Good Evening Guys. I thought I would share some thoughts on today’s announcements, and last weeks Placement, alongside some general commentary. I will start with saying that my BUY Rating on this company has not changed. In fact, my sentiment is STRONG BUY. This is my opinion and not financial advice at all, so please do your own research.
All in all, I am very pleased with the company’s progress and direction. It’s been a busy and productive quarter for the business. A lot to be pleased about. As many of you know, I have been an investor in the business now since early 2020 when I noticed the company was increasing it’s revenues due to its strategic positioning alongside Amazon. The company displayed a nimble ability to spot an opportunity and capitalise. And, the business developed a low cost and highly scalable business model leveraging on the fact that e-commerce is and will grow(ing). Since then, I believe I have began to understand the business relatively well. Some 12 months later, and I must say that I am very pleased with where this business is heading.
I initially viewed this company as a turnaround story. No doubt that it is. Revenues prove this. As the quarters progressed, I began to view the company as a growth story. This growth story is only in it’s infancy. Truly an exciting and compelling investment opportunity for those that are willing to understand the story at play in my opinion. Here are some thoughts below.
Revenues & Financials
- Record Qtr Revenues of $10.4M Revenues for the Quarter. A great result, particularly emphasised when this result was achieved in what is a seasonally quiet quarter in the retail sector. This result was underpinned by increased revenues in the company’s main verticals of IT/CE. But also attributed to a very successful and seamless vertical addition into Gaming. A record Quarter for the company in the quietest quarter for retailers. This is a very strong signal of what is to come.
- Cashflow Positive for another consecutive quarter
- Successful $5M placement to add to the company’s $2.3M cash in hand, brings a total of circa $7.3M in cash, alongside inventory of at least $8M in my opinion
- I believe the company could have raised capital at higher prices. This is just my opinion. Taking a step back and looking at the growth ahead, the record revenues achieved, and the fundamentals, the company is on a strong growth trajectory
- A small note that Evolution (the brokers of the placement) took their payment in shares - a very bullish signal
- With over $7M in cash, the company now has the ability to purchase more inventory. By doing so, the business can respond to market demand faster and buy up inventory at better prices, increase it’s profit margins, and secure stock that other retailers just cannot get their hands on (such as high grade graphic cards etc
- With over $30M achieved already this year, and with $10.4M achieved last quarter, those that questioned whether the PPE Revenues that were reducing would cause negative affects to the company’s revenues were proven wrong. Instead, the company grew it’s core business, and added the gaming business to a surplus effect. Excellent.
- With 1 more quarter to report, the end of year sales approaching, and with $30M under the belt so far, the question that will be ringing in everybody’s minds is, what will the company report for its full financial year?
- Assuming a mild increase of 15% (conservative given that it will be a busy quarter with end of year sales), circa $12M is guess for this quarters revenues. If so, this will bring the company to a total year revenue of $42M, approx 200% YOY increase from last years $14M revenue.
Business & Operations
- With additional warehouse storage, the company can host more products (in numbers and in variety)
- The new categories of kitchenware and homeware, and the newly announced refurbished products vertical will bring more revenues, and potentially higher profit margins
- Board strengthened with two high caliber appointments. Sparks - the retail and electronics guru. And Polak - the e-commerce and buying guru. Strong additions that underpin the company’s strategy
- Great to see company expenditure so well controlled. So many ASX business are cash burn machines. Not this company. This company is very very measured, controlled, and understated. CEO Garrison pays himself a very modest Salary. He is laser focused on this business
- The business is in the drivers seat for growth. Ranked as the #1 Seller on Amazon in it’s Category, and from what I can see #2 Seller on the entire Amazon platform, consumers go to who is trusted, and Harris Technology is in #1 position! Despite the fact that Amazon is growing it’s market share and revenues strongly, HT8 is leveraging on this as a partner that Amazon needs and wants on it’s platform. This is a win-win scenario. Without HT8, Amazon Australia will suffer a blow to it’s ability to attract customers to it’s platform in the IT/CE category. And quite simply, Amazon just cannot secure the products that HT8 can. Remember, Amazon is mostly a marketplace, not a retailer.
- HT8 enjoys it’s Amazon business as it doesn’t have to hold inventory sold on the Amazon platform in it’s own warehouses. Amazon holds the inventory and dispatches from it’s own warehouses.
- The company has just secured a 3rd warehouse. This indicates that Revenues from sources outside of Amazon are growing strongly also. This is great to see. Some savvy researches have posted in recent weeks about the exponential growth that appears to be happening on the ebay platform.
Register & Shares
- A small and controlled placement to Funds, Institutions, and 708’s. $5M secured very quickly. Seems to me that these sharks wanted to join the register, but could only get their fills on a placement. I sense some cornerstone investors have joined the register. Of course they would want to. They can see this business is growing, undervalued, and tightly held with less than 300M shares on issue. The only way they could have taken positions for the allocations they want in the business is to offer a placement. Seems like a win-win situation. A win for the company to scale up in the lead up to end of financial year sales (which will be a record quarter in my opinion), and a win for the Fund Managers, Institutions, and Sophisticated Investors in being able to get shares without driving the price up 200%
- Over 60% of the company’s shares are held by the Top 20 shareholders
- Company Directors buying on market, with CEO Garrison ensuring his equity in the business is above 30% with 3 on market purchases in the last 6 months
Valuations
With about 295M shares on issue and trading at $0.14 currently, let’s run some numbers.
Assuming an 8% margin on $42M revenues yields Profits of circa $3.36M.
3.36M/295M = 0.01139 (Earnings Per Share)
0.14 (share price)/0.01139 (EPS) = 12.3 PE Ratio
- Market Cap to Revenue Ratio:
Market Cap 295M x $0.14 = $41.3M
$41.3M/$42M = LESS THAN 1 !
The Valuations continue to show that this company is highly undervalued. I will share some Peer Valuation examples soon, but some other peer e-commerce companies are trading at 10 x Revenue valuations. One can truly see that HT8 could easily be valued at 4 or 5 times it’s Revenues. I personally think that on current numbers, the business could justify a share price of around $0.50. This is just my opinion.
A revenue making business, with strong cash on hand, strong inventory, low shares on issue, CEO with lots of skin in the game, Top 20 with over 60% of shares on issue, a strong and proven board, low cash burn and low cost expenditure with CEO paying a modest salary and buying more on market, and a highly scaleable business model and strategy, I struggle to find much better investment opportunities on the ASX. This is just my opinion guys.
All things said, the company has done a great job this quarter. Strong performance. New verticals. Increasing revenues in new verticals, broader e-commerce platforms, and new additions to the board. A very exciting period ahead for the business as it embarks on it’s early stages of GROWTH. Still very very early days for the business. Will be keen to see how things progress. As it stands, things certainly looking very promising, and as has been mentioned before, this business appears to be PRIMED FOR GROWTH.
The company remains to be very undervalued, but I expect this to change in the next 6 months and beyond, and predict very strong shareholder returns. All my own opinion and good evening all.
$tockfella.
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