I expect the market will be a little confused about Acrow's...

I expect the market will be a little confused about Acrow's H1FY24 results, so I thought I would again share my preliminary analysis.

On the one hand, underlying NPAT rose by 33%, which is quite a bit lower than the 79% increase in U/L EPS in FY22 and the 63% increase in U/L EPS in FY23.

Then on the other hand Pre-Tax Profit rose by 69% this half, which is more in keeping with the growth rates in FY22 and FY23.

Why this difference between the increases in U/L NPAT and Pre-Tax Profit? It was entirely due to a sudden change from utilizing tax losses in the previous half (8.85% tax rate) to now paying tax at the normal rate (28% this half). That Acrow could grow U/L NPAT at 33% this half at the same time as this major tax change occurred is nothing short of outstanding. I always try to determine how the underlying business is doing, and this time it is reflected by Pre-Tax Profit, not by U/L NPAT. The underlying business is clearly still growing at the rates achieved in FY22 and FY23 (between 63% and 79%).

I know of no other similar profitable business in Australia that has achieved these kinds of profit growth over three financial years while being on a P/E of well under 10 (using my expected forward normalised profits with share-based payment left out). IMO there is still quite some P/E expansion to come.