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$7.79 aconex limited

Defensive growth stock, page-11

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mo72

82 Posts.

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31/01/17

12:25

Post #: 22246448
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Originally posted by mo72 ↑

OK - I thought it might be worth revisiting once again my "normalised" PE ratio argument. Apologies if this comes across as me banging the similar drum.

If the management decided to stop investing in 25%+ growth and let things grow organically then PE would immediately improve. Let's look as well at why I think ACX should be in everyone's portfolio and is an attractive buy at this price:

1. Average contract term = 42.5 months in the most recent presentation up from 38months therefore visibility on contracted forward revenue for 12 months is maintained about 75%. As more Enterprise clients more towards 100% of their projects on ACX then revenue visibility will improve further.

This is backed up in the most recent presentation of the annual report when management reported that, on the 23rd August 2016, 72% of their FY17 forecast (which includes 20-25% growth) was already contracted = defensive stock

2. Near term growth (from presentation) 20% - 25% with medium term maintained at 20% - 25% driven mainly by penetration of online document management not reliant on the industry growing = growth stock

3. "Hidden" profitability is [R&D ($17M) + Sales&Marketing ($46M)] / Sales ($123.4M) = 51.1% Sales. No sane person would take these to zero with the growth profile of Aconex but both these expense lines should be seen as highly manageable.

4. FY16 rev of $123.4M with NPAT of $9.9M + 75% of "hidden" profitability (which really is going towards growth & market domination) = $9.9M + ($123.4M x 51.1% x 75% x 70%tax effected) = $43.0M

5. Therefore current PE without deploying growth capital = $1,076M mkt cap / $38.2M normalised NPAT = PE of 25.02

6. Aconex has been able to do all of this with zero debt - if they want to raise debt it would be both easy and cheap as their cashflow visibility is almost unparalleled. They do not need to do it as they have $50M in cash and this number is increasing.

7. The stock has been under considerable and sustained shorting pressure which I believe will end in the next day or two. The AGM is on Tuesday and a presentation always follows the formal agenda items. I think they should / may also take the opportunity to release their final 4C on the same day and explain the difference between cash from operations and revenue from operations as part of the post-AGM presentation.

8. If we take the previous cash from operations in the Q4 4C of $37.2 mill and multiply it by last year's Q4 to Q1 growth rate (pre-Conject) of 10.9% we get $41.3 mill. If you add the $2 mill from Q4 that was referred to as late you get $43.3 mill. In the end cash is still lumpy and the result could be above or below this by +/- $5 mill - they just need to explain the 4C better (either on Tuesday if it is early or on Monday-week when it is due). As others have posted I think >$40M will be seen as positive and <$40M will be seen as negative.

As always, just my opinion DYOR of course but I got in on the IPO and have (still) not sold a share as I have a (very) long-term view.

Mo

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I know I bleat on about this but it's worth pointing out the degree to which management have control over when / if they choose to cut costs and the rapid impact on profit that would result (see previous post). Comparisons to debt or inventory laden companies like SGH / Belamy's are a sure sign of ignorance.

Leigh and Rob have no other management experience (both left graduate jobs to start ACX) however I know some people who have held the stock since well before the IPO and ACX has certainly had trouble in the past (albeit it grew every year including through the GFC). Leigh and Rob cut hard back then when they needed to and could easily do so again but are convinced (with >95% their personal wealth behind the conviction) that they should still be investing in growth.

Have taken a massive paper hit (like others) but still sitting on a paper profit, still long, and wishing I had more $ in order to buy at these prices.

DYOR
Mo

ACX Price at posting: $3.06 Sentiment: Buy Disclosure: Held
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