Ann: Appendix 4C - quarterly, page-104

"@madamswer I wonder if you have any thoughts on the most recent quarterly? "


@zaidi675 ,

When a company goes from zero revenue to several tens of millions of dollars of revenue literally in the space of just a few months, and it does so in the middle of a most extreme set of market circumstances which result in volatile ordering and dispatching patterns, along with logistical challenges, then I'm not sure what happens in any particular 90-day period (just ~65 working days, remember) is overly representative of long-term underlying business potential.

So, in that context, I spent no more than 10 minutes thinking about the recent quarterly, after which I simply shrugged my shoulders.

Because my investment thesis here is that there is a market opportunity for this business to be writing several hundreds of millions of dollars in Revenue.

And with its high gross margins (even if they flex down over time), the minimalist Cost of Doing Business, and the negligible calls on capital, a significant proportion of those Revenue dollars will fall through to the Free Cash Flow line.

I notice people on this forum ruminating at great length and trying to read things in the entrails of each quarterly report; this might drive the share price performance a few percent either way in the days following quarterly reports, but frankly playing that game is outside of my competence skill set. So I've leave it for others.

It must be remembered that this company is a mere infant; it was literally nothing this time last year.

What effectively happened to these guys is that they were running what was little more than the equivalent of a small family business operating in the wrong hemisphere and in the wrong time zone, which suddenly - in the space of a few months - went from trying hard to get customers interested in what they had to sell, to the world frantically beating a path to their door.

The result is what we have seen over recent months: immature supply chains, sub-optimal distribution arrangements, scheduling challenges, shortage of resources (such as product receptacles)... typical teething problems for any business going from zero to a darn lot in a short period of time.

It strikes me that CEO - who was basically hands-on attending to all aspects of the company - wasn't sleeping much in the first half of 2020!

It was (and to a degree still is, I suspect) effectively a privately run business which was called upon at very short notice to operate on the global stage, without the requisite institutional grade frameworks and systems.

So that quarterly numbers end up being all over the shop should come as no surprise to anyone.

My investment case for this fledgling business is that it has ample scope to, at some stage over the foreseeable future, be generating $100m to $120m in Revenues, of which $35m to $45m will go to CoGS, and a further $20m to $25m towards the running of the company.

Which will result in $45m to $55m in annual EBIT.

Should that not-unreasonable outcome transpire, then I very much doubt it will still be a company with a $240m Enterprise Value. More like $400m, I think.

Of course, the company might just make no traction in driving additional sales (unlikely) in which case it would still be generating $60m of Revenue, out of which $20m would be consumed by CoGS and the current $12m pa in CoDB would be maintained.

So EBIT in excess of $25m, implying a current EV/EBIT multiple of around 8.5 times (or a P/E of ~12x).

I'm not sure the stock's valuation multiples compresses much from those levels.

So in the context of all of the above, what happens in one particular quarter, especially at this early stage of the evolution of the company, is largely irrelevant, I think.


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