.

Back in those days maybe 5% pa was good so his formula says intrinsic value is really a PE of 18.5. All sounds rationale and reasonable.

High growth companies have growth far greater than 5% pa. lets use DIL and say growth factor of 40% pa - Graham's methodology says intrinsic value is a PE of 88.5. I would think that even Graham would say this a bit ridiculous - did he intend his methodology to be used on high growth companies?

Even discounting that PE by 20% (as the 4.4/5.5 interest adjustment bit) the intrinsic value is a PE of 71

Graham then discounts for risk. Sparky talks about 40% discount. So that reduces the PE ratio 42.5 and what could be a called a "risk adjusted intrinsic valuation" of $3.95 for DIL

Maybe the current market is not so stupid / irrational after all.

Never mind, that's how I see it anyway. Some wil disagree but i am entitled to present my view as well. And please don't accuse me of being like Snoopy.

[Snow Leopard]

Let us pretend that DIL is losing money and that the recent announcement of a new office and plenty of new staff means that they are going to increase their customer base, lose more money next year etc.

Now does that not sound like a $40 share to you - Go buy some Monday.

Best Wishes
Paper Tiger

[blobbles]

I think Sparky and I agree that the Buffett formula and its variants are not suitable for high growth companies.

As i have mentioned before i dont think the Graham intrinsic valuation model is suitable either.

Think about the maths that Graham devised way back in 1962. It is saying we will double the growth rate and add 8.5 and that is the PE multiple we shall apply to get a valuation. Later versions discount this to allow for interest rates.

Back in those days maybe 5% pa was good so his formula says intrinsic value is really a PE of 18.5. All sounds rationale and reasonable.

High growth companies have growth far greater than 5% pa. lets use DIL and say growth factor of 40% pa - Graham's methodology says intrinsic value is a PE of 88.5. I would think that even Graham would say this a bit ridiculous - did he intend his methodology to be used on high growth companies?

Even discounting that PE by 20% (as the 4.4/5.5 interest adjustment bit) the intrinsic value is a PE of 71

Graham then discounts for risk. Sparky talks about 40% discount. So that reduces the PE ratio 42.5 and what could be a called a "risk adjusted intrinsic valuation" of $3.95 for DIL

Maybe the current market is not so stupid / irrational after all.

Never mind, that's how I see it anyway. Some wil disagree but i am entitled to present my view as well. And please don't accuse me of being like Snoopy.

Absolutely, disagreement can see us all become richer through education if not monetarily! I appreciate your comments winner and its absolutely fine that we can disagree and I encourage it. Your last comments have made me remodel DIL from different views just as Sparky's have in the past. By averaging the views or weighting them I can come up with a huge range of values, which is both interesting and sometimes scary! That is not a bad thing though as it means I get views from multiple angles to look at the same thing.

Some other threads are full of people that tend to value things with an almost religious belief and any questioning sets them off into personal attacks and vilifying the poster. I say "almost religious" because they never appear to ascribe numbers to their valuations, which means the valuation is belief based instead of mathematically based. Which I think is pretty poor and a number of posters probably need to take a hard look at themselves.

[winner69]

But isn't

V = EPS * (8.5 + 2g)

mathematically the same as

V = EPS * P/E Ratio

where

P/E Ratio = 8.5 + 2g

[winner69]

I have finally realised that after all these years I am what is known as 'conceptually challenged'

[winner69]

Looking back on some stuff I have kept came across this from Money magazine in 1999 - about value investing and graham, Dodd et al influence over the years -

But does it work? Even when you do your job, does value investing pay off? The gospel holds that a portfolio of sound, cheaply bought stocks will, over time, outperform a portfolio selected by any other method. Several academic studies over the years have disputed that premise, though, and the recent returns of most value funds have not been encouraging. Still, the idea that stock prices must be tied in some way to underlying fundamental value remains intellectually compelling.

Patience and not a small measure of faith are required. Value investors like to take courage in the aphorism from the poet Horace that is cited by Ben Graham in the first edition of Security Analysis: "Many shall be restored that are now fallen and many shall fall that now are in honor."

Carbonara MONEY 1999

Be patient and have faith

[winner69]

I'm sure that if Graham, a Professor of Columbia Business School, meant to use P/E in his formula instead of 2 X Growth X Earnings plus 8.5, he would have.

Have a great weekend.

What's the 8.5 in his formula then?

[winner69]

You don't have Google?

it is Graham's assessment of a P/E for a company with zero growth, since even a company with no growth would still have value.

i use 7, since I am a little cautious

So Graham did use P/E in his formula.

A base line P/E of 8.5 for no growth and then a 'premium' for growth to give a P/E that better reflected the value of the company (its intrinsic value). The 'premium' formula derived after many years of research and observations of the market

[winner69]

A few years when having my monthly fix with the The Journal of Portfolio Management I really enjoyed an article by John Bogle titled 'The Clash of Cultures'. Bogle is a renowned old timer in the funds industry. The article has been expanded upon and he has a book out with the same title. I haven't read the book

Bogle laments the rise of speculators in the market and that real investing doesn't really matter that much. This he contends could strain the future of capitalism

However he did quote Benjamin Graham in the article. From a Graham presentation in 1958 -

In the past, the speculative elements of a common stock resided almost exclusively in the company itself; they were due to uncertainties, or fluctuating elements, or downright weaknesses in the industry, or the corporation's individual setup ... But in recent years a new and major element of speculation has been introduced into the common-stock arena from outside the companies. It comes from the attitude and viewpoint of the stock-buying public and their advisers, chiefly us security analysts. This attitude may be described in a phrase: primary emphasis upon future expectations ....

