Ann: Trading Halt, page-31

"Have my doubts based on past performance. New management been there long enough now and yet to see any meaningful change although Covid is an obvious excuse..."

If you have ever been involved in managing a working capital intensive business, such as SP3, you'd appreciate that performance while financially constrained is a poor indicator of performance once adequately capitalised.

Apart from Covid, SP3's biggest problem by far has been that it has been underfunded.

As I had stated in an earlier post, the current equity issuance exercise underway will be close to a 1-for-1 recap exercise (I expect a further $1.0m will easily be raised via the SSP... one of the unique features of SP3's capital structure is its massive shareholder base relative to the puny size of the company: only needs 34 of the 920-odd shareholders to participate in the SPP to get to $1.0m). [*]

Added to the $1.86m raised in the SPP (which casts a bit of a humbling light on your "Wonder if they struggled to get the funding?" speculation), they''ll have close to $2.7m, after fees, and possibly even $3.0m given the likely overs on the SPP.

That's exactly the kind of funding they need to access the market opportunity that they say awaits the business.

This business has been run on the smell of an oily rag, and that never works for this kind of business, because you merely end up spinning wheels, as we've seen for the past 12 months.

It was therefore always going to come down to almost starting afresh given the capital required relative to the size of the company.

So I think of today almost like an IPO to inject working capital funding.

Gerard has got 12 months' to turn that funding injection to account.
If there is no traction evident then, there will have to be some falling on swords.

(By the way, properly defining "traction" is important... don't expect the traction to take the form of positive EBITDA or strong operating cash flow, because there is going to have to be a significant investment made into both CoDB and Stock & Debtors. So the relevant milestones are to be found at the Revenue and GP lines; anything below that is somewhat meaningless.)

So, when it comes to Profitability and Free Cash Flow being manifestations of business success, those really only form part of a 2024 story. Unfortunately, therefore, SP3 is not an investment for the impatient.)


[*] Of course, it bears noting that this large and granular shareholder base is a bit of a two-edged sword, because the combination of a large number of shareholders and an illiquid stock means that it is almost certain to not resume trading anywhere above TERP (being 4.5cps, assuming $1.0m to be raised in the SPP). In fact, when it resumes trading I fully expect the stock to crash through TERP and possibly to even trade close to the 3.6c offer price.

.