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NTO nitro software limited

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$2.19

Nitro vs Adobe, page-5

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sandy68

1,019 Posts.

634

04/10/20

22:46

Post #: 47844851
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Originally posted by sandy68: ↑

There's multiple association with this stock. And they are all lining up nicely for Nitro.

Lets look at its business quality first. Great business, transitioning to subscription based revenue rapidly and direct beneficiary of WFH model. Documents and contracts these days are mostly sent as PDF and eSign enabled, so Nitro has both PDF creator and sign features. Basically a one stop shop for sorting out docs. The coding of these documents are still in its infancy, and direct notification of signed document in real-time to a sender from a recipient, artificial intelligence scanning the whole 100 pages document and extracting critical info like fees and warnings to a summary for a reader, and collaboration form filling and many others features are due to be coded and this will completely transform the industry and developers talk about this possibility quite openly. Its just a matter of Nitro coding those solutions into their software. This solves a real world problem, and there's money to be made from this facilitation. It is directly taking on Adobe and Docusign, duopoly, and both have left enough runaway for Nitro to thrive. This is all to do with revenue creation, so its a tick from me.

Lets look at business expenses. The nature of this business allows Nitro to divert fixed cost to a low expense incurring strategies. Variable costs are mostly incurred to rope in revenues. The general rule in the industry is to spend a buck to make ten. Cost declines in this industry is quite rapid and critical numbers of subscribers needed to expand margins are only a few millions. Hypothetically if they decide to hike the price by a dollar per month, say on $15 per month subscription, that a 6% boost to its bottom line. This will further put downward pressure on cost on unit accounting and the net result is margin expansion, and this is even before them organically shrinking variable expenses. So Nitro has power to control costs. This means its upto management when to be profitable. Another example, I used to pay $108/yr for Office 365 and now its $129/yr, thats a 20% increase in fees, I haven't complained and I'm definitely not leaving those products as I'm used to it, need it.

So what about the valuation? Well, Docusign has grown its revenue from $250 million to almost a billion, that a 400% growth in revenues within 5 years, and the industry assigns it at almost half the growth rate while valuing it at 50 times potential earnings multiples.
A simple forward looking potential cashflow profits on a revenue of $60 million and a 30% percent net margin, sitting below industry standard for estimation purposes, earnings of $18 million in cashflow profits and 50 multiple puts market cap at $900 million, now thats $4.73 per share. And we are not even at $3. If I use a non-linear DCF modelling and use a realistic terminal growth rate, the share value, hold on to your chair. Nitro may report about $40 million or more in revenues this FY, and I'm looking at potential $60 million in revenues year after. I mean the probability is quite high. 40 to 60 is not hard during Covid times.

Well if I can find someone, an investment bank, who can underwrite me a custom option call contract with long expiry for this, I'd gladly buy that as well. Now I already spoke to someone, and they said they can't as its too risky for them. And I know exactly why they said that.

My views.

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Correction

Guys, I made a good mistake in my earlier post. I had previously stated that my price target is $4.73/share. I just wanna say that while NTO share trades in AUD, revenues and cashflows are all booked in USD.

At the moment, and reliable average, 1USD = 1.4 AUD

Based on this info, my forward price target of $4.73 / share is actually US$4.73 / share and conversion of that to AUD is 4.73 X 1.4 = A$6.62

So I've revised my forward price target to $6.62 per share.

Happy investing and trading to you all.

Last edited by sandy68: 04/10/20

NTO Price at posting: $2.85 Sentiment: Buy Disclosure: Held
12 Upvote

2 Great analysis

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