The concept of future prospects and particularly of continued growth in the future invites the application of formulas out of higher mathematics to establish the present value of the favored issues. But the combination of precise formulas ·with highly imprecise assumptions can be used to establish, or rather to justify, practically any value one wished, however high

Given the three ingredients of a) optimistic assumptions as to the rate of earnings growth, b) a sufficiently long projection of this growth into the future, and c) the miraculous workings of compound interest The security analyst is supplied with a new kind of philosopher's stone whlch can produce or justify any desired valuation for a really 'good stock.

I thought that very profound, even a few years ago, and to think that this was said in 1958.

If anybody wants a bit of academic reading the article can be downloaded from his website
http://johncbogle.com/wordpress/wp-content/uploads/2010/04/Clash-of-the-Cultures.pdf

[Snow Leopard]

Price Earning Ratio (R) is the market price of the share (P) divided by the earnings per share (E).

R = P/E.

The graham factor (G = 8.5 + 2*g) is calculating by making up a growth rate (g)
This is then applied to the earnings per share (E) to give a value (V).

V = E * G or to flip it round G=V/E.

One formula is about price and the other is about value.

Compare G = V/E to R = P/E and it can be clearly seen that

when P=V then R=G and
when P<V then R<G and further
when P>V then R>G.

Further more if V=0 and P>0 then you should sell up quickly and if
P=0 and V>0 then you get a free lunch.

When G=8.5 then the Stock Code = TEL and when G<8.5 then the Stock Code = CNU.

For all values of G>8.5 then Moosie (M) is ramping like mad (MadMoose) and where
G<8.5 but was expected to be G>8.5 then Sparky the Clown (StC) is back to defend what he said (DWS) before he went away (WA) despite it all going belly up since (BUS).

BW
PT

[blackcap]

http://johncbogle.com/wordpress/wp-content/uploads/2010/04/Clash-of-the-Cultures.pdf[/url]

Thank you for providing the link. A thoroughly enjoyable and edifying read.

[winner69]

Paper Tiger sums it up beautifully. I wish I had phrased it like that. I might have saved myself a lot of time.

No doubt you will agree with me ....... as i realised yesterday, yes I am 'conceptually challenged' when it comes to these things. Fancy not grasping the fact that value and price are not the same.

No doubt due to my economics background, even though there are different meanings of value in that science as well

[Whipmoney]

As in the post - FCF about 20 cents divided by sparks 6% gives a value of 333. Most would use a higher rate than 6% to allow for risk ...like 10% to give a value of 200

FCF last years accounts US$20.3m or US$0.17 a share (used the 120 mill number as that a few always remind us is the real number) so about NZ 20 cents a share. The 6% is a rate you use. So 20 divided by 6% is 333.3333........

FCF this year ( 3 quarters) running below this year but I stuck with the 20 cents.

You/I agree (I even said it in post) probably an old fashioned way of looking at things, even Grahams methodology is not always appropriate for 'modern' companies.

Whatever somebody bought Buffett (attributed) methodology up and I did the calcs for them and it came out at 333. As I mentioned this is a cheats DCF valuation and I still see many astute financial people (even young ones) use this quick and easy way to assess value ..... before they go off and put the detail into their models and do cash flows on mid year basis and all that sort of stuff (long way instead of typing in NPV(rate,range) in Excel .... and surprise surprise its generally not far away from the cheats way ..... suppose that's how rules of thumb come about

Firstly, I don't buy into applying any of these "rule of thumb" type techniques to a SaaS company, let alone any modern company. Personally, I think DCF analysis is the only way to go as the only assumptions are growth and the required rate of return on equity, both of which are specific to the views/risk tolerance of the modeller.

Secondly, I'm not sure where you get the FCFF of $20.3m for FY12? By my calculations (which include changes to working capital) the FCFF is $24.002m. By dividing this by your arbitrary figure of 6% this would yield a stock price of $4 which near enough to where it is heading. You should also note that this calculation uses the FY12 FCFF and not the FY13 which will invariably be higher, leading to a higher SP value.

Thirdly, I don't see why you would divide the FCFF by a simple percentage such as 6%. All this effectively calculates is the Present Value of the Company at Perpetuity, i.e. how much you would be willing to pay for 20c of FCFF (per share) presuming the annual yield (rate of return) was 6%. This makes no sense for several reasons.

1) It doesn't factor in growth.
2) The company doesn't provide a set dividend or coupon yield.
3) In mentioning 10% (to allow for risk) you are confusing the yield (rate of return) with the discount factor.

If you really were going to do a Perpetuity Value you would use the following formulae:

( CFn x (1+ g) ) / R - g CFn = Cash Flow in the Last Individual Year Estimated (say 20cents per share)
g = Long-Term Growth Rate (say 4%)
R = Discount Rate, or Cost of Capital (say 10%)

Calculation:

(20 x (1.04)) / ((0.10-0.04)) = (20.8 / 0.06) = $3.46.


