Have you got religion?

•June 30, 2007 • Leave a Comment

Saw this when browsing YouTube (after watching the excellent video of newscaster Mika Brzezinski tear up the Paris Hilton story) – I must admit, I am a big time Apple supporter (even used to have Next on my desk!)


Future of consumer credit?

•June 29, 2007 • Leave a Comment

A couple of “new style” credit (loans) businesses that match private investors (lendors) and private borrowers, thus dis-intermediating the bank:

1. Prosper.com
2. zopa.com
3. A facility on FaceBook called “Lending Club”.

Two questions…

1. Will the current issues in the credit markets and rising interest rates cause the traditional lenders to tighten up their credit approvals and allow the above platforms to poach customers?

2. Will the above platforms be around in 5 years?

YES | YES – Zopa.com – as this appears to have a more robust business model

YES | NO – propser.com – is a bit too skewed toward the sub-prime lending market (look at the profiles) and the turmoil that it is going though. I would guess that the sub-prime borrowers will shift their risk onto these platforms once the banks and sub-prime lenders start saying “non”. I do question if the lenders are attracted by the rates they can get away with and are blinkered to the true risk profile of the borrowers.

YES | UNSURE – “Lending Club” , will look deeper.

Also, if anyone knows how leveraged these businesses are, can they let me know. For example, in a traditional bank, for each deposit of $1 the capital adequacy requirement allows lending of around $4. Does the regulator allow these businesses to do this or is there a 1 to 1 relationship between a $ invested and a $ lent? let me know…

Boats, Trains and Automobiles

•June 29, 2007 • 3 Comments

Over drinks at a friend’s BBQ we were discussing some trade ideas, one of which I would like to share here as it is quite interesting.

Firstly, some context. My colleague is a boat captain for the 30m+ yachts found in Monaco / St Trop / Antibes / Cannes etc. We both live in this neck of the woods too.

The rise of the “new wealthy” (well documented in FT, Economist etc.) has been driving the rise in demand for “toys” (big boats, private jets etc.).

Some interesting facts:

1. Currently most the major boat-yards around the world that can build the decent “toy” yacht have order books full for the next 5-8 years.

2. 30-40% of the “boat metres” being build will end up on the Med in France, Spain, Italy etc. The “big” ones will be around France/Italy.

3. There is currently zero (yes zero) marina space realistically available to accommodate these new boats. Well, there is a development in Monaco extending the harbour via landfill and in France mooted between Cannes and St Maxine; but this new marina space will only be about 10-20% of the capacity required.

4. I have noticed recently several private equity firms buying into boat-yards (one just closed in Germany a week or so ago). Private equity guys are normally pretty smart so when they going into a trade there is normally a sensible basis for the trade.

5. Some of the luxury “smaller craft” firms (e.g. Crisscraft) have been “turned around” recently driven by the same demand (and big boats needing “posh tenders”)

So it looks as if there exists a “big boat” trade in the market involving boat yards, marinas etc. How can we get in on the trade (this is a non-exhaustive list of questions)?

Boat yards
– not many (near zero) of these are public quoted. Therefore we are looking at private equity. Two key questions; 1. with the current credit market issues, will the leveraged financing be available; 2. are they any boat yards on the market?

Private equity – which funds are looking at going long on boat builders and are these funds open?

Marinas – most marinas are state (or local authority) owned. Two more questions; 1. where are the likely spots for development; 2. will the governments in the Med need “PFI” type money to build?

Wealth – will the wealth “bubble” continue to grow and ensure the boat yard order books remain full? (from the current private equity deals in this sector, I guess they believe “yes”)

Why am I posting this? well, I am looking for ideas. My searching for a decent way into the trade and for more data on this sector have led to “not much”.

