YouSaid · the spoken record

Stephen Clapham

lines on the record
65
first
2021-11-02
most recent
2021-11-02
sittings or episodes
1
sources
podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

  1. “just not possible. You know, there's a very high gross margin on products like coffee and tea, but it wasn't sufficient to make a difference, make that much of a difference. So first check to always do is to look at the margins. The second thing that I look at, I look at the conversion of earnings into cash. And this is quite a technical thing, but it's not that difficult to do. But look at how much of the earnings I generally look at how much of the EBIT, the operating profits, are converted into cash flow. And if you're not generating cash, then the chances are your numbers aren't right. Obviously, each sector is different and you need to look at a company in the context of its sector and what type of business it is and so on. But this is before any working capital or anything like that.”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  2. “To that, the example I always give is a Tisserie Valerie, which is a small chain of UK tea shops. So where you go to have afternoon tea, as we like to have in England. So if you don't have enough money to go to the writz, which is about, you know, it's a hundred bucks for tea, if you don't have the champagne for two, then you go to the petitioner Vallery, which is one of their branches was just next door to the wrist. Pedisserie Vallerie's margins were 15%. And they're near as other compiers in the UK restaurant sector were between five and eight. And look at that, you think, well, how could they possibly make margins which were twice their peers?”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  3. “I had a meeting with Michael Colley, who was then the chief operating officer, and he sort of laughed, you know, and that sort of, you know, lovely Irish way. And he said, oh, Michael. If you're traveling on company business, you have to take the pens from hotel room to save unstationary costs. And he sent around a memo, famous memo within Ryanair banning people from charging their mobile phones in the office because it was Ryanair's electricity. And that sort of extreme cost control, you know, that was, it wasn't worried about the cost of electricity, but he was worried about implanting a message in everyone's mind that they should be fixated about every penny of cost. And so you could understand why the margins looked crazy, but there was a reason behind them.”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  4. “I've got three main things that I look at. The first is margins. So is the company making margins that are similar to its peers? Or if they're higher than peers, is there a good reason for that? You know, in every sector, there will always be a company that's making the highest margins. And so you've got to just understand why that is. Good example would be something like Ryanair, which makes exceptional margins as far as having very, very low prices. But when you look into Ryanair, you begin to understand, because Michael O'Leary is a despot and he is ruthless about cost control. In the early days of the company, his memos used to, you know, I mean, half amuse and half alarm the staff. When I first started following it, I went up.”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  5. “Right, so you have a series of informal checklists, and if the company passes all of your checklists, that is, say, hey, this is a company that is worth paying up for. Whereas if the company has a lot of red flags that are being checked, then it could be dodgy, something not worth investing in, something too short. One of the red flags you said was the Hut group. They were saying recurring charges as a one-time expense. So like if I was a fashion company, if I buy threads, I'm clearly going to have to buy threads every quarter. But if I put those threads as a charge off, as a one-time expense rather than a recurring charge, then that would inflate my EBITDA. So that's one red flag. What are some other sort of jiggery pokery things that you see in your forensic analysis?”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  6. “Some frauds or blow ups, or companies that are managing earnings, but also in the growth companies, you'll be able to value them more precisely because you'll know the ones that are good and the ones that aren't so good. I'd much rather pay up for a company like Microsoft that's got, you know, they do stupid things like paying $26 billion for LinkedIn. I can't even begin to imagine why they haven't been pilloried for that. But Sachia Nadella walks on water 26 billion here, 26 billion there. When you're capitalized, trillions, who cares? But in actual fact, 26 billion dollars, you do that every so often. I mean, soon that's up. But the thing about Microsoft is that its accounts are very high quality. It doesn't fudge numbers. You would want to pay more for a Microsoft than you would for somebody that was more aggressive.”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  7. “It's clear, you know, it's obviously a recurring arson. But there's, I mean, there's a huge, I've forgotten that all the lines, I mean, there are a dozen different elements, all beautifully explained in detail in the annual report. And I did a video on it, just Google Behind the Balance Sheet, the Hot Group. You'll find that video. I just picked up the newspaper and this article about the hot group. And the following day when I went into the office, I picked up the accounts and opened the account.”