"I want to like this company but it seems strange that they...

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RWC1

139 Posts.

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23/09/19

06:54

Post #: 40518676
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Originally posted by savvyinvestor: ↑

I want to like this company but it seems strange that they claim 75+% gross margins yet can’t make a profit on 96m annual revenue and ebitda is only 4m.

the capex, staff and corporate costs are too high so I’m to see early evidence that their claimed operating leverage is going to drive rapid ebitda growth.

at a 300m MC I would expect to see better ebitda margins and ebitda growth. If they can achieve similar underlying ebitda growth in fy19-20 of say 10m then they will gain investor interest, but that remains to be seen.

so summary of my reservations:
- no one at the helm, no permanent ceo, cfo or coo
- poor track record of trust with the market
- borderline cash position for fy19-20 despite short term seasonal revenue bump in q1, likely to do a CR IMHO before reserves get too low (to pre empt a market SP decline); even if they could scrape through to cashflow breakeven without a raise, they need to maintain. a strong capital position which requires not running cash reserves too close to the sun
- not profitable yet
- not cashflow positive yet
- margins contracted in fy19
- modest revenue growth around 16-20% pa
- possibly we may see a maturing of market share in the elite market in the next 1-2 years thus reducing a future growth runway for their core product
- the number of teams with multiple products is only around 130 out of 3000 so they need to show a track record of executing the multi-product sales strategy into more teams in 19-20
- video analysis has not proven to have had traction uet
- prosumer lost 7m in fy19 and is growing slowly in absolute number terms.

i think just above 1.00 I may have a nibble but I can’t justify the risk reward at the current price with the management instability, marginal cash position risking a CR, lack of margin expansion, only modest top line growth, certain new products struggling to gain traction and high staff/ capex/ corporate costs and the broader share market risks from stretched p/e’s with the background risk of a correction in the next 6-12mo.

i don’t think it’s a short at this price, just a hold, and I’ll keep it on the watch list in case there is positive news to change my perspective.

ps I’m not downramping, just sharing my own view as a non holder for others weighing the bull and bear cases.

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"I want to like this company but it seems strange that they claim 75+% gross margins yet can’t make a profit on 96m annual revenue and ebitda is only 4m"

Afterpay
Revenue: 218m, gross margin 73% and NPAT -43m

Xero
Revenue: NZ$552m, gross margin 84%, NPAT -NZ$14m

By the way some of the risks you highlight are clear out wrong. i.e. comments on capital raising and video analytics.

I also "think" a share price at $1 is a steal.

CAT Price at posting: $1.46 Sentiment: Buy Disclosure: Held
9 Upvote

0 Great analysis

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