Answers on a post-card 🙂

What I want for Christmas

•June 29, 2007 • 6 Comments

I love gadgets / technology and have been trying to find the ideal way to distribute audio / video around the house/garden, within the following constraints:

– wireless
– reasonably cheap (as needs to be deployed in each room)
– supports iTunes content
– distributes TV, music, photos, DVD’s, Internet radio
– looks “cool” and “un-obtrusive” (i.e. not a PC in every room)
– can output to a TV, speakers or Hifi
– simple enough for wife and kids to use
– a simple remote control

There are a number of devices that have come to the market over the past 18 months, including the AppleTV, AirPort ExpressRoku Soundbridge Philips Streamium, Windows Media Edition etc. and some more “up-market” devices as well.

Unfortunately, at the moment there is no one product that can fulfill all the constraints above, although a “system” can be assembled from “point” solutions – my colleague Malc has been blogging on this (as have others).

My personal experience is with the Roku Soundbridge for distributing radio and music (as I live in France I like to get UK radio), Sky disk with 4 LUNs (and hence a cabled distribution of TV).

The market appears “open” for someone to take on this “media enabled house at a decent price point” as all the technologies and interoperability standards exist. However, all the vendors currently seem to be resting comfortably in the “safe knowledge bunkers” – simple design brief (digital rights aside):

1. Central server based on Mac or Windows

– to store CD collection
– to store DVD collection
– to store photo collection
– to store video collection
– to receive TV feeds
– to receive radio feeds
– to stream audio
– to stream video (including static pictures)
– to control changing of TV and radio channels

2. Room media box to

– subscribe to audio, photo and video streams from server
– to provide audio and video outputs
– to receive remote control commands and transmit to server

Does anyone do this well?

Back on air

•June 27, 2007 • 3 Comments

Apologies for being off air for some while – a combination of France Telecom destroying my ADSL for several weeks and a truck knocked me off my bicycle 20km into the 380km Marseilles to Monaco charity ride. Back now 🙂

My firm is worth a billion $

•June 27, 2007 • Leave a Comment

Recently I have been looking at a few businesses with regards to finding a firm which could be grown into something significant, and have been targeting private individuals selling their firms via various sources (including businessesforsale.com )

(For those of you how do not know me) I spent a few years on the “professional” side of creating / buying / selling firms where the methodologies normally lead to the right order of magnitude of price, or at least the right starting point for a negotiation.

What I have found to be quite an eye opener when dealing direct with the owners (rather than through an intermediary accountant / banker / lawyer) is the amazing valuations that the owners attribute to their firms.

For example, a typical conversation….

Me: thanks for the financials and background data

Seller: no problem

Me: what kind of price are you looking for your firm

Seller: 1 billion $

Me: ok, could you tell me how you arrived at that figure

Seller: it is what I think the firm is worth

Me: but your gross profit is 2% and you have zippo on the balance sheet

Seller: does that matter?

Me: it sort of does

Seller: what is your valuation then?

Me: a maximum price of 25,000 Euros

Seller: that’s absurd, there is no way I will sell the firm for that

Me: (explains why the valuation is max 25k Euros)

Seller: what do you know about this business? you are a bean counter

Me: Sorry for wasting your time, get back to me if you are still looking to sell and do not get 1 billion $ for your business

Now I understand and appreciate it is normal behavior for parents / business owners to “over price” the “baby” (overheard at a drinks party – “my child can solve partial differential equations at 2 years old”) – thus there will always be an emotional price and market price spread.

I have even been guilty of “overpricing the baby” myself when someone phoned to buy a firm I owned and I gave him “the 1 billion $ finger” as we did not want to sell at the time.

What amazes me is the people (see above) who really do want to sell their firm, yet give the “1 billion $ finger”. I admire the passion for their business which blinkers them from the real value, but in other ways it is quite concerning that when they finally come around to agreeing to sell at the true value they will feel so emotionally “let down”, they are likely to be very bitter.

I guess the job of a good broker is to be a counselor too.

Does EasyJet price children with Black Scholes?

