Worth the risk ?

Avada was listed in Dec 2021.
It has decreased by 85 % since its IPO.

They gave a rather long list of explanations for their poor results since IPO :
- poor visibility for their business in NZ due to government policies so they have almost fully depreciated their acquisition (done in April 23),
- FY 22 : covid + severe weather.
- FY 23 : wet weather and inflation (increase in wages).

It is worth noting that the company has done 3 acquisitions since its IPO which should have added around 10 m$ of EBITDA, but their EBITDA was only 18.8 m$ vs 15.5 m$ expected for the proforma FY 22 EBITDA (in IPO prospectus).

Also worth mentioning the auditor note in H1 25 report : "material uncertainty relating to going concern".

After such bad results, no surprise that the company changed its CEO in April 25.
Rather than looking for more acquisitions, he is now focused on optimising the existing company and reviewing in particular their NZ operations.
In H1 25, they indicated that : "by 30 June 25 Avada expects to update the market on its plan for the business to progress through these challenging NZ conditions". I have not seen a clear indication of that so far.

One element which looks interesting : on 1 year, the share price has decreased by 67 % while their free cash flow went from 1.5 m$ in FY 24 to 8.1 m$ in FY 25.
Based on FY 25 free cash flow, the stock has a free cash flow yield of 20 %.
In fact, almost all of their cash flow was generated during H2 : cash flow from operation of 9.7 m$ during H2 25 vs 1 m$ during H1 25.
So, their free cash flow yield is even higher than 20 %, if we annualise their H2 cash flow (probably better than annualising Q4, which seems to be highly seasonal, unlike Q3 was rather low seasonally).

The company is still in a tough situation (cf receipt decrease yoy of - 10 % during Q3 and - 13.5 % in Q4), but their trading is now in line with forecasts, while they are doing a major restructuring.

Avada may benefit from a re-rating just because there have now a better visibility on their financial situation : large net financial debt of 28 m$ which could be repaid in a bit more than 4 years, if the debt decrease (6.6 m$ during H2 25) continues on this trend.

The main good news is that the company is clearly focused on its cash flow from operation :
. - 1 m$ in FY 22,
. 5 m$ in FY 23,
. 6.7 m$ in FY 24 (of which 2.8 m$ during H2 24)
. 10.7 m$ in FY 25 (of which 9.7 m$ during H2 25).