Ann: Sensera Secures A$9.4 million in Debt and Equity, page-28

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nashezz

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08/10/19

04:19

Post #: 40765328
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Originally posted by mal85 ↑

if you know any fundamentals of valuation, incrementally improving ROIC (improving profitability) is much more important than chasing growth- if the ROIC
Once ROIC>WACC the relationship is a bit more nuanced. In an industry with structurally low growth, it is better to invest in improving profitability and in high growth industries it is better to put the foot on the pedal.

Anyway what you have written above is fundamentally wrong (theoretically). Practically speaking, I agree with you that getting debt cheaper in the low end of town is very difficult and this isn’t a bad rate. However, there are quite a number of caveats which show that this is actually not a great deal. This is secured debt (1st ranking) with very high fees for early payment and additional granting of warrants (the actual debt is priced at 17%pa). I would definitely rather be owning the debt than be a shareholder of this business structurally (If things go well, get some of the upside and also get paid very well for the effort, if things go really bad won the business and recoup some costs along the way).

Moreover, experience (mostly earlier on in my investing career, thankfully) tells me that the looming debt mountain causes sustained weakness in the shareprice, typically ending in a more dilutive capital raising down the track (better case) or administration (worst case). At least in this situation the 4yr term actually gives them a fighting chance.

Anyway I don’t know where this will go, and your reasoning may turn out correct, but the odds are against you.

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Thanks Mal, appreciate the post.

You don't think then that with sustained revenue growth circa 60% that the ROIC will get above 17%?

Also would you mind showing how you calculated the total WACC including the warrants. I have no idea and keen to learn

SE1 Price at posting: 8.0¢ Sentiment: Hold Disclosure: Held
1 Upvote

0 Great analysis

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Ann: Sensera Secures A$9.4 million in Debt and Equity, page-28

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