•May 22, 2007 • 5 Comments

The “pricing engines” behind products (financial or otherwise) have always been of interest to me (being a closet mathematician). There are some incredibly complex pricing engines within the financial markets and many dollars thrown at being able to produce a better / faster engine (and supporting models).

One pricing engine which mystifies me is the pricing engine behind Easyjet airline tickets – especially as Easyjet positions themselves as a “budget” airline. (living in France, EasyJet is my lifeline back to the UK and I commuted 2 times a week for 3.5 years).

As an aside, I should state I am a massive fan of Easyjet when physically on their planes and respect what they have done to the industry in terms of pricing transparency, but their customer service is really poor when responding to problems (e.g. getting refunds etc. is like getting blood out of a stone) – anyway, back to pricing….

Some observations (based on real facts – the tickets I have purchased and those of my “EasyJet commuter club” colleagues):

– in 2003 I would agree that EasyJet was a “budget” airline as my weekly commute would cost me 70 Euros a week (when averaged across 52 weeks)

– in 2004, price averaged 75 Euros

– in 2005, price averaged 90 Euros

– in 2006, price averaged 125 Euros (which is still not massively expensive)

– in 2005 when changing a booking online the price (excluding the “change booking” fee), was more than the normal fare. So I guess that Easyjet hoped customers would not notice the “difference” (I did and complained but got zero response)

– I just noticed (21st May 2007) that children fares cost more than adult fares (at least between Nice to Luton in August). Try pricing a flight for a single adult, then price the same fare for zero adults and one child, then one adult and one child. Three different fares for the same seat when the underlying price has not moved!

Now, my theory is that EasyJet pricing is nothing more sophisticated than a few blokes / girls sitting around thinking up ways to push up “floor prices” and a computer just taking a “floor” price and generating final pricing as a function of “time to flight” and “availability” (reminding me of the recent Nationwide adverts on TV) – e.g.:

– The Nice/London flights generally transport wealthy people, so lets see how far we can push the prices each year (I am sure they do the same on other routes)

– Is there an event on? (e.g. Cannes film festival, MIPIN conference and Monaco Grand Prix), then let’s set the “floor” price higher

– Let’s cut routes that appear not to be profitable (without consulting customers)

– Let’s try and hide price rises where customers may not notice (e.g. when changing a booking or traveling with children)


– In 2007 I think EasyJet has finally received a negative reaction to the “lets see how far we can get” price hikes between 2003-2006 as Easyjet share price was hit by lower than expected “occupancy” and EasyJet have been having lots of sales in 2007 to boost “occupancy” (the factors in EasyJet’s “official” explanation would contribute some, but I believe the factors I mention above are a major contributor)

– Also interesting to note Ryan Air has decided to “kick-em when they are down” with aggressive pricing

– Rising energy prices between 2003 and 2006 will have pushed up prices but not to the level of nearly 100% fare price increases on some routes (EasyJet’s treasurer should have hedged out energy price risk anyway so that they could have been safe setting “floor” prices)

– If EasyJet really did want to engage their customers in dialog, they might have turned non profitable routes into profitable ones rather than irritate customers

In conclusion……

Perhaps if EasyJet invested in better pricing engine technology they might be able to price in real time taking into account all factors across all routes: fuel hedged price; availability; fixed cost base; seasonality; landing slot pricing; estimated time on the ground (which costs money); customers in-flight buying habits; seat availability; and net operating profit target for EasyJet; therefore….

The customer would gain a more “consistent” and less “dis-honorable” price to and possibly might up the EasyJet share price to invest in other areas….

Potentially invest a little more on Customer Service (I would pay 1 GBP more per ticket for better customer service; how about this as an idea – “customer services credits” based on total spend with EasyJet and “credits purchased” – I am sure other would as well; just like some people are prepared to pay for speedy boarding perhaps?)

But then – you do get what you pay for and Gordon Ramsey doesn’t work at Burger King…