General Forum, page-895

Thanks for this @mowibble I’m essentially saying that a company with good tech is NOT the same as a good investment. My framework:

A. Is the coy leading? – YES, I like the tech a lot! No dispute here.

B. Is the coy well managed (and governed)? – I’m far from convinced. While product development appears good that’s only part of the answer. My view:
a) Huge cash burn over 4 years by this management team has seen no acceleration in revenue. Look at the cash-outflow, increase in contributed equity and poor share price. Revenue growth is incredibly important as a proof point for equity and any coy’s ability to raise capital at incrementally higher prices. This hasn’t happened.

b) Playing chicken with capital markets is just reckless. Running funding down to 1 quarter just invited a share price belting. The market generally needs at least 12 months of funding visibility to perform IMO

c) Doesn’t matter how good the tech is if the cost base is not built out appropriately and funding is mismanaged. Look at the cumulative and recent accelerating cash outflow. No wonder the market isn’t trusting.

d) CDX is too small for a dual listing in the US. Besides it’s costly to set up as well as maintain and will just split already thin liquidity. And the odds are materially against the illiquid exchange driving a valuation uplift when stock is fungible IMO. There might be a time to dual list, but not now.

e) Governance also needs to be good. This is where the Board executes. A company like this should be paying a lower base rem. I’d be happy with more performance rights, but not both. The Board is not independent so what assurance is there that management is being appropriately challenged, including around compensation i.e. there’s plenty of carrot, but not enough the stick

f) No reputable research coverage – there’s MST, who else? My understanding also is that MST research is paid for by the company and MST is long to the gunnels in CDX options - Right? And MST’s valuation is ridiculous ... 20-30x today's revenue?! Maybe in plus 3 years if all goals have been kicked, not today.

g) And “serial” entrepreneur? The word “serial” is always a red flag unless the Board and governance structures are rock solid – otherwise it’s often the next owner of the coy that makes the money e.g. being bought cheaply after excessive dilution or when markets close or funding dries up. I certainly can see where the CEO has previously worked, but can’t find any glowing independent media reference. Can you point to any? In any event, previous track record is starting to be a little meaningless relative to the 4 years of relevant track record here. Some good, some awful IMO.

C. Is the price right? – this will come down to perceived valuation including momentum. Remember its mostly "art not science" here as there are no real assets to back the market cap, no operating profit and revenue is insufficient and hasn’t been growing to get the market excited about the blue sky. If the above is all going well, then price will follow. However the share price is telling you that the reverse is also true. Maybe this year is the turnaround? - but after 4 years of this team the market is saying “I’ll reward you when I see it”.

D. Is the timing right? – so far waiting on the sidelines has clearly been the better strategy. While management putting more $$ into a capital raising is clearly a positive signal, had they not put the money into the recent raising it appears to me that the coy would have fallen short. That’s akin to a capital markets disaster. The market sniffs this. I suspect new investors got their fill so the marginal buyer is now being swamped by the marginal seller... for now anyway

Unfortunately HC retail investors look at everything through the prism of being a down-ramper unless you are positive on everything. There’s no balance. I think those blindly listening to the up-rampers have more to worry about.

The good news is that getting great tech is the hardest part to solve, the other bits are all very curable hence my very strong interest. If you agree, even to some of the above points, then shareholders need to push for reasonable changes to protect and grow value. ... as I said, I mean no harm ...

IMO GLTAH DYOR