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UPDATE - Tungsten Corporation to beat guidance after strong second half

Published: 14:11 14 May 2015 BST

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"The Tungsten Network continues to expand as we attract new suppliers, enable more existing suppliers to transact with additional buyers, and connect more large buyers to the Network on a global basis to increasing its value through a true network effect," said Edmund Truell, CEO of Tungsten.

Tungsten Corporation (LON:TUNG), the electronic invoicing and financing company, said performance topped expectations in the second half of its financial year. 

The pre-close statement showed momentum picking up and in response to this, chief executive officer (CEO) Edmund Truell is to give up the day-to-day running of the group to take on more of a roving brief, where he will focus on enhancing the group's relationships with major clients, providers of capital and other strategic partners, and driving the global roll-out.

Truell is moving to the newly created role of vice chairman, with Richard Hurwitz, currently head of the Americas division and global client development, will be taking over as group CEO in the middle of July.

Nick Parker, a non-executive director (NED) of Tungsten Bank, has replaced Truell as non-executive chairman of Tungsten Bank, and has also been appointed to the group board as a NED; Truell will be deputy chairman of the bank, while non-executive director Rob Eddowes has been appointed as interim CEO of Tungsten Bank.

Revenues for the second half of the fiscal year (to 30 April 2015) are expected to be higher than the company had budgeted for, and show good progress compared with the first half of the year, as the pace at which the group adds new buyers and suppliers to its Tungsten Network picks up. 

The higher revenues, combined with lower than forecast costs in the second half of the year, are expected to result in a smaller loss for the full year than the market's expectation of £31.2 million, Tungsten revealed.

Tungsten said the pipeline of new customers for the Tungsten Network is stronger than ever.

On the financing side, Tungsten Bank has made a promising start, the company said, though the bank's board decided last week not to take deposits for now.

The balance sheet is strong enough to handle the invoice financing facility, and the roll-out of Tungsten Early Payment, which enables suppliers to control when they receive invoice payments, is on track.

By the end of April, 88 suppliers had signed a contract to use Tungsten Early Payment, and 38 suppliers had completed the registration process to become a customer of Tungsten Early Payment. Total invoices financed totalled £32 million.

Customers using Tungsten Early Payment finance repeatedly use the service, financing an average of 79% of the value of their available invoices, Tungsten disclosed. 

At the financial year-end, 42 buyers were signed up for the standard Tungsten Invoice Status Service, up from 37 at the mid-year, and Tungsten is expecting financing volumes to pick up this year as a result of some new enhancements to the product.

Tungsten Analytics continues to receive positive feedback from potential buyer customers. The average savings identified in current trials are 1.6% of the spend analysed.

At the end of April 2015, the first buyer to trial analytics had contracted for the service and a further 40 were taking part in pilot programmes.

Tungsten's cash position at 30 April 2015 was £31.4 million, including £18.6 million of cash or cash equivalents held in Tungsten Bank. The Tungsten board is reviewing various proposals to fund the company's growth strategy.

Canaccord Genuity, Tungsten's joint broker, noted: “Tungsten has been successful in reducing cash burn from about £3mln per month in H1 FY15 to between £2.6mln and £1.4mln per month going forward, depending on Tungsten's investment plans. As a result, Tungsten has between five to nine months of free cash.” 

Meanwhile, Truell revealed the company intends to invite suppliers en masse to enrol for finance and is negotiating with numerous buyers to contract for the Analytics service.

"We look forward to 2016 as the year when Tungsten Corporation begins to transform the world's supply chain and I believe Rick is the right person to lead the company as CEO as we execute and deliver on our strategy," he added.

Canaccord Genuity, Tungsten's joint broker, said the revenue and operating loss numbers were better than it had been forecasting.

“Financing customers appear to be happy with their new financing option, with customers deciding to request Tungsten's invoice financing for almost 80% of their invoices; however, only 38 of the 188 suppliers (20%) that have indicated an interest in financing have been able to access financing due to excessively onerous and extended sales, enrolment and approval processes. Tungsten believes these are not structural issues and has appointed an interim CEO for the bank, Rob Eddowes, previously a non-executive director with over 30 years commercial financing experience, to streamline the processes and accelerate financing,” the broker said, adding that it plans to review its financing estimates.

Shares in Tungsten were up 2% at 148p early doors in a falling market, before moving sharply into reverse as investors took stock of the management changes.

Canaccord Genuity believes the shares, down 8.1% at 131.75p in afternoon trading, are undervalued.

The current market capitalisation of Tungsten, at around £138mln, it not significantly above the disposal value of the e-invoicing network, which Canaccord reckons would go for about £110mln if put up for sale, while the bank would go for around £40mln in the broker's view.

It is sticking with its 369p price target while it reviews its forecasts.

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