Holder Concesus, page-16

I am a significant holder of DXN and DXNOD. I spend a lot of time researching my investments, including talking to the markets in which they operate (customers, competitors) plus different layers of management and the Boards. My brief take on the key drivers and near-term catalysts for DXN are - all in my opinion:

NSW Government tender - names of the companies being invited through to next phase is unlikely to be announced til end Aug at earliest. Any actual work awarded under this tender is unlikely to flow for another ~12 months. Best to manage expectations. One thing to note is that DXN is well placed to "double dip" its participation in this tender; obviously DXN has pitched for a number of aspects on its own, yet many of the other Tender bidders are relying on DXNs ability to manufacture modules for them, should they be successful.So even if DXN was to not be chosen as a direct supplier, then I believe there is a very high probability that DXN will still benefit from work being generated under this tender. Yet as mentioned, not for another ~12 months time.

Matt is well known, well connected and has good repute in this space. His background is sales. The sales team previously responsible for SYD is cleaned up and Matt is personally involved in selling the space in SYD. Obviously COVID slowed things down, yet progress is being made and will continue to gather pace over the coming 12 months.

Significant focus on the module sales process is continuing, headed up by Shalini Lagrutta - one of the best in the sector, globally.

Module installs are still being completed despite COVID. Speaks volumes to the ingenuity, innovation, flexibility and ability of DXN. Just like we have all found ways to work-from-home and maintain our efficiency. So too has DXN in their installation of modules, despite challenging locations of these. I expect this to open doors/markets for DXN and to lead to a new way of doing things, even after COVID.

New module contracts continue to be won - my expectation is that additional win(s) will be announced in the coming days.

Quick and seamless integration of DC3 (Hobart) has been completed. Expansion of DC3 (@low marginal cost = very high ROIC) is now being discussed with likely customers

DC3 will not be the only Edge facility owned by DXN. Discussions with vendors of other Edge facilities are taking place for DXN to acquire another Hobart-like facility. DXN will not be the buyer of just any Edge facility. In addition to being obsessively mindful of not overpaying for the cash flows an Edge facility will generate, DXN will focus on the quality (credit worthiness) of the customers of any new Edge facilities, the scale of the Edge facility and the opportunity to expand the facility including the cost of doing so and the strategic location of any new Edge facility.

Operating cash flow is improving significantly (~18% quarter-on-quarter), despite lower revenues over the same period. This is a clear demonstration that management is acutely aware of the operating leverage that exists in this business. Further cost reductions are in play (see below re MELB) and revenue is increasing (DC3, SYD and continuous module wins - not taking into account NSW Government tender which as mentioned above is at least 12 months out). Getting to operating cash flow break-even is a key focus by management and at this rate (despite COVID) they are making tremendous progress. As COVID pressures and complications ease off, progress will accelerate. Getting to operating cash flow break even is a significant inflection point.

The ANZ facility is expensive and inflexible. Management is aware and a better (for DXN) facility will be put in place.

The Port Melbourne facility (MELB) is expensive. Management is working on a cost plug which I feel certain will be known shortly. Meanwhile management is working actively on a longer term solution. This may take ~12 months or so to work up, yet with the cost plugs in place, management again is demonstrating their understanding of where the best returns for the business are being generated and where resources therefore will be allocated.

DXN has significant corporate appeal. In addition to being in the right (long-term high growth/high demand sector), DXN is unique from the perspective of its asset base and its manufacturing capability, the company is cheap & unlevered and DXN has an uncomplicated shareholder register (the founder has sold out (thankfully - finally, and his shares were absorbed by the market, no worries). Obvious appeal to the likes of 5GN & TNT to name just a few smaller listed players locally.

Everyone has a different perspective, different objectives and different approaches. Mine is that of an investor. To me that means that by owning shares in a company, I have a fractional ownership of that company. As an investor I make buy and sell decisions on the basis of the current price of the shares compared with the perceived value of the company. In my experience, the time to buy is when I think I know something others don't know, don't care about or prefer to ignore, when I look at something differently to what others do.
I believe that over the long run the share price of a company tend to reflect the fundamental developments involving the underlying business. This provides me with the opportunity to profit in at least one of the three possible ways
1) from free cash flow generated by the underlying business which eventually will be reflected in a higher share price or distributed as dividends
2) from an increase in the multiple that market participants are willing to pay for the underlying business as reflected in a higher share price; or
3) by a narrowing of the gap between share price and underlying business value.

Speculators, by contrast, and in my opinion, buy and sell shares (and or other securities/assets) based on whether they believe those shares will next rise or fall in price. The speculators judgement regarding future price movements is based, not on fundamentals, but on the prediction of the behavior of others - with a tendency to buy shares because they "act" well and sell when they don't. Speculators will be seen to be obsessed with predicting - guessing - the direction of share prices.

In my experience, no one knows what the market will do; trying to predict is a waste of time, and investing based upon prediction is a speculative undertaking.

Speculation offers the prospect of instant gratification; why get rich slowly if you can get rich quickly? Moreover, speculation involves going along with the crowd, not against it. There is comfort in consensus; those in the majority gain confidence from their very number.

Today, in my opinion, many financial-market participants, knowingly or unknowingly, have become speculators and therefor may not even realise that they are playing a "greater fools game". There is great allure to treating share prices as just numbers on a screen that can be traded. Viewing shares this way requires neither rigorous analysis nor knowledge of the underlying business> moreover, trading in and on itself can be exciting and, as long as the market is rising, lucrative. But essentially it is, in my opinion, still speculating, not investing. There may be a buyer at a higher price - a greater fool - or there may not.

Anyway, those are just my views - on DXN specifically and on different approaches to market participation.