PART 4 - VALUATIONAny valuation is determined by a set of...

PART 4 - VALUATION

Any valuation is determined by a set of assumptions. It's the quality of the assumptions that matter. That should be based on logic, research and supported by an appropriate valuation methodology to get to a target price.

If understanding this a bit more is of interest here's some pre reading https://hotcopper.com.au/posts/49868055/single

But for those that just want a number and some confirmation bias here's some outputs. In previous posts I've set out my key assumptions and detailed sales data. I've included a detailed P&L of the JV and now I'll provide my P&L and valuation.



As I've mentioned many times, we are now at the point of inflection and this will be reflected in future financial reports which are backwards looking.

Firstly, this is highlighted by the very strong sales growth, which is driven by Zoleo equipment sales. This also leads to a temporary reduction in GP margin while airtime revenue catches up. My P&L tracks how BCC report, so Zoleo airtime falls into 'other' revenue. I think that as that grows, BCC will rename that field to Zoleo airtime to be more specific and make it easier for potential investors to understand the drivers.

It's also important to highlight that the valuation is not only driven by Zoleo airtime but profits from the JV. The JV is largely being driven by exceptional growth in the North American market where the majority of royalties go to Roadpost, but even with RP benefiting there is lots left over.

Based on my analysis, I'm expecting a strong increase in revenue but a stronger increase in profitability. My NPAT forecast is $3.7m, which would be 7x 2021. If (and when that happens) this will not be under the radar anymore. It will be well and truly re-rated and I'd expect the SP will be over 50c by then - and still undervalued!!!

I've mentioned in previous posts for BCC that I take a forward view for my valuation as this is a high growth company that presently has low profitability. My multiples are reasonably low because I'm using FY23 as my baseline year but because this is high growth you can see what happens to the valuation from FY2024 and beyond - it gets scary.



CONSERVATIVELY I think by FY2023 year end this will be over $1. My 'fair' value estimate is around $1.30 and I've triangulated that using PE, EV/EBITDA and ARR/Sales. I'll add my DCF later, but that will be higher than many of the above so you can imagine what that does to my blended target price!

Because of the high growth and if I maintain a similar multiple, the target price sales past $2 and $3 in FY24 and FY25 respectively but there's a lot that could happen between now and then.

My personal opinion would be that Iridium or Roadpost will take BCC out well before 2024/25. If that doesn't happen then I'd expect BCC to start investing or acquiring other businesses to utilise the large cash balances that will be built up but it's too far away to have conviction on 'events' and other things.

Where could I be wrong??

As I have my own capital on the line, I always try to 'break' my model or look for parts where I could be wrong. I deliberately take a conservative approach to forecasting to allow some 'room for error.'

The biggest area on where I could be wrong will be the JV, which contributes a meaningful amount to profit based on my analysis. Based on my numbers, I'm expecting a +$1m profit for 1H22 for the JV, which will be a good test to see if I'm on the right track and we'll know that by Feb 2022. If I'm on the mark then that will give me a lot more confidence and I will likely 'average up' as opposed to averaging down, which is generally not a good strategy.

It should be an exciting 12 months for shareholders and hopefully we all reap the rewards. GLTAH