Conclusion:
1) This is higher than your $3.33
2) This assumes that that long-term growth is 4% even though we have had three quarters above that and will probably have at least another 3-5 years above that. Also this is a low level of long-term growth for tech/SaaS companies.
3) This assumes no further product releases/innovation.

Basically your quick and dirty valuation is of no value.

[Whipmoney]

Coming back to this forum on Diligent feels like visiting a sick relative in hospital.

"The real kicker will be the Dec 13 results which will show how their growth trajectory is tracking." - Is this going to include sales figures? I thought it was just the restatement deadline? Sorry its been so long parts of my brain have died in the interim.

Disc: Holding, but getting slowly pissed on....

By Dec-13 results I mean the full results including sales numbers. Hopefully the restatement has taken place prior to the release of these, otherwise we will just get a new licence number.

[winner69]

Whipthemoney - from your post

I'm not sure where you get the FCFF of $20.3m for FY12? From their Annual Accounts. Operating Cash Flow shown as US$22.0m and Investing cash Flows as US$1.7m giving US$20.3m (or $20.4m if you round up) which to me is NZ20 cents

....uses the FY12 FCFF and not the FY13 which will invariably be higher. Maybe not, as from what they have said in their updates (officially not reported) Q1/Q2/Q3 FCF is US$14.0m compared to $14.8m in 2012. Doesn't seem to reflect 40% growth but we will know one day

I concur rules of thumb have limited use and are no substitute for doing the hard yakka by a proper DCF

But then again that may be too hard for most, esp for SaaS companies which are really buying a story. Seems that globally sales multiples is the norm - at least that seems how it is turning out in the states. But another rule of thumb eh

For what's it worth my hard yakka DCF (10% discount rate) is $4.95

[Whipmoney]

Response in blue:

I'm not sure where you get the FCFF of $20.3m for FY12? From their Annual Accounts. Operating Cash Flow shown as US$22.0m and Investing cash Flows as US$1.7m giving US$20.3m (or $20.4m if you round up) which to me is NZ20 cents. Page 18 of the FY12 annual report shows the Consolidated Statements of Cash-flows. The Net increase in Cash and Cash Equivalents was $24.380m USD.

This included:
Cash flows from Operating Activities = $22.712m
Cash flows from Investing Activities = -$2.460m
Cash flows from Financing Activities = $4.058m.
There was also ~70k increase from exchange rate impact on cash.
Net = $24.380m.


....uses the FY12 FCFF and not the FY13 which will invariably be higher. Maybe not, as from what they have said in their updates (officially not reported) Q1/Q2/Q3 FCF is US$14.0m compared to $14.8m in 2012. Doesn't seem to reflect 40% growth but we will know one day. Granted that there will be some large extraordinary expenditure items like the one-off accounting/audit/legal expenses associated with the restatements and possibly increased tax and capex however overall their FCFF should be trending upwards due to sales growth and improving margins (JAWS).

I concur rules of thumb have limited use and are no substitute for doing the hard yakka by a proper DCF. But then again that may be too hard for most, esp for SaaS companies which are really buying a story. Seems that globally sales multiples is the norm - at least that seems how it is turning out in the states. But another rule of thumb eh. At the end of the day SaaS companies are companies and a company is only worth the cash flow it generates for its owners. Granted with companies like Xero a lot of the value is placed on future cash-flows (which may or may not materialise) however at least with DIL you can actually bank on its existing cash-flow (subscription annuity) receipts, whilst also participating in the potential upside of new product rollouts.

For what's it worth my hard yakka DCF (10% discount rate) is $4.95. As of my last valuation I got $6.01, but she's getting harder to value given the limited information coming out.

[winner69]

Whipmoney - the Financing Cash Flows should not included in Free Cash Flow

They compromise capital injections, borrowings, dividends related things - financing things rather than investing/operational things

[Corporate]

Hahah this thread made me laugh. I agree with W69, financing items should never ever be included in free cash flow.

For what it is worth. I think it is best to look at DIL in terms of the EV/Ebitda ratio or FCF/EV.

For 2013 I would normalise the Ebitda to exclude cost relating to restating the accounts and the special committee.


On a separate note. if DIL was to start paying dividends I presume there would be tax to pay for nz resident shareholders and no imputation credits to offset. Has anyone else thought about this?

[iceman]

On a separate note. if DIL was to start paying dividends I presume there would be tax to pay for nz resident shareholders and no imputation credits to offset. Has anyone else thought about this?

Wouldn´t any spare cash be best used by an on market share buyback ? If the Board has a strong belief in the future and feel the shares have been oversold, a buyback may inject some much needed confidence back into the shareprice !

[Corporate]

Wouldn´t any spare cash be best used by an on market share buyback ? If the Board has a strong belief in the future and feel the shares have been oversold, a buyback may inject some much needed confidence back into the shareprice !

I'm really not sure. I haven't seen any mention of a buy back as a possible option but it could be. The cash balance is getting up there and decisions will need to be made on how it is used.

[winner69]

Hahah this thread made me laugh. I agree with W69, financing items should never ever be included in free cash flow.

For what it is worth. I think it is best to look at DIL in terms of the EV/Ebitda ratio or FCF/EV.

For 2013 I would normalise the Ebitda to exclude cost relating to restating the accounts and the special committee.


