HT8 - Turnaround Story

Fellow investors and soon to be investors, some very interesting articles have recently been released alongside recent announcements from the company. A lot of posters on HotCopper have been making predictions about short term price targets. What many aren’t focusing on is the fact that the business has actually positioned itself for a real turnaround. A number of recent wins validate this. A revised strategy aligns very well with the fact that the pandemic has resulted with a lot of purchases being made online, and many workers switching to work from home. Throw in the pro-hygiene range, and you have a business that is very well positioned for the short and medium term. Here are some of my thoughts below. Feel free to add or make commentary. Some great insight has been shared already by some other noteworthy posters.

FINANCIAL OBSERVATIONS:

• Strong increase in sales, driven by IT Sales & Pro Hygiene leading to increased revenue YOY.
• Qtr 1 Revenue was $2.4M
• Qtr 2 Revenue was $2.3M
• Qtr 3 Revenue was $3.2M
• Qtr 4 Revenue expected to be $5.6M
• Total Revenue FY19-20 $13.5M (50% increase from 18-19 Revenue of $9M)
• Profit Guidance of $1.1M (FY 18-19 was $732K Loss)
• EPS 1.1M/176.6M = 0.0062
• PE Ratio 0.037/0.0062 = 5.97 (More on this shortly)

NEAR TERMCATALYSTS:

• Strong sales performance attributed by IT Sales, Mobile Accessories, IT Consumables, PPE, Pro Hygiene, Anti Virus Software will drive a robust product/service offering as more people work from home, and more businesses will need to ensure security and health for workers in offices and remotely.
• Amazon & ECommerce platform Sales. Recent performance at Amazon shows the huge increase in Sales. (Note that HT8 is ranked top seller on Amazon Marketplace). Excellent endorsement which will lead to more Sales.
• A foot operated hand sanitiser is in production alongside a non touch infrared thermometer rollout coming shortly will add to already advanced product and service offering.

OTHEROBSERVATIONS:

• Recent announcements and articles have Management quoting at pointing towards a year of EXCEPTIONAL growth in FY20-21.
• Assuming Revenue can continue to increase at an additional (very moderate) 25% and retain at this level
• 5.6M + 25% = $7M x 4 Qtrs will achieve FY 20-21 Revenue of $28M.
• Considering $13.5M brings $1.1M (8.14% profit margin) and with the business streamlining (and finalising some unproductive prior dealings and cost cuttings) new services with higher margins (eg 20% on PPE & Pro Hygiene), we can assume a moderate margin of 15%.
• $28M x 15% Margin will give my Forecast a Profit of $4.2M

SOMEQUESTIONS:

1. What is the average PE Ratio of other ASX listed companies operating in the same sector? I’ll refer to Dicker Data (DDR) & JB Hifi (JBH) and Kogan (KGN) as peers. They operate at PE Ratios of 20.6, 19.1, 85.6. If we apply a moderate PE Ratio of 15, then theoretically HT8 can currently justify a Share Price of $0.093 based on it’s FY 19-20 performance.
2. Does the market price stocks in advance? Yes it does. So if profit can reach $4.2M (moderate estimate), then the SP could be valued at:
EPS $4.2M/176.6M shares = 0.025
Applying a PE Ratio of 15 gives a Share Price of $0.375. If using a PE Ratio of 10, then SP is $0.25.

OTHERTHINGSTOCONSIDER:

• Low Number of Shares on Issue will make the stock a very tightly held stock with Management and the Top 20 owning over 70% of shares.
• CEO has bought more shares on market in recent times. This is a big vote of confidence.
• The Covid Pandemic has reached a 2nd wave in Victoria. This will increase Sales.
• Consider the new product lines, a new way of working, and continued success with Amazon, Kogan, EBay, Catch.
• More ECommerce exposure and hopefully a reincarnation of B2B Revenue could see significant material Revenue increases

For the above reasons, I see FY 19-20 as the beginning of a turnaround phase for HT8. I see FY 20-21 as a very promising and exciting year for the company. The strategy appears to be crystal clear, the focus on online sales, services, and products to support our country through a pandemic, and a sustainable business model for continued growth thereafter makes me believe the market is asleep on HT8. It is trading well below it’s value. Hence I believe this is a deep value stock presenting a very strong opportunity for share price gains. My opinions only, and all gathered from recent announcements and articles. Do your own research and happy investing. Let’s see how it all unfolds.