I heard the broker had a change of analyst and have not yet been replaced.
Anyway, I think the market has completely missed how good this quarter is.
Sure STG does some fancy D&A adjustments in arriving at its adjusted EBITDA but its all about improvement right.
4 quarters ago, STG was only starting to talk about EBITDA. Prior to that it was all about Revenue growth.
Subsequently:
Q3 FY22: "we made a small positive adjusted EBITDA" Q4 FY22: $471k adjusted EBITDA Q1 FY23: $1.5m adjusted EBITDA
Did revenue growth stop because they are prioritising profits over revenue? Nope. Q1 Revenue is up 65% on pcp and 8% QoQ.
What about this quarter's negative operating cash flow?
Well for all of FY21 and the start of FY22, revenue tracked very closely with cash receipts. So what changed? IBM. As you know IBM went from <1% of revenue to a crazy 26% of revenue in basically 12 months.
Does IBM pay STG on similar terms to other debtors? Probably not. I dare say they may negotiated an arrangement where they pay 60 days in arrears. Does it matter? Yes it costs STG to hold extra working capital. But what's the counterparty risk in dealing with IBM? S&P says IBM's credit risk is A- which indicates a ~0.05% probability of default. So that money will get collected, probably next quarter.
STG Price at posting:
$1.22 Sentiment: Buy Disclosure: Held
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