On a separate note. if DIL was to start paying dividends I presume there would be tax to pay for nz resident shareholders and no imputation credits to offset. Has anyone else thought about this?
What multiples would you use?

[Harvey Specter]

I'm really not sure. I haven't seen any mention of a buy back as a possible option but it could be. The cash balance is getting up there and decisions will need to be made on how it is used.
I haven't seen any negation of a div either. For the reason stated in your previous post, a buy back would be more sensible, especially if the price remains depressed.

[Corporate]

What multiples would you use?

Very good question. I depends on what your view is on future growth. I just think the multiples mentioned a probably more relevant than a p/e multiple.

[Harvey Specter]

Agree they couldn't do it now. But once restated, the next announcement should address the cash stockpile.

[Snow Leopard]

There is a preference for buybacks over dividends in the U S of A.

As they do not have a franking credit/imputation scheme like they do on the left side of the Pacific it is a more tax efficient way of enhancing shareholder returns.
So they may lean that way.

Best Wishes
Paper Tiger

[robbo24]

The haters be hating DIL today... $3.80 in sight! Will it bounce?

[croesus]

The cat is dead......its bounced once already...

approx. half the S/P of June.... still picking it wont be a buy till it bobs under $3. not trying to be horrible.. but I suspect there is more in the closet to scare us.

[bull....]

consolidation may break down today, i like 3.80 as a first stop to 3.50

[robbo24]

poor poor DIL, just gave me the only red I have all year, started to dip my toes in again at these levels but exspect it to breach $4.

I'm looking to buy up some DIL but I want to manage my risk... This talk of additional skeletons in the closet, what else could be hidden?

[bull....]

4.01 close tomorrow be interesting

[winner69]

4.01 close tomorrow be interesting

It was a low volume day though

[goldfish]

Any holders angry at management for not saying anything about whats been going on for the last few months and just a slight mention of maybe something happening in the last agm. I think this has been handled really badly by them. Its been a real wealth destroyer, kind of sad really.

[Xerof]

I hear your pain, you are clearly not on your own. Its made me a ****load of money but I was out months ago. To be fair, plenty of commentary was made at the time that it had entered a downtrend. Unfortunately people won't listen, instead giving their ear to the most vocal bulls who support their position. I've traded in and out a couple of times for small change, but not ready yet to recommit. Governance has dogged this company from day one if the truth be known but it will have it's time in the sun again. waiting for the report, and then probably will still wait for normal resumption of sales trends as well. Sentiment is a powerful drug

Winner, where do we stand on your regression channel?

[winner69]

I hear your pain, you are clearly not on your own. Its made me a ****load of money but I was out months ago. To be fair, plenty of commentary was made at the time that it had entered a downtrend. Unfortunately people won't listen, instead giving their ear to the most vocal bulls who support their position. I've traded in and out a couple of times for small change, but not ready yet to recommit. Governance has dogged this company from day one if the truth be known but it will have it's time in the sun again. waiting for the report, and then probably will still wait for normal resumption of sales trends as well. Sentiment is a powerful drug

Winner, where do we stand on your regression channel?

Spooky really ..... back to the main regression line ... the line that represents a decline at a rate of 0.6% a day .... since June. Only a small number so no worries eh

Note I haven't been brave rnough to take the y-axis down to 333 ... in enough trouble already

[Citizen Erased]

Holy crap is all I can say. This is as bad as investing in a gold miner. Thank goodness PEB is keeping my portfolio (well and truly) in the black.

[psychic]

Masochism is one reason.

I for one owe you guys BIG time for the advice, cheers. :)

OMG Moosie - Wicked. So some here are secretly enjoying , nay... aroused by their lousy investments?

What chance does the fundamental investor have eh?

[psychic]

Sorry Moosie, couldn't help it..

[blobbles]

Sorry, you guys are focussing on price, right now. For me (and hopefully I include Sparky in this), who have been saying that this is undervalued (and who I am assuming you are talking about), we couldn't give a stuff about paper losses right not. We are looking at the long term prospects of the company from a value perspective. We would only realise paper losses if we sell. And the story hasn't changed, so why would we sell?

Day to day, week to week at the moment, I couldn't care less about DIL's SP, except as a buying oppourtunity. I am looking at the value of the company from next years perspective or possibly 2-3 years away. And right now every indicator that I analyse says buy buy buy... so that is what I am doing :)

I guess we are value investors, not really caring about price movements as those with lower fortitude sell out when their stop losses are triggered, which is probably what is happening all the time now. My stop loss is when the story changes. It hasn't changed, so why should I sell for less than I think its worth?

I think Xerof has it saying "... entered a downtrend". It is a TREND, not an indicator of value but based on market sentiment. We are in a market sentiment now where any bad news is punished beyond what it should be because there are so many positive news stories. That causes a mindset of chasing positive NEWS, not chasing positive VALUE, disproportionately punishing companies who publish slightly bad news by selling their shares to invest in something that has slightly positive news. That can also lead to execs of companies only publishing positive news and not informing anyone about risks. Why? Because everyone wants to be the next XRO at the moment, nobody wants to settle for only being a FPH. And that has overflowed into investor sentiment as you can see around this message board when nobody wants to listen to potential risks or negatives. I see the word "believe" being used one hell of a lot more than what it should be... when people should be saying "I have calculated" instead.

