PART 2As per the first post, building a full valuation model for...

PART 2

As per the first post, building a full valuation model for Beam is not easy because to do it properly you also need to account for some of Roadpost's key figures, which we don't have, and then we have to also model out the JV, which is difficult as detail is very limited and we only get data points once a year.

The reason why this is important is because the profit or loss from the JV directly impacts BCC's P&L (see below)



As per above, the loss from the JV is narrowing. Based on my analysis, which I will touch on in another post, I believe that the JV will reach profitability this half and for the full year (FY22). From there the profit increases exponentially.

But before we start to build a model, there's an easy way to do a CHEAT valuation, which gets you part of the way, but because it doesn't account for the JV or the other part of Beam it will undercook the numbers. But sometimes close enough can be good enough for a rough proxy.

From the last investor report, BCC provided not only guidance in terms of Aust NZ (ANZ) subscribers but also the profit outcome. The guidance was for 15,000 subscribers by FY23 end based on the lowest plan numbers that would deliver EBIT of $1.5m to $1.8m.

Firstly, we need to adjust ARPU. The beauty of ARPU is that the variable cost of going to a higher ARPU is negligible. And because we're doing a CHEAT valuation, we can be approximate and not exact.

So, taking the latest ARPU of $40.5 ($45 ex GST) less $29.10 gives an $11.40 difference.

On an annualised basis that works out to be 15,000 subscribers x $11.4 x 12 months = $2.05m incremental EBIT.

Therefore a more realistic EBIT on 15,000 subscribers is $3.5m to $3.8m. (Note: I'll use $3.8m from here as I think Beam have been conservative in their #'s)

That implies an EV/EBIT (FY23) of just 3.6x (at top end of earnings range) excluding the JV and the rest of Beam's business.

On a PE basis we need to make the following adjustments to get to NPAT:

• Account for interest: If we assume debt stays constant then it's fair to take $200k in interest expense per FY21
• Tax: Beam has tax loss assets of $1.15m, which will not be used by then. I'm assuming tax of $0
• Accounting for the Beam disclaimer: The investor pack states that the scenario excludes amortisation of capitalised costs. This is a bug bear of mine as Beam capitalise these costs instead of expensing them. But I digress. If we assume Beam invests $2.5m in development costs, which is consistent with prior years then using a 25% amortisation rate, the expense is $5.5m (FY22) x 75% + $2.5m = $6.25m opening FY23 balance. $6.25m x 25% = $1.65m. (Note: Per the accounts it looks like the amortisation is applied to the existing balance before additional capitalised costs are taken into account)

So my NPAT is $1.95m and my EPS is ~0.026c

And very ROUGHLY here's what it would look like at a range of PE's. Choose your own adventure here.



A few points to make:
1. This excludes PROFITS from the JV. This is material and excluded from the above
2. Excludes profits from the existing Beam business, which will benefit due to the increased Iridium network demand
3. Earnings are taken on an annualised basis. BCC have guided to 15,000 subscribers by the end of FY23. My analysis assumes we have 15,000 for the full year. Again, this is very rough, but you can easily see the upside possibilities here.

4. Does not take into account the compounding upside in future years, which is significant.

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