My comments are based on reading the accounts and making an...

My comments are based on reading the accounts and making an analysis based on the figures provided. On first glance VMX looks under valued and a potentially a good buy, however analysing the Balance Sheet unlocks the reasons why the valuation is lower than it may otherwise be if things were in better shape. In short form there is risk in the balance sheet that is concerning for potential investors reducing buying demand.

The conversion of Contract Assets to cash is the normal process of business, however in this case the Contract Assets have been growing steadily for three financial years (FY17 $8.5M, FY18, $16.2M, FY19 $16.6M, FY20 $22.9M) and this indicates that they may not be able to be reduced or converted fully to cash within the short or medium term. The tripling of contract assets in three financial years is absorbing $14M working capital or cash that could be used to reduce to Trade Creditors or Borrowings.

The working capital deficit of $4.2M is a short term concern if the contract assets can be reduced and converted to free cashflow, if not then cash will remain very tight if not too tight to allow normal operations continue. The notes relating to the JH litigation state the costs have been absorbed but from what I can read it does not state whether the revenue has been written off also, this could explain the jump in contract assets in FY18.