Back to DIL, based on revenue in the first quarter of $15 million and growth rates per quarter (albeit slower), shouldn't they be looking at a full year figure of $70 million revenue?

This is my assumptions:

5103

(blue are made up, awaiting the restatement. Assuming downward growth)

Resulting in:

5105

(blue are inputs, a number of figures are approximate guesses)

As I said... buy buy buy :)

Oh, and to top that off, all the figures are in US$. So converting those values into NZ$ provides somewhat of a significant upside...

[baller18]

Hey Blobbles,

Yes from a value investors perspective you are definitely right.
However, don't you think management is a bit of a worry here? Yes, sparky has indicated this is the management which has bought in the 95% client retention..
It just makes me wonder...

[psychic]

Moosie - Too late in the night to get into a debate on this stock, but you gotta admit - it has been a funny, funny day across the whole board.
Seems a Bot has been selling into whatever was offered all day, it would be a shame if panic set in because of it tomorrow. I don't want to be the laughing stock of the forum but I haven't buried DIL yet. (I bought back in at 4.15 so not too burnt as yet and still think there is value here.)

[blobbles]

Hey Blobbles,

Yes from a value investors perspective you are definitely right.
However, don't you think management is a bit of a worry here? Yes, sparky has indicated this is the management which has bought in the 95% client retention..
It just makes me wonder...

There accountants made one screw up the management didn't see. Sure, its caused a hassle, but has it changed that they are still selling their product? Has it changed the quality of the product? Has it changed their bottom line? Nope, nope, nope. So... are companies not allowed to make a mistake now and again without seeing their SP halve?

[JohnnyTheHorse]

Blobbles, your EPS calculations are WAY off. Try taking 20 cents off your 2013 EPS value and see what you get then.

[baller18]

I think their EPS this year is around 16 - 20 blobbles, not the 34 cents you have indicated, if I'm not wrong.

[blobbles]

Blobbles, your EPS calculations are WAY off. Try taking 20 cents off your 2013 EPS value and see what you get then.

Where does the information come from? I can't seem to find enough information about their operating expenses as of now, but the figure I was using was a guess increase from the total OP Exp from the 2012 report. Can you point me in the right direction? I did think this was a bit off...

My figures are annualised approximations for 1st Dec too, which may confuse a little...

So nobody disputes they will be making ~ $70 million? We are just questioning what is their OP Exp?

[psychic]

Thanks for sharing KW, good advice no doubt. Appreciated.

[Corporate]

Sorry, you guys are focussing on price, right now. For me (and hopefully I include Sparky in this), who have been saying that this is undervalued (and who I am assuming you are talking about), we couldn't give a stuff about paper losses right not. We are looking at the long term prospects of the company from a value perspective. We would only realise paper losses if we sell. And the story hasn't changed, so why would we sell?

Day to day, week to week at the moment, I couldn't care less about DIL's SP, except as a buying oppourtunity. I am looking at the value of the company from next years perspective or possibly 2-3 years away. And right now every indicator that I analyse says buy buy buy... so that is what I am doing :)

I guess we are value investors, not really caring about price movements as those with lower fortitude sell out when their stop losses are triggered, which is probably what is happening all the time now. My stop loss is when the story changes. It hasn't changed, so why should I sell for less than I think its worth?

I think Xerof has it saying "... entered a downtrend". It is a TREND, not an indicator of value but based on market sentiment. We are in a market sentiment now where any bad news is punished beyond what it should be because there are so many positive news stories. That causes a mindset of chasing positive NEWS, not chasing positive VALUE, disproportionately punishing companies who publish slightly bad news by selling their shares to invest in something that has slightly positive news. That can also lead to execs of companies only publishing positive news and not informing anyone about risks. Why? Because everyone wants to be the next XRO at the moment, nobody wants to settle for only being a FPH. And that has overflowed into investor sentiment as you can see around this message board when nobody wants to listen to potential risks or negatives. I see the word "believe" being used one hell of a lot more than what it should be... when people should be saying "I have calculated" instead.

Back to DIL, based on revenue in the first quarter of $15 million and growth rates per quarter (albeit slower), shouldn't they be looking at a full year figure of $70 million revenue?

This is my assumptions:

5103

(blue are made up, awaiting the restatement. Assuming downward growth)

Resulting in:

5105

(blue are inputs, a number of figures are approximate guesses)

As I said... buy buy buy :)

Oh, and to top that off, all the figures are in US$. So converting those values into NZ$ provides somewhat of a significant upside...


I only glanced at your FY13 numbers but here some points that might help you refine your forecast:

- I believe your numbers exclude cost of sale? Based on FY12, with no margin expansion, I believe $15.34m is an appropriate estimate for FY13. This will have a major impact on your numbers; and

- My operationg cost estimate is $30m (including special committee, excluding additional legal/accounting expenses resulting from the restatement and cost of sales as per above).

- I can't see how you have factored in tax, but if you haven't then the P/e ratio isn't correct.


On the fundamental front - you can't say nothing has changed when growth rates have plummetted (comparatively).

[karen1]

Brilliant post KW, very well said! I was one who got out in June, very small holding, nice little profit, happy to leave it at that, although original plan was to hold much longer.

You can't put things plainer than you have, thank you for offering a lesson from your experience, I sincerely hope it might be thought provoking for some.

[klid]

Hmmm... well I really don't think selling now at $4 is a good idea.

