Zoleo Inc JV - Why more disclosure is needed!There has been lots of dialogue from holders and also the company on why there is no/limited disclosure on the JV, but let me provide management with a key reason WHY disclosure should improve...
In previous posts I laid out what I thought was an appropriate valuation framework for a business like BCC. In one part I said measurements such as EV/Sales or EV/ARR were not appropriate as the majority of sales (for now) were from equipment. While that still holds true let me provide a very simple illustration why limited disclosure is holding back the market cap of the business.
In today's research notes there was an excellent table from Shaw providing up to date EV/Sales and EV/ARR multiples for selected ASX businesses. The key part to focus on is the
'peer median for businesses < $400m EV' which sits at 13.3x
Sometimes I look at things from a different angle to see if my thesis makes sense or not. For example, with the market ascribing a 13.3x multiple on ARR for businesses with an EV less than $400m,
what would the ARR need to be to justify the present EV?I said I'd keep this simple,
so let's just assume that the equipment part of the business is worth $0 or is the cream on top. If I start with the present EV, it's $17.1m (i.e. $20.3m market cap plus net debt of -$3.2m).
So using a 13.3x ARR multiple the implied ARR for BCC is $1.3m.
Obviously we don't know ARR or revenue as the company is not disclosing it (yet) but we can work it out using some conservative assumptions to see if it is higher or lower than $1.3m
1. BCC have disclosed total Zoleo sales in the North American business alone of 37.5k units for this FY plus if we add the 6,276 units sold last year, total
disclosed units come to 43,776
2. BCC's cheapest plan is $32. Let's assume for simplicity's sake that ALL of the units are on the cheapest plan (note: my estimate for ARPU is $42.5 but I'll use $32 to be SUPER conservative)
3. As we're being super conservative, let's assume that BCC have not sold one unit in Australia or New Zealand. We're only basing unit sales on what has been disclosed to the market
Using the above assumptions, my revenue or ARR is 43,776 units * $32 * 12 months or $16.8m. But, BCC only get 15% of this as it falls in the wrong geography so,
BCC's ARR is $2.5m.
Remember, I'm ascribing $0 value to the rest of the business, I'm assuming they haven't sold a unit in Australia yet and I'm using the cheapest plan as the ARPU (note: I don't need to account for churn as it would be low at this stage of the life cycle and my other conservative assumptions more than offset this - also, I want to keep this super simple)If I apply a 13.3x to my super super conservative ARR of $2.5m, the implied EV is $33.5m or ~40 cents per share with the rest of the business worth $0 compared to the SP today at just 27 centsClearly there is a massive disconnect here even when using conservative assumptions. If I plug in REAL numbers/assumptions, the SP jumps significantly higher. The sooner Michael and his team start telling the market this story, the sooner we will be valued appropriately. Over to you Michael...
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