“Firstly I ask you how can we get recurring (meaning it’s the...

“Firstly I ask you how can we get recurring (meaning it’s the same as the past) revenue streams of this size (we’ve never made $30 million in a year before) as recurring revenue after we’ve been cutting out most of the unprofitable revenue streams?”

Hi Cracker

You have asked me specifically for comment on the phrase that I used “$30M revenue from recurring operations”. It is obvious that your expressed concerns derive from a misinterpretation of this to mean $30M recurring revenue from operations.

Revenue deriving from recurring operations (FR and PCM for bedding, textiles etc) should not be constant but should be growing. It was less than $30M last financial year, as you correctly point out, it is likely to be $30M this year according to Petra, and hopefully it will be well above that figure in all future years.

Petra described its FY18 $30M estimate as deriving from “an organic base case; a revenue and earnings run rate based on the current, awarded pipeline. Any future contract wins would therefore be earnings and value accretive.” This is what I was referring to.

Unlike earlier reports, the Petra analyses appear to be very well researched and comprehensive, they would be informed by interview of current management, and therefore I believe their content to be reliable. The range of $25M-$30M that I had suggested though does allow for a bit of optimism in their estimation.

Although it is always better to err on the side of caution, intentional underestimation would be no more justifiable than overestimation in informing investment decisions.

Cheers