7:59 cut – FA.

FireAngel (FA.) – H1 Trading Update

FireAngel make the majority of smoke alarms sold to consumers in the UK and the vast majority of mid-range alarms. Traditionally they have struggled to capture the UK trade market and sales in Europe have been lumpy in France / Germany, and broadly absent elsewhere. Due to overinvestment, contractual disputes and management missteps, they recently had a dilutive rescue fundraising.

Today’s update starts strongly, with revenue stated to be ahead of budget and some strong figures quoted for their strategic offering of interconnected alarms.

Net debt is reported at £1.8m, down from net cash of £3.4m in “2018” after raising £7m. This presentation is extremely confusing. For H1 cash it is quite common to quote the full year end as a comparitor, but in this case they quoted H1 2018 without saying so. It could be argued that so much has happened even in the last 6 months that any comparison will be unhelpful, but certainly more has happened in 12 months! For reference, FY 2018 cash position was £3.3m net debt and so it can be seen operating cashflow has been negative in the extreme over the half.

Lower inventory levels are, I believe, primarily due to write-offs rather than the positive management they claim.

They earlier warned about manufacturing inefficiencies – it appears that these are ongoing and taking longer to improve.

The following is exactly what I don’t want to read in an H1 trading statement:

With approximately 55% of the expected full year revenue to be generated in the second half, full-year performance is dependent on securing several exciting pipeline opportunities which are well-advanced in negotiations and trials.

This is not a heavy H2 weighting, but there are plenty of growth companies where forecasts are merely dependent on the management continuing to execute and consumers continuing to buy, not the negotiation of trade contracts which history has shown to be lumpy and prone to stock management issues.

My investigations into the retail side show a management that are still not on top of their business, e.g. with poor reviews due to legacy issues left to lie and encroachment from other suppliers even in retailers where they claim to be exclusive.

Also announced today [edit: with 1 day’s notice] is the departure of Neil Smith who joined as CEO in 2015. Graham Whitworth continued to be named first in RNS statements for some time after Neil Smith’s appointment and has maintained a strong presence since; although not obvious at the recent AGM, a tension between the two cannot be ruled out. Alternatively, and worse, the suspicion is always that the departee has concerns over the future prospects of the company – the previous FD announced his resignation a few days before the relationship with BRK publicly broke down.

I have done enough research on this company for at least two full-sized articles and have been left underwhelmed. I will be selling my starter holding this morning. If you would like me to publish my research then please contact me since my motivation is otherwise limited as a non-holder.