Ann: 1H FY22 Results Presentation, page-264

did you listen to the Q&A and how much focus was on costs? Their operating margin has been around 3-4% for the last few years and they now have $6m in the bank with a much larger running cost, which is set to grow in this second half.

costs has gone up 50% half on half, with an asset sale required to bridge a funding gap that is totally reliant on revenues picking up significantly from here on in

management came across happy that they are posting record sales, but in reality it is well below their budget, but all the spending has had the “desired effect” on sales. That’s a half truth, because the desired effect would have been much higher sales than they have achieved thus far.

The analysts covering PNV are updating their models and on an investor call asking management for anything that they may have missed that could help them prop up their valuation, because based on the latest costs and sales, it’s looking like substantial downgrades are on the cards.

But management have said that it’s all under control and to trust their internal forecasts because the auditors have. Those forecasts 6 months ago were projecting high double digits sales growth and a small profit, and 6 months later they have been recalibrated to project break even and mid double digit growth.

they said they were able to come home strongly in the second half last year and become cash flow neutral, so there is no reason why they can’t do it again. They may well be right and I also believe their second half will be stronger than the first, but even if they break even that is still below expectations and will drag on current analyst valuations if that is all they are aiming for.

because if their internal forecasts are wrong again, then they don’t have much to fall back on.

I suspect the line of questioning from the analysts shows what they are focused on, and the sales story is now a profitability story which brings into picture the high costs of running this business, that was supposedly very high margins but to date has not resulted in any profits or any exponential sales growth.

That’s not to say it won’t happen, but it appears to be dawning on some analysts that there are additional risks they need to take into consideration going forward, as we’ve all heard about companies that had great products but expanded too quickly and costs overwhelmed them and they folded. Won’t happen here, but if sales don’t grow as fast as they forecast then they will find themselves searching for additional funding or more debt or more assets to sell. But maybe the most damage that will be done is to their reputation and any remaining trust the market has to keep their valuation this high.