An eventful day for HT8 holders and spectators. Some interesting commentary from posters today. Here are some thoughts, leveraging from my initial post on the thread titled “HT8 - The Turnaround Story”. Following today’s announced Capital Raise intentions, what is next for HT8?
Well, some may view today’s news in disappointment. Personally, I am very pleased. I will explain why in this post and also explain my thoughts on where the company was, is, and will be.
I titled the initial thread “turnaround story” because it explained that the business had been through years of underperformance. It was simply written off by investors and shareholders. This stems back from the 2000’s and more recently in the 2017 to 2019 period. One look at the monthly chart will show you this. However, something changed in 2019. And this is the beginning of the “turnaround”.
The company began to focus its attention to online selling. But not any old online selling. It streamlined its efforts to what is proving to be a very decisive and smart strategy - ONLINE MARKETPLACES. HT8 established partnerships with Amazon, Kogan, ebay, Catch. In essence, the company believed it was able to reach a far broader consumer reach in the B2C space. This single move is the seed to a new beginning.
As the developed world, and namely Australia continues to shift its purchasing habits online, at places like Amazon (the worlds biggest company and online marketplace), HT8 took advantage of this. As such, the company began to experience increased sales revenues, at lower overhead costs than having physical brick and mortar stores.
The next thing to mention is the company’s access to product lines and partner reseller agreements. Due to its extensive network of partnerships, HT8 is able to often offer products for sale when most other sellers have run out of stock, or have exclusive distribution agreements which means that only HT8 stock that product in Australia.
Whilst the company began to experience increasing demand, the CEO Garrison Huang loaned the company money to purchase product lines to cater for the increased demand for its products. Although admirable, it is not sustainable. More on this below.
In the latter stages of the last financial year, COVID entered the country, forcing people away from their workplaces to work from home, and their children away from their schools to their homes. The country experienced massive demand for IT related products (as experienced by Kogan and JB Hifi and other online retailers) as people worked and studied from their homes. The company then made its next decisive and strategic decision to add its Pro Hygiene PPE line to it’s products as Health professionals and Federal and State Governments advise people to use hand sanitizers and face masks.
At this stage, the company was building its presence on Amazon, Kogan, ebay, Catch. And as it built its presence strongly in March, April, May, and Australians are shopping online for their IT products and PPE, HT8 begins to enjoy very strong revenue growth. And it begins to announce this to the ASX. It had a huge one day spike, and stale shareholders not understanding the real turnaround at hand exit after painful years of holding an underperforming stock. If only they had displayed more patience..
Here is a snapshot of Quarterly Revenues to detail the revenue turnaround and growth in the last 12mths: Q1 = $2.4m Q2 = $2.3m Q3 = $3.2m Q 4 = $6.6m
The company finished the year with Revenues of $14.1m and Profit of $1.1m. A TURNAROUND. And congratulations on this to the company!
Now, here we are. Victoria experiencing a 2nd wave. Many schools closed around the country. Offices closed. People in isolation. And mandatory face masks. HT8 emerges as NUMBER 1 SELLER ON AMAZON. One can easily see that Revenues will continue to grow. And this is why the share price has moved from 2.5cents to 14cents in recent times. Demand is increasing as recently announced by the company. As such, it has increased its inventory in anticipation of significant GROWTH. Hence we call this thread the HT8 GROWTH STORY. And what I will do now is share my opinion and estimates so as to attempt to draw out some conclusions. Note, these are my opinions and not advice. Please do your own research.
Assuming revenues can increase by a very conservative 20% on last Quarters $6.6m, and is sustained for all 4 Quarters (although Covid effects may reduce in 2021, short to medium term increased PPE sales will be supplemented by increased longer term IT sales driven by presence and rankings on Amazon, Kogan, eBay etc) the company could make $8m per Quarter and $32m for the financial year.
With profit margin of 8% last year on $1.1m against revenues of $14.1m, and with more revenue coming from the PPE range which the company stated yields 20% margins, we can average margins out at approx 14%. This 14% profit on $32m revenues will yield FULLYEARPROFIT of $4.5m.
At $4.5m profit, and with a total number of shares on issue of: 193m + 62.5m Capital Raise Shares = 255.5m shares.
EPS will be 4.5/255.5 = 0.0176 PE Ratio at 8cents will be 0.08/0.0176 = 4.55
Peer ASX listed companies that sell IT products and are online retailers carry PE Ratios of 18 to 20. Kogan has a PE Ratio above 80! So if HT8 is conservatively at a PE Ratio of 15, then the share price at fair value is 15 x 0.0176 = $0.264 that is, about 26.5cents.
This shows how undervalued HT8 is, and gives the reason why the Capital Raise will be in such high demand, and why the share price has risen so strongly in recent times. If the quarter revenues are higher than I have estimated, then the share price valuation I shared will be too low. If the market decides to value the company at a more generous PE Ratio, then the share price I shared will also be too low.
Nonetheless, this is a GROWTH STORY in the making, and this is why it has captured media interest, institutional interest, and shareholder interest. As such my share price target assuming my variables above, is no less than $0.265 as above. In fact a share price of $0.40 could be argued in my opinion.
I hope this explains why in my opinion the company is raising capital, that is to grow and strengthen their balance sheet to increase their credits on pre purchasing more stock to cater for their significant demand and growth. And hopefully this explains why there has been such a surge in commentary and interest in HT8.
Happy Weekend All, and exciting times ahead for the company.
HT8 Price at posting:
11.5¢ Sentiment: Buy Disclosure: Held
