Of all the themes raised over the past few weeks there is one I want to revisit. Someone made the comment along the lines of "...don't show me the revenue growth, show me cashflow shrinkage...", to which I assume they were referring to reducing EBITDA losses. While becoming cashflow positive will of course be a happy day, comments like that demonstrate a breathtaking lack of understanding of what has been communicated by the company. So I thought it would be worthwhile to revisit this - not my opinion, but what has the company actually said.
The CEO presentation at the last AGM showed: sales going up, cost of goods going down and hence gross profit margins going up, SG&A costs reducing, and EBITDA rapidly heading north towards cashflow positive territory.
In other words, the company is managing to grow the top line but at the same time keep costs under control... exactly what you want to see happening.
WP gave this message about business performance in several different ways, repeating it over and over, in the hope the market would get it, but it seems our collective attention span matches that of a goldfish. Anyone who thinks this management team are fluffing their way through needs to exit the building now, you clearly have no idea about managing a business. They're not gods, things can and do go wrong despite the best laid plans, or sometimes you pivot because there's a better option medium/long term, but everything is directionally bang on as far as I'm concerned, and the resilience of the business is getting better and better all the time. Go put your money in a term deposit, or towards your mortgage, you'll be much happier. The following is one example of business performance from the AGM as a reminder.
So we're seeing profitable growth. Tick. This is a huge contrast to what was happening a few years ago under the old management and board... CR, spend, CR, spend... but without the return on investment discipline and business performance. It was all being soaked up by SG&A. Several of those guys were ex-miners, they built an incredible company, but spent billions to do it, so a $10m raise here and $15m raise there was never going to ruffle any feathers as far as they were concerned. But it is where a lot of the angst of holders comes from. And I get it, I first bought early 2014. But today we have an experienced, world-class management who make decisions based on the value created, not gut feel. You can't overstate the significance of the quality of our management.
What is the company saying about future revenue growth? I'm sure many of you remember this slide:
It was the first time the Company came out publicly (that I remember at least) and said where it saw the fundamental value of the business heading. So rare to get this kind of info in the public domain. WP did say "don't hold me to this", which is entirely reasonable in that it is a graph of share price, and that is subject to all the whims and fancies of the market...as we see right now at $0.25. But that's not what is important about the graph. What is important is what it tells us about the companies projected revenue plans - this is what the company is managing to.
I've estimated the share prices (just by eyeballing) and then calculated the revenue implied on both the Baseline and Ph2 Growth lines, as shown in the table below. Also shown are totals and the associated CAGR's. Some callouts:
- 2019 we are projected to crack $50m in sales
- in 2020, even on Baseline, we crack $80m
- over the 5 years on Baseline we are growing revenue at a compound annual rate of 35% per annum!
- under the Growth scenario we are expected to hit 3 times the revenue in 2020 and 5 times in 2021. For our paltry $9m or so raise, we get an extra $160m revenue in just 2 years time and an extra $390m in 3 years - show me a better payback schedule anywhere. In just 2 years we will have over $200m in sales. People need to get their heads out of the past, this management team raise cash to grow the business, not fund their salaries.
- over the 5 years on the Ph2 trajectory we grow at a compound annual rate of 78% per annum.
- over the 5 years, the acceleration of product development enabled by the cap raise will lead to an extra $1.5billion in sales
Not good enough for you? Well how about this...
All those figures exclude TAVR, which in the same AGM presentation is noted to commercialise 2022-2023. We have a far superior solution, we will be a very well known and trusted player when it does come to market. But let's say we only get 10% of the market...that will more than double sales from everything else. That's a total of over $1billion per annum in sales. Do you really think our Advisory Board and the Company as a whole are only aiming for 10% market share? Not a chance, given our competitive edge we'll be going for way, way more than that.
So that's what the company is saying about revenue, putting it out there to be held to account. Maybe a region will delay here and there and they'll fall short...but if they only get 2x baseline instead of 3x in 2020 am I going to be upset? Of course not, sales will still be twice as good as they otherwise would have been. Just as possible, maybe things will go better than expected and we'll land at 4x. Yet here we are on a market cap of $70m, only 2x current year forecast sales, and with a 5 year CAGR of 78% ahead of us. Talk about brilliant value. Not only mad to sell, mad not to buy. Anything up to the high 30's is good buying right now in my view, but I am delighted to have soaked up all I can at an average 26 and a bit, and now thankfully have an average buy comfortably below 30. We are so de-risked compared to 2 years ago, heck 6 months ago - several other posts in the last couple months have outlined this brilliantly, but do some reading yourself and get familiar with where the company is going...if the numbers alone as presented by the company aren't enough for you - then go look behind the couch for every cent you can find in my view.
Lastly, for fun, I looked at the price-to-sales ratios of some of our competitors/peers. Medtronic are mammoth, no way they are growing sales at 78% pa, but even they have a PSR of around 4. Edwards are at nearly 9. Locally, a similar type of company but in a different market, Cochlear are also over 8. Certainly makes the 3x that WP used look conservative. Using those companies ratios I projected what our share price could look like...enjoy!
Edit: some issues getting the pics to show. I'll try again. Sorry folks.
(20min delay)
