Funkman, while I commend you for helping to deliver me cheaper MSP shares, I must question your logic.
You misread this situation badly I'm afraid.
Other posters have already pointed out the fact that previous quarters forecast cash outflows have been overestimated (always like mgt that under promise and over deliver), so I won't go over that again.
Obviously contracts written in late May and June (when growth was likely strongest) will be paid for in July, so assume a large chunk of the 124% growth in AVA wasn't even received in June quarter. But will be rolling in in July.
The cash spend on this work has been out laid already hence the burn experienced (eg high burn due to high growth but cash generated next quarter).
I assume large forecast cash outflows are simply a best case scenario forecast. Since they don't want to be seen as underestimating in the event that they land every contract they go for, easier to say it could be this high, but like June quarter will probably land below this level 30-40%. Again even if it was high, the cash receipts probably wouldn't get received until next quarter so same thing will happen next quarter, only the net burn will reduce again (maybe to zero), due to high fixed cost structure.
AVA is a business where opportunities may arise for contracts that do require up front cash outflow in order to secure a large job, hence the high forecast based on what could be possible and this is based on how many SLAs they have signed.
We want them to take these opportunities of course as they are profitable but the company aren't stupid!! They will not trade insolvent!! Why would you think they would do that? I can only conclude that you aren't a serious investor and generally have a simplistic approach to your research. This would mean that the company voluntarily chooses to trade insolvent just to grab an opportunity.
But to be clear, they DONT need to accept these jobs, and hence DONT need to go into a TH immediately as you quite amateurishly suggest.
AVA is a growth machine. Starting at zero just 12 months ago, they moved to $450k of revenue in their first 6 months (as per half yearly), then by the time the June 19 update came they had recorded monthly revenue in May of about $416k (based on annualised $5mil turnover). Wow $0 to $5 mil in 11 months???
Hello, human fly here!! Businesses with around $10 mil in turnover and proven margins of 20-40% (dependent on the individual job/ segment), can generally go to a bank and get a credit facility to manage short term cash flow issues. I'm not saying they've done this or they will but I am very confident they could if they wanted to. This will more than cover their short term cash flow issues and with profitability literally knocking on the door, they probably wouldn't even draw on the facility.
People, let's see this for what it is, Funkman can smell blood and is doing whatever he can to try to weasle some shares at 2.3c or lower. Very low act given people turn to hot copper for help in their investing.
I had similar battles on the KNM thred dating back to last year. Go and read for yourself. Lots of arguments with Ozgem and Metoo, and as I predicted all along KNM did exactly what I thought it could.
Growth stories like this one come along once in a blue moon. Mgt has repeatedly said they don't need to raise. Falling cash burn proves they don't need to raise. Short term cash flow issues can be easily managed without dilution.
DONT let bloodthirsty opportunists like funkman fool you into handing your shares over cheap!!
Remember, small cap instos like to see close to $10 mil rev (and healthy growth in rev) before they warm up. MSP is basically there now. We've already seen 1 UK insto get on board. You think that will be the last???
BUY.
Disclosure: I own and will continue buying.
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