The problem with the annual reporting is that it does not reveal the extent of the turnaround in the financials of the business since more prudent cost management was implemented in April, nor does it easily reveal how well this business is growing in North America despite the huge economic problems arising from Covid-19. So in an attempt to address this, I have looked closely at half on half performance, which reveals the following:
On a 6 month growth basis, the NA ACV growth rate was 9.7% in the first half, but has increased to 15.7% in the second half, despite the impact of Corona-19 on the North American economy. Growth in NA is accelerating significantly again after a weak first half. IMO, the overall target growth rate of 20-40% means around 10-20% for ANZ and 25-50% for NA.
Also on a 6 month growth basis, ANZ ACV growth rate was 5.4% in the first half, but has increased slightly to 5.7% in the second half, despite the impact of Corona-19 on the ANZ economies. Growth in ANZ is showing resilience with slightly faster growth in the second half.
For NA, payments and capture costs combined decreased by 11.8% in the second half compared to the first half. This combined with increasing momentum in NA should result in rapidly improving cash flow. The growth runway in NA is huge and for me, this is where the hidden value is.
For ANZ, payments and capture costs combined increased by 4.3% in the second half compared to the first half. This combined with the lower growth rate indicates a more mature, but still growing, business.
NEA was deservedly punished by the market when the first half results were released, dropping by around one-third from around $2.50 in late January before the market update, to around $1.65 in late February before the major Coronavirus scare in March. The share price had recovered fully to the $2.50 mark before the full year result on 19 August, primarily due to the more prudent approach to cost management in April and signs that the business is growing in a resilient manner during the Covid crisis.
IMO it is a mistake to punish NEA again, as my analysis shows that the second half performance was a strong improvement from the first half. The annual report looks bad because the poor first half performance clouds the issue on an annual basis.
Thanks to some excellent analysis and feedback from other posters including @robf@grjohnson@fatjoe
NEA Price at posting:
$2.37 Sentiment: Buy Disclosure: Held
