It's a good result, but beware that there are a number of...

It's a good result, but beware that there are a number of one-off "paddings" that make the result seem better than it really was.

Based on the raw reported figures (and let's look at the EBIT line, in order to understand the operating performance of the business), EBIT growth in the June half appeared to be $2.18m, a 54% increase on pcp:

Half-Yearly EBIT ($m) [Change on pcp], As Reported
DH2018:  1.78  [+127%]
JH2019:   1.48 [+16%]
DH2019:  2.34 [+32%]
JH2020:  2.28 [+54%]


Half-Yearly EBIT ($m) [Change on pcp], Adjusted for One-Off Items [*]:
DH2018:  1.75  [+123%]
JH2019:   1.48 [+16%]
DH2019:  2.34 [+32%]
JH2020:  1.73 [+7%]

[*]   $0.27m increase in "Other Revenue"; no details provided, but possibly some relates to some kind of forex gain given the meaningful movements in exchanges rates during the period, as well as the $0.25m in subsidies and grants received, as called out in the result commentary (net of restructuring and interest on early loan repayment).


Make no mistake, 7% EBIT growth in JH2020 - on a 5% reduction in Revenue in the half - is still a very good outcome under the crazy circumstances in the world, and it reflects a business model that is responsive and a management team that is engaged and proactive.  (And it's not as if that 7% increase was predicated on a weak base; they were cycling a previous corresponding period which itself had grown by 16%).


So, EBIT of ~$4.om (instead of the reported $4.6m) is what I'd use as the starting base for valuation purposes.  On that base, with the catch-up of Covid-deferred sales expected, I think EBITof $4.8m to $5.0m is well and truly on the cards for FY2021, i.e., 18% to 20% growth on FY2020's "true" base.

The company finished FY2020 with Net Cash of $2.7m.

In FY2021 it will generate EBITDA of around $6m (there's around $1.3m in D&A).
Even if no Working Capital is liberated this year(despite inventory finishing the FY2020 year at $11.3m, which is $2.6m (+30%) higher than the end of FY2019 and $1.9m (+20%) higher than the end of DH2019), it would mean Net Cash Receipts of close to $6.0m for FY2021.

The tax bill will be close to $1.5m this year and their interest bill is around $0.15m, so say $1.7m for these outgoings.

So that results in Operating Cash Flow of $6.0m less $1.7m, so $4.7m, say $4.5m to be conservative

In terms of calls on capital, the company spends around $1.2m on PP&E and around $0.2m on Intangibles, and the dividend just declared will consume $1.4m,; therefore $2.8m total capital commitments, so say $3.0m to be conservative.

Therefore, the Net Cash balance at the end of FY2021 will be increased by $4.5m less $3.0m, so in excess of $4m

With the current Market Cap being $41m, that implies and EV of ~$37m.

That places the stock on prospective EV/EBITDA and EV/EBIT multiples of 6.0x and 7.7x, respectively.
Hardly demanding multiples.

Even after the more than doubling of the stock price since the throes of the Covid crash, the company is still by no means over-valued.

However, it would not be surprising if there was some of the typical "Buy-On-Rumour; Sell-On-Fact" selling in coming days as investors use the result as a liquidity event to re-balance.

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