Where is Fair Value?

I'm as stunned as everyone else that at the time of writting, you can pick up shares in 1ST for 3.6c, which values the entire business at just $15M.

But, investors overall appear to have lost complete faith in the growth trajectory of this business. 1ST is currently priced as a low growth business (<15% CAGR), which is evidently below the historical organic growth rate (35% CAGR).

A SaaS company of this size growing at a 30% CAGR traditionally would trade on 5x ARR which would be a market cap of $26M. That would be a share price of 6.1 cents. To be completepy frank, I think historical performance alone (major deals aside) puts current fair value for 1ST at no less than 6.1 cents, assuming 30% top line growth continues as the baseline.

But, going forward beyond 6 cents, it all comes down to execution. To take us back to 7-10c levels and beyond, Klaus needs to deliver some form of accelerated growth, which the market is no longer pricing into the share price.

If Q3 and Q4 do not deliver any form of accelerated growth above the 30% CAGR baseline then I will be the first to admit that returning to 10 cents looks unlikely.

I'm not expecting a huge surge in growth in either Q3 or Q4 but I am expecting to see some very solid growth that is accelerating. This acceleration of growth needs to be driven by a higher ARPU, increased sites (currently climbing at ~2000 per year) and the network effect. I'm predicting CY2020 to add ~3,500 sites.

In summary, given where we are now with the share price, confidence appears to have been lost. The current share price assumes extremely minimal growth going forward. Only time will tell, but I believe we will be back at fair value of 6 cents (at least) in the short term.

T.E.P.