End May Update, page-14

Pioupiou, another perspective on NEA to perhaps help you with your deliberations on whether to remain invested is to analyse the ANZ business and the NA business separately. Analysing the whole of NEA as a unit can be misleading in my opinion. ANZ is very mature and very profitable, and gives many clues as to how the NA business will develop financially.

ANZ business:

• Assuming only a very small decrease in costs, net cash flow for the current half year should be around $13M after deducting the ANZ share of corporate costs.
• Full FY20 figures will reflect higher growth expenditure in the first half, so I prefer to look at the current run rate for this half.
• IMO, the leverage of the profitable ANZ business will start to show in FY21. I am conservatively estimating ANZ receipts from customers to only grow at 13-14%, but if costs can be well managed, cash flow for FY21 can grow much faster (I estimate at 35% to $33M after its share of corporate costs). This business has some similar characteristics to SaaS businesses.
• It is not unreasonable to value this ANZ business at 25x cash flow (several of my IT SaaS businesses are valued higher than this). This would be $825M for FY21.

NA business:

• NEA has already proven that the NA business is growing much faster than the ANZ business at this stage of its development.
• Net cash flow for the current half year should be around negative $10-11M after deducting its share of corporate costs.
• My projections lead me to expect that in two years time, this same half year will generate positive cash flow of around $12M, or around the same as the ANZ business in this half.
• If so, this puts the NA business only 2 years behind the ANZ business, but growing at a much faster rate.
• What would I value this NA business at? I would value it at no less than the ANZ business because of its size and potential.
• When generating significant cash flows in 2 years time, that would be the perfect time to translate the successful business model into other markets.

So in conclusion, I believe that the NEA market cap of around $1.5B 12months ago was about right, just a bit early IMO. Today it is at $767M, or around half of that.