From here, it could go down $1. It could go up $4. hmmmm.

[klid]

thats the problem with DIL it is a flip of the coin on which way it will go.
Hmmmm not good to invest thousands of $ on a flip of a coin.
In saying that I bought a few yesterday at $4.05 but not a large amount.
Could break $4 today.
Yeah but do you agree, it can easily go up a lot more than it can go down, from here that is.
My fear is that it will continue to trend down a little and stay there post announcements.
But I think the consensus around here is that the price will be rather different in a few weeks time.

[Whipmoney]

No-one is arguing with you as to what DIL's "true value" is. The point we are trying to make is that it DOESNT MATTER if its undervalued or not. It can stay undervalued for years. It may fall even further if there are more announcements indicating slowing sales, or if market P/Es begin contracting again (FYI which they most likely will once QE stops). If you don't believe me, take a look at the 10 year chart of FKP in the ASX - it went from $24 in 2007 to a low of 92c in June this year. Thats SIX years of a stock trading at well below its NTA and hence "undervalued" by every metric. Six loooooong years before it finally turned the corner and the market began to rerate it. (And I know just how "undervalued" it was, in my naivety I continued buying it all the way down before finally giving up on it in 2010 when its modest recovery failed to stick).

5106

The point being is that you could be right, you could be wrong, but in the end the market doesnt care. The price and the time required to regain your capital is completely out of your control. Why would you leave money in a stock that is in a downtrend when you could cut your losses and take whats left and buy something that is in a clear uptrend. Not only have you incurred even greater losses by still holding DIL now as opposed to selling when everyone said to (mid-July, early Aug, down 23% since then) you have also lost all the profits you would have gained had you put your capital into something that was in an uptrend (eg. RYM, up 12% since then).

The key LESSON is that trying to outwait the market is a recipe for losing money. You need to go with the trend, not fight it. If you fight it, you will still be a loser even if you are ultimately a winner - if the above example is for the period of 3 months, just think how much you will be losing out on if you have to wait six years for DIL to recover! When the market is driving a tank the wrong way down the street, you dont stop to argue with it, you get the %$^& out of its way!

That's the BEST advice I can give you in over 14 years of stock market investing. Make of it what you want. But it will be far less expensive to learn someone else's lesson than to learn it by personal experience.

I always appreciate your comments/insights KW as you certainly have a lot of experience on both the NZX and ASX however i'm not going to lie.. I don't think the comparison between potential undervaluation of FKP.ASX (essentially an Australian based property group) with DIL.NZX (a SaaS business) is a very fair one..

Without running the actual math I suspect your chart of FKP has a pretty high correlation to the Australian Property Market and retail/residential (i.e. non-primary sector) economy in general, with a significant bubble forming from 03 to 07, the GFC arriving, a bailout to help support prices then a gradual decline as the market restructures and deleverages. I'll concede that I don't know anything about this stock as I haven't even looked at the financials but given its intrinsic ties to the property market in general I would imagine it is prone to the cyclical nature of the property market which can involve very long up/down trends as we can see the bubble alone took 3-4 years to manifest.

DIL on the other hand is likely to be prone to large swings simply based on sales annoucements alone, so whilst you may be right that this company could potentially stay undervalued for a long time, I would expect that all it needs is either a positive or negative Q4 sales announcement to send it rocketing or further into a dive.

DISC: Waiting on the sidelines for the restatement, potentially the Q4 results or at least a very favourable entry point.

[goldfish]

Its being more stubborn then i thought it would...hang in there dil

[Xerof]

Just an observation:

pull up a 5 year DIL chart, daily, look to the left and see how long it took to break through 3.75/4.00 area on the way up. In theory this should be very good support on any testing, so IF it's is going lower, it will take either a lot of time, or a lot of volume. It may not go lower, but we won't know until we know.........

discl: not holding, watching, waiting, patient, regression channel, restatements, quarterly.......

[winner69]

Blobbles ....you have revenue for 13 at about 70mill with growth in 14 at 25%. Lets assume they sustain that 25%

Go back to those discussions where SaaS companies are valued at multiples of revenue growth. Your 25% would say 3.5 times revenues gives EV. Lets add the cash pile in and on the 120 mill shares that people like to use that gives valuation of NZ$3.00. Heck even Buffett gives a higher number.

Global valuation methodology must mean something .....on the basis used above at 4 bucks future growth is assumed at 50% to 60%pa

[Whipmoney]

On another note, I stated before and reiterate that the fall in the share price has nothing to do with the restatement of income and everything to do with the 3 consecutive quarters of slowing sales.

I will respond to the rest of your comment after lunch (when I have more time) however I strongly disagree with your statement above.

Yes, undoubtedly the decline in sales as indicated by their Announcement on the 6th of June had a huge effect on the adverse movement of their share-price, that's almost an undisputable fact.

That being said however I don't see how you can state that the announcement of a restatement of their financial accounts had minimal effect on their SP. The restatement was announced in a price sensitive announcement on June 18 on which date I note that there share price was $8. In the following days there SP dropped to $7.01 by June 21 and freefalled to a low of $5.67 on the 16 July. By the 5th of August their SP closed at $6.01 (a 24% discount to the pre-restatement price).

Similarly, their Q2 result of 173 new signups was released on August 6th and the SP bottomed out at $4.69 before recovering and later falling to present levels (~$4.01).

