Weathering the squalls, page-9

A snippet from OC, who sold out of HSN completely in June -


Hansen (HSN, -23.0%)
was the key disappointment for
the month after it provided a negative earnings update
for the year to 30 June 2018, as well as providing softer
than expected guidance for FY19. HSN provides mission-
critical billing and customer care software solutions to
clients within the pay TV, telecommunications, energy
and water sectors. It is a global business that has grown
rapidly over the past five years driven by a combination
of sensible acquisitions into new geographies or
complementary vertical adjacencies and steady mid-
single digit organic growth. The business was thought
to be quite predictable given the very low churn rate
amongst the customers and the revenue model which
we believed to have a high degree of predictability
given the sticky customer relationships. That thesis now
looks flimsy, particularly in light of the FY19 revenue
guidance which suggests to us that the lower quality
project based revenues may be higher and more
volatile that the market (and ourselves) had previously
anticipated. Not helping matters Managing Director,
Andrew Hansen, sold down his position in the company in
March 2018 which, at the time, we dismissed as sensible
diversification. But the optics of the sell-down now look
bad, given the quantum of this downgrade. This has
no doubt exacerbated the angry selling from investors.
OC Funds was on the front foot when the downgrade
was announced and was quick to push the sell trigger
exiting a large portion of our stock well above the current
share price. When the facts materially charge so will our
investment thesis and we have now exited the position.