DW8 Growth, page-9173

ok fellas- I see a lot of question marks regarding the SP. There is quite a simple explanation- since it has not been brought up, I will attempt shed light on the topic.

You need to step back from the MICROscopic lens you are all applying to your investment in DW8 and apply a MACRO lense. Inflation has been a concern since central bank QE programmes started last year. Real inflation hit the headlines and supposedly the real economy in terms of commodity pricing and consumer good around march this year. (whether you think the inflation is structural or transitory due to logistic issues is up to you). Low and behold our SP began to retrace in March. These inflation fears were reiterated 2 days ago when fed chair stated they would start to taper these repo programmes starting this month. What does this mean for the SP and the valuation of the company though??

Im sure most of you have run a DCF model as a part of your DD. Well then you would know that an increased discounting rate would have to be apply to our model due to inflation and increasing interest rates - resulting in having to revise the 3-5year + forecast EV- seeing them eroded quite substantially.
EG- take Coles group which is currently profitable- applying a greater discount rate due to real inflation + increased interest rates may see their future EV eroded by 5-10%. However when you take a fast growing start up which is currently not profitable and not forecast to be so for some years, you get something much different. take for example zip or opy or dw8. all companies which are not expected to reach profitability for sometime. Running a dcf model with increased discounting rates on these companies creates something like a 50-70% deterioration in forecast 5 year EV. which is exactly what we've seen in the SP of not only dw8 but most other high growth unprofitable listed companies.

Take into account also, that if you are valuing dw8 for eg, to generate 100m of earning in 5 years, then inflation will erode those earnings- right now we have inflation of 5%- so you can see that the value of our 100m earnings valuation come down to less than 75m if compounded. essentially removing more than 25% off the valuation. You can see that if inflation were to run to 8% as some analysts have calcuated, then valuations of high growth companies are massacred.

considering this, it was a really smart move that dean invested into logistics and not the tech component of the business. I would not be surprised if he has an analysts recommending investment into immediate value opportunities- like an immediately profitable logistics company in order to counteract any impending impacts of inflation on the SP ( or at leasts fears of them).

I have based my investment off the concept that dw8 can rapidly outgrow the inflation, and we also have a not too distant profitability horizon.

Caveat- this is all basic economics/ modelling. if it were always 100% true economists wouldn't be working as economists.

I hope this helped.