To me this suggests a large proportion of the decline is clearly is to due to the lack of clarity resulting from absence of financial information pending the restatements. The initial recovery after the August 6th Sales announcement was also likely to be due to the fact that the market was anticipating the restatements to be issued earlier and subsequent delays seem to have caused further tension of the SP and driven it down further.

As such I believe that a reasonable percentage of the decline is directly attributable to the restatements and the murkiness for lack of a better word that it creates with regard to the company's true financial position.

[blobbles]

blobbles, the reason for all the pain and suffering in the shareprice is right there in your spreadsheet: fastly diminishing growth.

I also noted many errors in your calculations, please listen to corporate and any others who wish to help you on this issue and don't take it the wrong way please, we want to help. unfirtunately, the sheet if lies and distortions is quite aptly named!

Yep, no problems, I posted it really because I thought there were some problems that I weren't seeing. I did this a while back and re input numbers yesterday, little did I know I input the wrong numbers, silly me (before I had removed cost of sales on the revenue figure, for 2013 I left it out this time, duh plus I haven't included tax, duh two!) On my phone now, will update later.

Thanks corporate/johnny/baller!

[jonu]

Because they have repeatedly said that the restatements will be non-material and do not effect revenues, simply the timing of receipts. If you believe this is the cause of the share price slide you are saying that the market believes that the company is lying, and that the restatements will be very significant, in which case DIL will be in big trouble with the Securities Commission come restatement time if it meets that market expectation.

I believe DIL was punished for slipping the not-insignificant news of slowing growth in with news of the restatement, hoping to bury it. This was the news that turned the previous poor quarter from a one-off fall in sales to a trend of falling sales. Ditto for the last quarterly announcement, which is why the share price is now testing all time lows. If the next quarter doesnt show improved sales growth, the share price will make $4 look like a great exit point.

After all, the market does not price stocks based on what its previous revenues and earnings were. Thats already history, and even if there is a big restatement of revenue, so what, its in the past and the market doesnt care. What matters is what the company is going to earn in the future - this is the sole driver of a company's share price. Markets look forward not back. A falling share price indicates the market expects that DIL will earn less in the future than previously thought - this is due to the slow sales growth.

Have to disagree with you on a couple of points KW. Firstly the share price isn't testing all time lows. I first bought in to DIL at 36c. Even the 2 year chart shows otherwise. The market doesn't always price a share according to it's forward earnings. High expectation when not delivered upon brings out the opposite, often no matter what the forward "predictions" are.

[Whipmoney]

Because they have repeatedly said that the restatements will be non-material and do not effect revenues, simply the timing of receipts. If you believe this is the cause of the share price slide you are saying that the market believes that the company is lying, and that the restatements will be very significant, in which case DIL will be in big trouble with the Securities Commission come restatement time if it meets that market expectation.

I believe DIL was punished for slipping the not-insignificant news of slowing growth in with news of the restatement, hoping to bury it. This was the news that turned the previous poor quarter from a one-off fall in sales to a trend of falling sales. Ditto for the last quarterly announcement, which is why the share price is now testing all time lows. If the next quarter doesnt show improved sales growth, the share price will make $4 look like a great exit point.

After all, the market does not price stocks based on what its previous revenues and earnings were. Thats already history, and even if there is a big restatement of revenue, so what, its in the past and the market doesnt care. What matters is what the company is going to earn in the future - this is the sole driver of a company's share price. Markets look forward not back. A falling share price indicates the market expects that DIL will earn less in the future than previously thought - this is due to the slow sales growth.

Well how does one explain the significant drop in share price of circa 24% that began June 19/20 (restatements were announced June 18), which was well before the Q2 announcement on August 6th? If the decline wasn't due to the restatements then the only other possible explaination is insider trading, however from memory there were significant volumes traded around these periods.

I suspect that whilst the restatements were immaterial to the overall revenue/cash-flow (as advised in their announcement) this represented another drama/scare for the investors following a series of mishaps, and the patience of investors was finally broken.

5107

[winner69]

Is the much touted 97% retention rate that good.

Here's a survey done to see what retention rates are like. The other reports are quite nteresting as well
http://www.saas-capital.com/resources/

[winner69]

Won't go below 4 bucks ....too much at stake for too many

That's wat I think

[Wolf]

hahaha a trading halt would be great

[winner69]

Quite often once loved stocks become a stock market pariah

Once they reach hat unloved and unwanted state there's an inevitable disappointment in the share price no matter how things improve. All trust and faith goes out the window and even the previous ardent followers don't want to get involved again. Result - always a cheap 'undervalued' stock.

KW mentions sentiment a lot

[winner69]

is there any way they could put a trade halt on trading until the restatement? market would love that.

If it was any other company it would have been suspended months ago

Some get suspended for being a week late with their reports but not DIL ..... Because they are so special

[jonu]

Looks like a BOT buyer and a BOT seller operating. Makes for an interesting tussle. I still think it should be banned.:mad ;:

[Harvey Specter]

Looks like a BOT buyer and a BOT seller operating. Makes for an interesting tussle. I still think it should be banned.:mad ;:Not necessarily banned but at least a minimum trade size unless it is closing out a position (based on the minimum shareholding requirement seems sensible).

