I don't usually go to AGM's, but went to this one because I wanted to get a sense of the Management and Board, eye-to-eye. Here's a summary of my notes, if anyone's interested.
I was impressed by the Directors' and Executives's individual knowledge of the markets, challenges and opportunities. With Ben Churchill (CEO) based over in Dubai, he certainly has a refreshing view of the global markets, unlike many Australian-centric firms. Michael Waymark (COO) appears to be an excellent recruit to the Exec Team, speaking confidently about the things a COO should. He's a measured person, with maturity to run this sort of operation. I suspect he will allow Ben to focus on closing some of these large deals like PICA.
They understand the myriad applications of the Urbanise IoT platform, which goes far beyond the initial application of residential strata management. I saw this as both good and bad. They will need to keep a tight reign to focus on the market segments which give them revenue traction. But it doesn't take a genius to work out this thing has massive potential across a number of sectors. Perhaps their new OEM program will address all these other market applications?
Lack of sales growth seems to be a big issue for the SP downgrade since their FY16 results announcements. They clearly had a number of growth/integration pains which impacted FY16, but Management stated these issues where behind them. They also cited the transition to contracted revenues, which reduce the upfront revenues in favour our multi-year contract income. This seemed a bit of a cop-out, but I was heartened by the strength of the sales pipeline, stated as being currently $20m, which is double where it was last year. OK, so the $20m is unweighted, but this excludes the pre-contracted revenues, and also the expansion business from King Price, Dubai Parks. It also excludes PICA. I haven't run the numbers properly yet, but if you assume they have $6.5m of existing contracted revenue from FY16, add a further $3m of new contracted revenue in FY17, plus the project work (one-off revenue which accounts for approx 35% of revenues) of $3m, I count roughly $12.5m of revenue for FY17. Going the right way.
One shareholder asked the important cash-flow question, and Management said they were currently running these forecasts, but expected break-even in 2 years. It's unclear if they will need to go back to market to fund this runway - I'm thinking not, given that the overheads have been shaved by $4m pa, and also the high cost of building the market sectors has already been sunk. So long as they don't try and open up a bunch of new markets (key focus). I hope the new Chair, Tony Scott keeps Management on the straight and narrow.
I came away with a positive view about this stock. It's a mid-term play though, so don't expect a return to 60c anytime soon. But in my personal opinion, its significantly undervalued at 17c. If they can get some more deals like PICA announced next half, and revenues on track for $12.5m, there's no reason this can't be well on it's way to 60c for their FY17 results. But...DYOR.
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