Accesso Technology AGM Report

I attended the Annual General Meeting of Accesso Technology (ACSO) this morning (21st May) at their offices west of London. With a 10.00 am start time there were only about ten ordinary shareholders there.

This company provides ticketing and queuing systems for theme parks and other visitor attractions. It had a great share price performance under the management of former CEO and then Executive Chairman Tom Burnet (who is still on the board as a non-exec director) until October 2018 when the share price peaked at about 2900p. It’s now about 815p having picked up slightly after this morning’s announcement. Long-standing shareholders are not too happy as evidenced by one question posed by a shareholder – see later.

The new Chairman Bill Russell introduced the board (who had almost all changed in the last year) and then new CEO Paul Noland covered the morning announcement. There had been a positive start to trading and they are on target to meet year end forecasts. There was also coverage of the “significant investment in product integration”. That is a major issue to understand and may be spooking investors. As Paul Scott on his Stockopedia blog said this morning, there is “enormous capitalisation of development spending onto the balance sheet” and that’s just a comment on the historical position when they clearly plan to spend more.

David Stredder opened with questions on the impact of the change to IFRS 15 accounting which has substantially reduced revenue in the “guest experience” (queuing systems) segment because they now only recognise the net revenue rather than the gross amount billed. Comment: reading these accounts with all the “adjustments” and changes in the last year from acquisitions, etc, makes for tedious work. It’s easier just to look at the cash flow statement which shows how cash profits have come down due to very heavy development expenditure which was capitalised.

David also asked how each of the new non-execs were recruited. Apparently by searching Tom Burnet’s “network” and using professional advisors. A recruitment company was not apparently used for these jobs, which is definitely a negative sign in my view. Using the “old boy network” is not the best way to get independent and challenging non-executives. Also Tom Burnet cannot be considered independent being a former executive director which is frowned upon now in corporate governance circles.

In response to a question on the large increase in development expenditure, it was stated that they needed to increase expenditure on the two acquired companies (which were relatively “early-stage”) and to integrate them into a new open platform. It was later stated by Tom that customers were looking for simpler deployment systems which also prompted the software redevelopment.

I asked about the aborted acquisition last year which cost the company $1.7 million in wasted fees, and why was it not announced at the time? Surely a price-sensitive matter? The response from Tom was that they were advised that announcing it could be deferred until the next trading statement as it was not that significant an item. Comment: That may have been the advisor’s view but it’s not mine.

It later transpired that the acquisition was aborted because some of the key investors whose support was required for a large rights issue required to fund the acquisition backed out. They had become nervous about the tech sector. It was undoubtedly a poor time to do that.

One shareholder asked for explanation of why the share price had halved, and more. Tom gave the reasons as:

1. General market downturn in tech stocks (down 25%-30% in the Autumn).
2. A pattern of shorting in their stock for the first time.
3. Internet blog reports which affected retail shareholders. He was particularly critical of comments by unregulated commentators and wants to do something about it. Comment: I agree with him and said so in the meeting.
4. Shareholder disappointment that he was stepping down.
5. Concerns about increased development expenditure.

Comment: the fact that Tom also sold a large number of shares no doubt contributed but I agree with his analysis.

David criticised the lack of PR to private investors that might have mitigated these concerns but Tom said the board decided not to get into a battle of words as they were advised this would not help. Comment: probably right there but some positive presentations may have helped.

The issue was raised about the lack of availability of institutional analyst reports to private investors. This had probably not helped as these had been generally positive. One of the non-execs had complained about this as a problem for all AIM companies to the stock exchange, his M.P., etc. Comment: it was bad before even MIFID II came into force but is now exceedingly frustrating even if you are “professional” investor (i.e. a “sophisticated” or “high net worth” investor as classified by the FCA).

Above is a summary of the key questions/answers which helped to reveal exactly why the shares are now out of favour. I think investors are concerned about the heavy development expenditure and there is always some doubt about whether this will pay off in terms of future profits. One gets the impression it is necessary to redevelop old systems and provide a new technology platform for the future but it is clearly not going to be cheap. So profits are not likely to leap upwards for some time.

The confusing accounts probably does not help to instill confidence either, plus of course a new board and new CEO. It’s effectively “all change” at Accesso and investors don’t like revolutions.

With the current valuation the shares may be a buying opportunity as they have fallen so far, but I think a lot of investors will wait and see.

As regards the meeting itself, not a great location and time with no presentation to attract investors but otherwise it was well managed by the new Chairman.

All votes were passed on a show of hands, although some of the resolutions received considerable votes against for no very obvious reasons, e.g. 950k against the reappointment of KPMG. Note that there was no remuneration resolution on the agenda which is a shame because the remuneration scheme at this company is certainly one I would have voted against. AIM companies do not have to have one but it is certainly good practice to do so.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )