Yes, it will be tight. Cash burn is linked to valuation as Cash on hand is taken as being a $ for $ to MC. The question is whether the MC added as a result of revenue growth outstrips the loss of MC due to the cash burn.
Now for some 'what-if' scenarios to explore further.
Let's think about the latest quarter:
- We added $125k ACMR. At a 10.5 multiple we have added $1.32m in MC. We burnt $1.1m in cash, so in theory the June quarter WAS accretive to the value of the Company, albeit by a small amount, by the tune of $200k (less than 0.1c per share). So really the current cash burn is adding value to the Company - is that negative?
I know that a Cap Raise (or fear of) usually has a negative feel about it and puts downward pressure on the SP at the risk of value dilution for shareholders BUT in theory this dilution only occurs when new shares are issued at a DISCOUNT to the current price (usually the case)?
If we assume a Capital Raise at current SP doesn't everyone owns a smaller piece, however in theory the MC increases as we have bolstered cash on hand?
I think it's more fear of SP suppression as larger holders attempt to increase their holding as the lowest price possible.
To move forward, let's assume a capital raise at a 10% discount to the SP at the time.
Okay, so the key may therefore be, if they cannot avoid another capital raise, to ensure ongoing growth (vs cash burn) is accretive to MC. As a shareholder, I don't mind cash being spent if it is ADDING value to my Company! If we have a couple of really good quarters (but not quite good enough to avoid further capital being raised) this should positively influence the share price.
So.
Two quarters of 50% QoQ growth would put ACMR at $1.4m, giving a MC of ~$15m, plus any cash on hand, so a SP in the region of 2.7-2.9c.
This is still based on the 10.5x multiplier, however as the annual growth rate has increased at this point to 420%+ and revenue is in excess of $1m the multiplier would increase to probably closer to 12x.
This would give a MC of closer to $17m so a SP of
3.0-3.2c. Assuming the market starts believing more in the growth and value story, Uptrend is in play from a TA perspective etc etc after these two quarters, we could be trading at a slight premium to this valuation, say 3.5c
This in theory would still leave us with 1-2 quarters of cash at this point, maybe more if the burn on DD has been reduced.
Would raising in 6 months time at 3.2c (to fund further growth) be such a bad thing for Velpic?
It would make me quite happy.
Thoughts?
Cheers,
TT
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