Good question @lightendeavour. Debt has never been too big of a concern for me with Veem. Overall the balance sheet is very solid, with $46m in net assets. These are fairly solid assets and it's not goodwill from acquisitions. There are some areas like IP on the balance sheet, but this is proprietary tech / IP like the gyros and propeller tech we could sell. Having said that, I've never liked the lowish cash balance and it does create questions on expansion plans.
I realise you were referencing the numbers you had considered in March 2023, but it's worth updating these to current figures in recent annual report, which has Cash @ $2.4m and Debt @ $15m ($4.6m current, $10.4m non-current). That looks worse on the surface of things, but keep in mind that $8.2m of this relates to Hire Purchase Agreements, which was backed at 30 June by plant and equipment valued at $8,531,525. Most of this, particularly the increase in the HPA relates to machines they brought in to expand the capacity in the propellor division, which is churning out plenty of revenue and profiit, so a good investment. In my mind, debt is more like $6m and quite manageable in my opinion in current structure.
If the company was concerned about the cash / net debt position, I doubt they would have been increasing the dividend over the last 3 payments, including re-introducing the interim divi: - $285,000 - 21 September 2022 (final) - $542,878 - 19 April 2023 (interim) - $692,169 - 20September 2023 (final)
Even with higher costs for SHARROW by VEEM development work (can imagine $1m), VEEM have projected for 1HFY24: - EBITDA in the range of $6 - $7million - NPAT in the range of $2.6 – $3.0 million This is ~50% ahead of the previous half-year (2022) for EBITDA and NPAT and slightly ahead of analyst forecasts* at time of AGM. This should mean a healthy increase ($800k?) to the interim dividend given they aim to pay 30% of NPAT out.
When you look at the second half, I am assuming that: - Propellers sales maintain recent strength for core product, but early SHARROW kicks in (2 months?) - The balance of the gyros to Strategic Marine are delivered by 30 June, which is more than in first half - Hollow bar work continues to ramp for Latrobe - Defence and other work continues as per normal Depending on development costs (Sharrow again), I expect second half could see: - EBITDA in the range of $7.5 - $9 million - NPAT in the range of $3.5 – $4.0 million This should also mean a higher dividend than the interim, so maybe around the $1m level.
Longer term, they have flagged geographical expansion to be closer to their customers and to save logistics costs. This makes sense, particularly for the Sharrow opportunity and especially the gyros given how massive they are. Keep in mind, I think the current facility in WA can do $100m in Gyro's annually though, so plenty of room to grow. Any expansion, either greenfield, or by acquisition, likely requires more debt and maybe a cap raise. It will be interesting to see how that develops and O/S expansion can be a risk if poorly executed. I expect the founders take a conservative approach though and walk before they run. They might even be able to find some spare space (or a cheap acquisition) in a relevant location.
For me, Veem core business is solid and profitable (ie: defence work, etc) that gives me upside exposure to 3 world class products - Gyros, Sharrow by Veem and Hollowbar - that have large growth runways and no notable competition, so I am interested to see how it develops and collect the small divis along the way.
I expect we might consolidate here until H1 results and dividends are confirmed and Sharrow results are known.
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