A surprising business model, page-2

There are probably 2 elements where the market is still too cautious about this company : not recognising its ability to produce cash flows and the risk profile.

1/ Ability to generate cash flow/free cash flow
Shape has now proved its ability to produce significant free cash flow* :
.19.5 m$ in FY 23,
. 26.2 m$ in FY 24
. 29.7 m$ for H1 25.
Overall, the company has generated 75 m$ of free cash flow during the last 30 months.
It represents half of enterprise value (150 m$, with a share price of 3.22 $).

Interesting also to see what they did with these free cash flow :
. 42 % was distributed as dividend (payout of 90 % for H1 25),
. 4 % was used for treasury share purchases (for employee share plan),
. and the rest was added to the existing cash.
So, the next question may be about their ability to use this accumulated cash (118.9 m$).
According to their presentation yesterday, they'd like to do more M&A.
Difficult to know the future outcome (limited experience with M&A ?), but it should probably help them to get better return than the one they have now with their cash (around 3 %).

2/ Risk profile
Initially, Shape was probably considered a high risk company, as it was very dependant on the office sector.
In fact, its risk is probably lower than this perception, essentially because the company is not dependant on a few large contracts (its average contract size is 3 m$, while it generates an annual revenue of around 1 bn$).
The company also indicates that their basis of customers comes from ASX 100 and ASX 200 companies.

The company is other diversifying across different industries. So the office sector which represented around 70 %+ of its contracts, now only represent 50 %+ of its contracts.

Another way to look at their risk management : they avoid taking orders for facades now, as there is too much uncertainty regarding the profitability of these projects.




* including impact of working capital