Hi Bustus you're welcome. The JV is indeed a key support for the valuation but not the only part. Local geography sales and even growth in Iridium Go and other devices will all be supportive. Also, I'm SUPER conservative in my numbers even though the price target is high vs spot.
Here's a quick recap as the JV does take a little bit of thought before it clicks and even then we just don't have the history to be 100% sure.
First, you need to build out a sales forecast by geography. @Roy2U has done an excellent job here https://hotcopper.com.au/posts/56113328/single and mine is in this thread here https://hotcopper.com.au/posts/55837280/single (also repasted below so you see the flow)
Secondly, it's important to recognise that equipment sales are a proxy for activationsso you can do some back of the envelope calculations which many on here have done which is an easy way to see the extreme upside here. It's fair to assume that over time the relationship will be one to one but when BCC announce x thousand more Zoleo sales it's not appropriate to start looking at airtime revenue immediately as they've been sold to the JV or allocated for overseas expansion.
At some stage in the future, someone will buy these and the clock will start ticking for airtime revenue but doing it immediately means you could set yourself up for disappointment if you're expecting a big sugar hit in the next financial report for instance. That is also why we're not yet seeing a clear picture in the numbers. But due to equipment sales we know it will come, which is why my confidence is high.
For Roadpost, we also don't know activations, ARPU, subscriptions or churn - my guess is we will never know this information either as RP is a private company. But per my point above, the fact that we can use equipment sales as a proxy means we can be accurate over the journey but pinpointing numbers down to a specific financial period is a bit more challenging. But back to the JV, Roadpost is posting some BIG numbers in terms of equipment sales. It's also worth recognising that the world is still somewhat locked down, so sales could potentially be even high when mobility kicks in.
RP keep 70% of the GP, which is paid as a royalty. Therefore 30% of GP flows to the JV, which BCC is entitled to half. Because Roadpost is doing BIG volume, this profit share becomes very lucrative for BCC. This is IN ADDITION to the growing royalty they're earning in their own territories (ANZ + Asia), which is 70% of the GP.
Here's my numbers in order (hopefully the JV makes a bit more sense now)
JV P&L
The blue line above feeds directly into BCC's P&L as a the contribution from the JV, which feeds into my P&L and then my valuation. Obviously my multiples of the profit or based on my experience so feel free to take higher or lower. But either way, a few of us are arriving at $6m to $7m in FY2023 which compares to a present market cap of ~$20m. It doesn't take a genius to work out that that won't stay that way for ever - perhaps investors don't have the patience to wait for this one, but think about the 50% CGT discount you will get on your bags.
GLTAH
(20min delay)