I would be very annoyed if my sell order got hit with only 1 share being sold.

[jonu]

If I was a big insto, I reckon it would be worth my while to trickle onto the market via a BOT to try and break $4, trigger stop losses and then fill up at the trough. Tell me someone that's not happening now.

[jonu]

Thats because I don't consider price "highs" to be "lows" - ie. when you bought at 36c it would have been considered to be a new high at the time, as the price was in an uptrend. You would not have bought at 36c on the basis that it was at an all time "low". There is a difference between share price values that are highs in an uptrend and lows in a downtrend, and just because the "high" is lower than the "low" does not negate the fact that the share price is now reaching new lows as it falls past its previous highs. Hope this makes sense :-)

Thanks KW. It clarifies your postion in a muddy kind of a way:)

[blackcap]

The market doesn't always price a share according to it's forward earnings. High expectation when not delivered upon brings out the opposite, often no matter what the forward "predictions" are.

Sorry have to disagree with you there jonu. The market always prices forward looking. When the high expectation is not delivered, immediately a new forward evaluation is made and thus the share is priced accordingly. :)

[okay]

After the closing bell entertainment:
Todays Diligent "Battle of the bots" reminded me of the robot dance craze from the past. :p
Check out the guy in orange...

http://www.youtube.com/watch?v=4YJ3BTKMILw

[Whipmoney]

Here's a question for you - when the restatements are completed and if nothing major has changed, but the sales figures are still poor - do you think the share price will go up or down?

Well if the sales results had of been on par or better than expected I would expect the Share-price to recover following the release of the restatements (assuming they are limited to minor adjustments to the timing of revenue/expense recognition).

Given the unsatifactory license sales results however I think there are now two catalysts acting against the share-price and I wouldn't expect the restatement to provide any relief on the share-price even if its deemed immaterial where a material effect has been priced in.

Where the restatements may provide benefit/clarity however is if the Q2/Q3 revenue figures are actually larger than expected due to some of the new licences being attributed to larger and more lucrative contracts, so you might have a situation where despite lower licence numbers the value of these is larger than expected. I'm not sure how likely this is however as i'm sure they would have made reference to this in their previous annoucements to mitigate the dissapointment.

As such the release of the Q4 revenue figures is going to be the real kicker for good or for bad.

[robbo24]

$3.90 at surprisingly low volumes.. I thought people would sell it down to 1 cent to get out now!

[bull....]

$3.90 at surprisingly low volumes.. I thought people would sell it down to 1 cent to get out now!

you might get that on the announcement, if its bad

anyway my spectral analysis was fairly on que 1 day off not to bad

[Whipmoney]

Get your bids in for $2-$3 dollars. Clearance Sale!

[winner69]

$3.90 at surprisingly low volumes.. I thought people would sell it down to 1 cent to get out now!

Volumes count for nought .... just remember $3.90 is just a price , its value is at least $7.00

[Joshuatree]

OK who's still averaging down now, own up? You might have to use your tongue to post as you'll be a double amputee with all those falling penknives. …… I know , …...longtermlongtermlongte….

[psychic]

Seems Wasatech and Fidelity have hung in there..?

[jonu]

Ye olde irrational market. Mexican stand-off and then all of a sudden all hell breaks loose. (Wll almost)

[Baddarcy]

Just a thought...when they restate revenue for say 2010 we are going to see the recognized revenue for 2010 drop, but then the drop in spread over the next few years so the drop in revenue from 2010 will be spread over the 2011, 2012 ,2013 etc etc years meaning an increase in those years. The increase will be offset by the drop in 2011, but that will then be spread over 2012,2013, 2014. So 2012 would then have a drop but it would be offset by the speading from 2010 and 2011.....my point i think is that by the time we get to now, is it possible that this restatement will actually have no effect on 2013 onwards, what we are talking about isn't reduced revenue, just that DIL claimed it as revenue too early? Have i got that right?

[psychic]

what we are talking about isn't reduced revenue, just that DIL claimed it as revenue too early? Have i got that right?

Yes

[Harvey Specter]

Just a thought...when they restate revenue for say 2010 we are going to see the recognized revenue for 2010 drop, but then the drop in spread over the next few years so the drop in revenue from 2010 will be spread over the 2011, 2012 ,2013 etc etc years meaning an increase in those years. The increase will be offset by the drop in 2011, but that will then be spread over 2012,2013, 2014. So 2012 would then have a drop but it would be offset by the speading from 2010 and 2011.....my point i think is that by the time we get to now, is it possible that this restatement will actually have no effect on 2013 onwards, what we are talking about isn't reduced revenue, just that DIL claimed it as revenue too early? Have i got that right?Simplistically yes. But remember that revenue was growing exponentially so the overstated in 2010 which has now shifted to 2011 will not compensate for the overstated in 2011. Ultimately cash is cash and it will be received, it is just a matter of which period it goes into.

[Baddarcy]

Simplistically yes. But remember that revenue was growing exponentially so the overstated in 2010 which has now shifted to 2011 will not compensate for the overstated in 2011. Ultimately cash is cash and it will be received, it is just a matter of which period it goes into.

Wasn't new revenue only growing on a linear basis? i seem to remember at a rate of about 1.7m per quarter.

[kevjws]

DIL has been really bad for me...... come on go up already!!!! :mad ;:
Any idea when they will release the restated statements?