Q4-FY20 update marks the start of strong earnings generation
ZNO reported Q4-FY20 unaudited revenue of $20.9m, which was $5.2m above Q3-FY20. On that basis, FY20 sales revenue is NZ$38.3m and in line with our prior published forecast of $38.0m. The unaudited FY20 cash on hand was a promising NZ$10.3m especially after factoring a higher FY20 inventory of NZ$13.2m versus our $3.0m forecast expectation. Combined with +$2.8m in Q4-FY20 net receivables, and +26.5% gross operating cash margin, it appears ZNO had favourable contracted sales margin conditions in 2H-FY20. We estimate 2H-FY20 EBITDA margin was around 45%. In absence of any financing costs, we are now confident ZNO will not only deliver a strong, maiden, positive profit in FY20, but very likely announce a dividend as well.
FY21 should be defined by UK/EU performance
While ZNO signalled continued sales growth in AUS and NZ, as well as meaningful market entry and/or expansion in other key markets such as USA, China and the Middle East, our channel checks suggest it is the UK/EU market that will form the backbone of ZNO’s FY21 performance. That segment delivered a promising NZ$7.8m in Q4-FY20 sales mainly from the facilities management, transport and healthcare sectors. With immediate growth focus in that market (including a move to larger premises to support bulk sales), it is not unrealistic to expect $25m+ annualised sales from this segment alone in FY21, and likely at better gross margins.
Forecasts materially upgraded
With the aforementioned UK/EU segment sales potential, the strong inventory build-up to support immediate market demand where needed, and the promising margin performance in Q4-FY20, we have chosen to substantially upgrade our published forecasts. Revised FY21 sales revenue is now +26% higher than the $46m last published, while FY21 underlying NPAT has been lifted +57% above $12.1m last published.
Investment thesis reinforced
ZNO is starting to establish itself as a game-changing antimicrobial product developer, manufacturer and distributor with a sharp earnings growth trajectory in the personal hygiene, surface sanitization and agricultural markets globally. Importantly, our medium to longer term forecasts conservatively assume a revenue growth rate that is in line with the global antimicrobial market growth rate. In other words, there is material upside risk on our forecasts and valuation should ZNO deliver on profitable market share expansion in the coming years. |
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