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  8. “And bolts of the internet, being able to deliver a product a bit like Amazon's third-party marketplace. And in order to have a business like that, you need to have warehouses. And every time you move warehouse or open a bigger warehouse, you have parallel running cost. And they were adding back all these costs to their adjusted EBITDA down. And I said, well, you know what? If you're a growth business, you'll have to keep adding new warehouses and you always have startup costs. You know, every time you open a new warehouse, what happens? You've got to open the warehouse, you've got to stock it, you've got to recruit people, you've got to train them. So every, you know, every new warehouse involves some startup costs and no other logistics company in the world that I've ever looked at has not include that in their numbers.”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  9. “To plan a data recorder in their vehicle, and I'd pretty soon have 2 million vehicles gathering data. It's not a huge, insurmountable barrier. But electric vehicle market is a classic instance of this. But on the HUT group specifically, they had this hilarious explanation of how they move from a 573 million pound loss to a 150 million adjusted EBITDA. It was just garbage. They said that the cost of building new warehouses and cutting over from one warehouse to another was an ad-back item. Well, you know, every logistics company and that group isn't an internet stock, it's a logistics company. I mean, it's got an internet element to it, but it's advertising itself as a sort of the...”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  10. “The hut crew just isn't making any money. I mean, in common with many of the most darling stocks in S&P, the more money you lose, the higher the valuation. And the higher the capitalization. There's a hell of a lot of companies out there that are just spraying money in the hope that they'll get some market share and they'll end up lost. Loads of the electric vehicle stocks. I mean, that is a sector which I think is just laughable. You know, we could have an argument, we could do a whole show on Tesla and, you know, how much is the option value of having a million vehicles collecting data worth in the long term? I mean, you know, I figure that if I wanted to, and I had enough money, I could pay a lot of drivers 100 bucks.”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  11. “So, Steve, one of the red flags that you see to avoid a company like the Hut Group, tell us about the Hut Group. What was the red flags there? And then we can talk about the other alarm signals that you can see as a forensic accountant.”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  12. “Of the numbers, then you're at risk of losing significant amounts. The point about this isn't that you need to do this for every single company, but the ones that you do need to do it for, if you haven't done it, you will lose your shirt as the chief executive has, both metaphorically and literally, because he's got a lot of stock and he's borrowed on margin against his stock and he's lost huge amounts of money. If you don't understand the numbers, my philosophy is, you know, start with the numbers. And if the numbers don't make sense or don't add up, then stay away.”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  13. “Loves it. Soft bank of bought stock and option to buy 20% of one of their subsidiaries and the stock was going to the moon. And I mean, to my particular amusement, the chief executive is rarely pictured with a jacket on or even with a shirt on. His favorite pose is bare chest, right? My friends at the analyst in London wrote a note about it pointing out that there was a lot of hope and hype around the stock. And the shares fell by, I don't know, 40, 50% in a week, not on very much volume. But this is a sort of market we're in where there isn't actually anything supporting these many of these share prices. And if you do not do the detailed analysis of the financial”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  14. “I mean, I don't think it is different. I think it's an inherent integral part of stock analysis because at the end of the day, if you don't understand the numbers, then you don't understand the company. And, you know, I mean, obviously we've been in this sort of daft market where valuations don't matter and the numbers don't matter and it's just while we're in a market where nobody cares what the fundamentals of the business is. good business and it'll be bigger in five years time then you know what i do doesn't really count for anything but i can guarantee you that in the long run the companies that are cooking the books the companies that are cheating companies that are massaging their numbers will you know have very bad days and we've seen a very recently actually a classic example of this is the hut group in the uk so the hut group came to the stock market a few months ago”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT

  15. “Very well. I'm speaking to you from actually dry and quite sunny but cold London. And life is good. How's things with you?”

    2021-11-02 · Forward Guidance · Hunting for Hidden Financial Risks | Stephen Clapham · IDENTIFIED FROM THE TRANSCRIPT