In the AFR 1 hour ago:
=============
In late October 2015 listed HR technology company Reffind was looking like the best float of the year.
The stock had soared 880 per cent to $1.96 since it listed in July at 20¢, but unfortunately it was about to find out that what flies, falls.
The company valuation has since fallen by almost $160 million from a peak of $193 million last year, to sit at just $33.3 million, with no sign that things can turn around again.
Last week the company announced it had raised $2 million in capital to fund expansion in the United States and Asia, but with the share price having tumbled a whopping 84 per cent back to only 32¢, market watchers fear the worse and say the funding was almost life support.
IG market strategist Evan Lucas says investors have been left disappointed by the company's low revenue figures, and predicted that the stock could continue to fall even further, as doubts about its long term prospects solidify.
The company sells a workplace app that allows businesses to more effectively communicate and train employees. It has a number of big name clients including Qantas, ResMed, Clayton Utz and Coles.
Mr Lucas says last week's capital raising was actually needed to keep the lights on, and predicted that it would soon need to raise more.
"It was running out of capital and this was more to shore up the balance sheet than for a massive expansion," Lucas says.
"The likelihood of another capital raise is high. What would make me very nervous is if they couldn't raise enough money and had to go to the debt market. That would signal to me that they were in trouble."
Lucas says.a company like Reffind would normally go to venture capital or private equity first, rather than list on the ASX. He theorises that the impressive early performance of the stock was down to the market getting over-excited by the exposure to a kind of company normally out of reach.
SIGNIFICANT QUESTIONS
"When you really drilled down into where they were at, there were questions to be asked," he says.
In Reffind's prospectus it did not forecast any future revenues or expenses, saying that at the early stage of the company's development there were "significant uncertainties" with forecasting financials.
But the company did reveal that in the 10 months to April 15 2015 it had only made $3000 of revenue, not unexpected given the company had only launched its product in March.
In its half year results to December 31 released in February, Reffind reported revenue for the first six months of the 2016 financial year of $157,566 and a net loss after tax of $2.2 million. The result arguably indicated that the $1.96 price high was grossly overvalued.
At the time the company had $4.7 million in cash and equivalents.
Reffind chief executive Jamie Pride, former chief executive of realestate.com.au, remains confident in the business and its future earning potential, although admits the company has made some mistakes around pricing.
REMAINING CONFIDENT
"Capital markets are absolutely brutal across the small cap tech space, but from a corporate perspective I don't think we could be happier," he says.
"We announced about two weeks ago changes to the way we package our products and how we price it. Rather than selling it in parts we're now selling it as a unified platform. We thought this delivered more value to the customer and we've been able to increase the price on a yield basis and we've also changed it to a price per user model."
Despite this, Mr Evans believes the company will have to up the price significantly, or grow the customer base substantially, to reach a sizeable revenue figure.
Since Listing Reffind has since grown its customer numbers by 200 per cent, acquired competitor WooBoard, expanded into three countries and hired 25 people.
"As a board and managing director I'm very proud of what we've achieved and done in one of the most difficult markets in recent history... But it can be hard to tell your staff not to worry about the share price," Mr Pride said.
Mr Pride also highlighted that the business was still trading 62 per cent up on its issue price, and under normal circumstances that would be considered a strong performance in nine months since listing, but believes it is currently undervalued.
"People look at the volatility in the share price and question it it's a success or not... It's an interesting indicator, but it's not the only indicator of success or health. I'm more interested in customer growth rate," he said.
"We have all the challenges that any young company does in terms of tweaking the business model."
More than 48 per cent of the company is still owned by Digital4ge, the start-up accelerator owned by Mr Pride and Reffind board member Ben McGrath.
The treatment of Reffind in the listed market is proof that Australian investors are more willing to take on risk, as UBS analyst Clinton Wong said last week, but perhaps they are still learning how to price early stage growth companies.
Expand
(20min delay)