An attempt at a valuation....

Apologies for the late reply but I have been travelling. The benefit of this has been the hours of boredom on flights to go through the accounts and presentation of NTI with a fine tooth comb. Subsequently I have tried to put all my findings into numbers, so like McKenzie313 says... Those of you who are punting short term on technicals and such like, go back to your RSI's and 30second trend line now as you will hate this. This is for long term holders only who are interested in the fundamentals. It might not even be worth the American Airlines napkin that it's written on the back of, but it's a first crack at it that in happy to hear your thoughts on.

Bonkers and Leferve, & Hezz thank you again for your posts regarding roadshow updates etc. I appreciate you guys have far better insight into NTI than I do, especially after meeting management and I absolutely hope your optimism comes true, however for modelling purposes I have taken a much much more cautious (I would argue realistic perhaps!) view. This is on the belief that the 140k target market from the company is very much what they see as total potential sales NOT a sales target that they expect to hit. Surely it's unthinkable to go from selling 350 units in '15/16, to selling 140k units in '18/19! Just as its impossible for any company to sell to every single person that is in their target market.

It was only Leferves very helpful info that the company can actually pre-test the child for suitability before the sale, that finally helped the target market calculation make sense to me.

So I see 140k is the total number of European children (4 countries) on the spectrum that could feel the benefit of using Mente headband. 1% of the population is on the spectrum, 10% are of the age 3-12, and 51% is the number of children on the spectrum that respond to the technology (from NTI's own tests). So total potential sales are 140k, that NTI state they hope to penetrate in the next 24 months. So what is reasonable? 10%, 30%, 80% of families, schools, hospitals? I honestly have no idea. And yes, I agree that it makes sense that 14k new 3 year olds come into the "market" each year, but for now I've held that constant, as a similar number obviously drop out they reach 13 years old.

To arrive at an annual sales figure I have assumed the lowest guess, that only 10% of this target market either can afford the headband, are aware of it, or believe in the technology. I would imagine some parents can't even begin to hope to get their young autistic child to wear a headband for 40mins every morning for 4 weeks until they start to see some results. Such a shame that these are the kids that may benefit the most.

So 10% of 140k in years 2017-2019 (not per year). I have assumed that this 14k are sold roughly 20% in 2017, and 40% in each of 2018 & 2019 as word spreads. (3000, 5500 & 5500).

Looking at the 350 units of Mente2 sold through the P&L in 2015/16 (taking sales, cost of sales and inventories), it looks like the average selling price is around $1217 and the average cost $243, which roughly ties in with our discussion on here regarding cost and potential mark up.
Also with the e500/600 profit on the Italian deal as evidence of what kind of bulk order discount is on offer for size, for modelling purposes I have assumed that is the normal profit per unit. I understand that it could well be more like e1000 (fingers crossed!).
Ok now onto the model. To begin with I have run a worst case scenario (no additional orders apart from Italian deal) cash flow sheet to see when the company starts generating cash rather than spending it on staffing and research. Is there ever a chance we see the need for a rights issue to raise more cash? The answer is no in my opinion, assuming the Italian contract stands.

I have assumed no revenue until Q3 '17 (even though shipping taking place as we speak), and 900k cash burn per quarter until then (I believe it's currently only reported as 750k). Thus, we go from current 6.1m cash (June '16) to 5.4m Q4, 4.5m Q1, 3.6m Q2 and 2.7m Q3 '17. Then I have modelled the Italian 700 sales equally in q3 and q4 (350 each), the 2000 units in 2018 equally over its quarters (500 per q)... Doing this you start to see how quickly this company becomes profitable even without any more orders! (I've used 600euro profit per unit throughout).

Doing this I get a -1m loss in 2017... Which the management clearly state in "risks" in the prospectus that future losses could occur on top of the -4m loss to date. However we are still strongly cash positive. To properly test the cash flow, I have then increased cash burn to 1.1m per quarter in 2018 (costs going higher as the drive to get sales done or research other products as we start to get desperate!) we still move into profitability of 2.6m in 2018, and 6m in 2019. This leaves us cash positive at the end of 2019 of 12m. So, that is worst case scenario assuming the Italian distributor doesn't do a Renzi.

Now, adding in the forecast European sales of 3000, 5500 and 5500 from above to this worst case, at a margin of 600euro a headset which Leferve and Bonkers have been very helpful with nailing down, then this takes us to a 1m profit in 2017, 6.2m in 2018 and nearly 10m profit in 2019.
This makes free cash flow look very impressive, and a end of 2019 positive cash position of 22m... Half of the current market cap! I'm sorry if this doesn't make sense, it's very hard to explain without having the spreadsheet in front of you.

By this point, having proven that sales can be made and delivered (which we don't have evidence of yet!), Valuation wise I'd say that the 2018 profit figure of 6.2m is fair to put a 15x P/E on, giving a current day fair value of 97m, which I think works out just over a 1.10 share price. And what catalysts do we need to get there? We are clearly stuck in the 40's for now as huge supply was around when we crossed into the 50's. So what brings new buyers in?

- For sure we need proof that a reasonably decent size sale can be made outside Italy... Perhaps 500-1000 unit contract. Share price should be +15%-20% on the first of these, then +5-10% on subsequent wins. Until this then the market can easily assume that the Italy order was a one-off, which I believe is in the large part responsible for it trading where it currently is and not higher. Arguably rightly so.

- FDA approval (specific to Autism) and USA mkts open for business is obviously a game changer. We have to see +25% around that event I would imagine.

- News regarding sales and positive feedback from these sales in Italy. Having a take or pay agreement is great for cash flow, but not for the good word spreading throughout the medical community.

- And finally I believe the share price will move northwards to it's warranted value as the company increases awareness throughout the financial markets via its roadshows, and press articles. A large fund taking a 3-5% stake in NTI after it does the necessary work on them means you see the stock up 15% in a week easily.

And before all the NTI mega bulls jump in and say that I'm being crazy and over cautious... I admit yes.. I'm using a lower profit per unit, a higher cash burn per quarter, only 10per cent sales penetration of target market over 3 years, and no additional sales from USA or Australia AND no value on the data that the company has already mentioned that there is interest in. Oh...and of course this doesn't recognise any 99euro annual charge either. It also assumes no success in epilepsy or depression.

So this is as cautious as I could possibly be, and I STILL have the share price worth more than double what it is today, which makes me very very comfortable with this investment and happy to sleep at night. If anyone can spot mistakes in my assumptions on the negative side (I really don't care for something more positive as I'd rather be pleasantly surprised!) then please feel free to call me an idiot and point out I've done the addition completely wrong. Otherwise I'll be using this to work out the upside as news of sales begin to come through in the coming months!

For fun, I did a blue sky scenario of what dreams are made of. This took a successful Mente autism product in 2019 with sales of 40k in Europe, 35k in USA, 4K in Australia and the 6k order in Italy. 10k sales of Mente Eplilepsy, and 5k sales of Mente depression... Net profit of 33m. I added in a 50m value on the huge patient database that NTI has grown by then, and then of course change the euro into Aussie dollar... And I get market cap of 700m.... Share price of 7.50 (+1600% from here)... And some very happy hotcopper subscribers.