@Klogg,
You're right; it's optically poor and does not reflect well on management.
Unfortunately, this is the kind of thing you get with this particular company.
I see this sort of lack of transparency as being somewhat of a "cost" I need to to pay for the significant upside I envisage.
How much upside?
A lot of it.
Here's my thinking:
Sure, the just-reported $14.9m Gross Profit is not real number, but whatever the real number is, it is growing at a rapid clip and at some stage in the very foreseeable future it will be at the sort of level - even without the leg-up from derivative credits - at which it more than covers all operating costs.
I'm almost certain that $15m of market value does not reflect that outcome.
Viewed another way, I think that the true Gross Profit for the past half-year is probably around $12m, and that they exited the period on an annualised "clean GP" run-rate of approaching $13m.
The current CoDB base is around $12m and the company has some very expensive debt, which, along with lease interest, results in a $2m interest expense.
So its now at the point where it is basically washing its face, P&L-wise.
But I also think of what that P&L would look like if it was under the control of a different and larger industry operator.
For starters, the cost base could easily be halved to $6mpa, ditto the interest bill by simple refinancing.
That would leave the "acquired" P&L looking something like the following:
Gross Profit = $13m
Less: CoDB = $6m
=> EBIT = $7m
Less: Interest = $1m
=> PBT = $6m
And NPAT = ~$4m
That pro forma P&L resembles a company with a materially larger Enterprise Value than just the current $30m
A mere 10x EV/EBIT yields a $70m EV.
Less the $15m Net Debt implies a Valuation of $55m.
Which compares to the $15m valuation being applied by the market today.
Perceptions of poor governance and disclosure might explain a minor part of that chasm, but the real overhang, I believe, is a perception that the company is insufficiently capitalised to support its strong growth.
It's a quality-problem to have, but it is still a problem that needs sorting, nonetheless.
I'm almost certain that's what the volley of favourable reports in recent weeks is about.
.
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