"Friday is going to be interesting post this....nothing unknown about the revenues, but the expenses came in a little higher than I hoped for (I was hoping for a PBT positive 2H excluding FV adjustment, but looks like they came in at -940k PBT in 2H21)."SteveSage,
I think you've summed up the essence of the result... the Revenue number had already been foreshadowed in a prior update, but the Expense line was the unknown variable.
Like you, I found the Operating Expenses line came in a couple of million higher in the March half than I had expected.
That's the only reason I don't have an even large portfolio position in this stock than I already have: while the Revenue trajectory is both observable and very attractive, until the business is at scale in Australia, I have little idea at what sort of level the cost base will stabilise.
If they get to 20,000 terminals in Australia - which they should reach at some point over the next few years - the Revenue line is relatively easy to envisage, namely somewhere around
$85m for the Group , derived by roughly, $70m in Australia (20k terminals @ $3.500 per terminal) and around $15m out of New Zealand.
Trouble is, I don't have a feel for the at-scale level of Total Operating Expenses.
Opex is currently sitting at around $30m.
Will it end up being $35m? Or $40m? Or $45m?
Or even $50m?
That range of possible Opex outcomes could make the difference for EBIT to ultimately be $20m or $35m, while is a quite large splay.
But that debate is quite moot, because even under the punitive
HIGH OPEX Scenario, the resulting EPS would be close to 6cps (based on 239.5m shares, post conversion of remaining convertible notes), so a
P/E multiple of 13x, which is hardly overly demanding:
View attachment 3227519(Note: Those cost scenarios both include a
near-doubling of D&A, so decidedly conservative, I like to believe.)
So, the way I look at the situation is that, at the current stock price, the market is currently already pricing in an Opex outcome, when the Australian business is at scale, in excess of $50m.
That doubling of Opex from here would, in my opinion, be quite extreme.
PS.
The rudimentary exercise above clearly confines itself to looking at just the P&L.
What it omits to consider is the negative working capital nature of the business model as well as the capital-light Australian business.
Meaning that, by the time the company gets to a point where it is generating EBIT levels of the orders of magnitude envisaged in the scenarios above, the net cash balance (even for relatively generous dividend payout ratios) would rapidly rise to several tens of millions of dollars.
By my reckoning, based on a 60% payout ratio commencing with the final result of FY2022, and even assuming a doubling in Investment in PP&E, Contract Costs and Intangible Assets by FY2024 compared to FY2021 levels,
Net Cash could reach $30m if the company reached 20,000 terminals in 2024.
On that basis, the prospective
EV would be somewhere around $160m.That is not a very big value at all for a business which would be doing between
$35m and $50m in EBITDA and $20m and $35m in EBIT, depending on one's view of the ultimate cost structure of the business.
At the mid-point of those EBITDA and EBIT ranges, it implies
EV/EBITDA and EV/EBIT multiples of less than 4x and 6x, respectively.
Despite the share price's impressive performance over the past 18 months, it strikes me that the market is still not near to fully acknowledging the true fundamental value potential of the business.
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(20min delay)