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1ronnie

20,875 Posts.

1968

05/09/18

13:44

Post #: 35428109

Originally posted by 1ronnie ↑

Generally speaking, it appears that retail shareholders who have bought into microcaps or smallcap stocks do not seem to think that reported financial information matters on the grounds that they are in early stages of development and often do not give as much weight to reported results. They claim that all that matters is management and how their offering performs in the market place. People should however note that management actions are more often than not reflected in the numbers as I am about to show you. They are early indicators on where management focus is and if they have the right mindset to always put shareholders ahead of them.
So to illustrate, I have compared numbers derived from annual accounts for Appen (APX), the known success tech story and 3 other stocks Yojee (YOJ), Buddy Platform (BUD) and LIvetiles (LVT) which are perceived as ‘promising growth stories’.
If you look at APX, shareholders had been handsomely rewarded over 3 years with its market cap growing almost 6 fold underpinned by revenue and profit growth of 2.75x and 3.4x respectively. With that staggering growth, its Market cap is just 5.39x revenues which is in line with typical SaaS/tech multiples (5-10x).
So what sets APX apart from the other 3 compared stocks? Let us look at 3 indicators

Market Cap/Revenue

APX Market Cap/Revenue has been consistently between 2.5-5.4x which suggest valuation is still very reasonable especially with growing profits as well. So if a success story like APX commands a multiple of 5, why should YOJ be at 222x and BUD at 66x and LVT at 57x their revenues? Is the market suggesting they should command a higher multiple as their prospects are better than APX? I think not, these stocks are still way overvalued. At its height, YOJ was at 2,527x and BUD at 329x reflecting the extreme exuberance tech stocks was experiencing in the second half of last year which would no longer be repeated.

Share Based Expenses (SBE)

If you have been following my posts, I had expressed caution about companies that issued excessive performance shares to their management and incurring large share based expenses which do not commensurate with their financial progress and position. And clearly YOJ, BUD and LVT have all been doing this at the expense of shareholders. Both YOJ and BUD’s SBE was contributing 25% of their losses and if you look at BUD, SBE was consistently high each financial year. This indicator demonstrate that management of these companies had looked after themselves first before shareholders. In contrast, APX’s SBE was incredibly small at less than 5% of profit each year. It tells you why APX exemplifies a success story.

Share Dilution

One of the main concerns of shareholders of microcaps is dilution from capital raisings (CR) or share placements that increase the company’s share base. If you look at APX share base, the number of shares issued to date is only 10% higher than two years ago while for YOJ, its share base ballooned 2.53x over the same period and BUD and LVT increased by 16% and 45% respectively. Impact of share dilution is the reduction of share price to maintain the same level of market cap valuation. The other thing people should find peculiar is the amount of capital raised- for example BUD raised $23m at 20c last October and LVT recently raised $25m from institutional investors. These are not amounts the companies require to make or pay for an acquisition but just working capital. These requirements as we now look back are way in excess of annual requirements. So why was a bigger raise made at the time? It suggest that management of BUD and LVT are not confident that they can bring enough revenues in the immediate 1-2 years to see them through. And the large raise cushions them and allows them to freely spend and burn cash as they have been.

Column 1 Column 2 Column 3 Column 4

1 $mil

2 APX 2018 2017 2016

3 Shares issued 107.44 107.11 97.38

4 Stock price $ 15.34 $ 8.31 $ 2.84

5 Market cap $ 1,648.05 $ 890.05 $ 276.56

6 Annual Revenues $ 305.60 $ 166.6 $ 111.0

7 Profit/(Loss) $ 35.60 $ 14.28 $ 10.49

8 Share based Expenses(SBE) $ 1.76 $ 0.41 $ 0.37

9 Market cap/Revenue (x times) 5.39 5.34 2.49

10 SBE as % of Profit/(Loss) 4.9% 2.9% 3.5%

11

12 YOJ 2018 2017 2016

13 Shares issued 950.61 839.94 375.00

14 Stock price $ 0.099 $ 0.300 $ 0.040

15 Market cap $ 94.11 $ 251.98 $ 15.00

16 Annual Revenues $ 0.42 $ 0.10 $ -

17 Profit/(Loss) -$5.69 -$1.86 -$0.35

18 Share based Expenses(SBE) -$ 1.42 -$ 0.19 -$ 0.01

19 Market cap/Revenue (x times) 221.96 2,527.40 N/A

20 SBE as % of Profit/(Loss) 24.9% 10.0% 1.4%

21

22 BUD 2018 2017 2016

23 Shares issued 1,149.05 1,149.05 987.61

24 Stock price $ 0.12 $ 0.30 $ 0.06

25 Market cap $ 137.89 $ 344.72 $ 59.26

26 Annual Revenues $ 2.08 $ 1.05 $ 0.04

27 Profit/(Loss) -$ 13.88 -$ 16.95 -$ 26.13

28 Share based Expenses(SBE) -$ 3.46 -$ 7.45 -$ 11.31

29 Market cap/Revenue (x times) 66.16 328.61 N/A

30 SBE as % of Profit/(Loss) 24.9% 43.9% 43.3%

31

32 LVT 2018 2017 2016

33 Shares issued 548.182 451.249 378.383

34 Stock price $ 0.595 $ 0.425 $ 0.12

35 Market cap $ 326.17 $ 191.78 $ 45.41

36 Annual Revenues $ 5.69 $ 1.77 $ 0.65

37 Profit/(Loss) -$ 22.06 -$ 7.40 -$ 13.22

38 Share based Expenses(SBE) -$ 0.97 -$ 0.89 -$ 4.37

39 Market cap/Revenue (x times) 57.37 108.41 69.96

40 SBE as % of Profit/(Loss) 4.4% 12.0% 33.0%

Expand

Its that time of the year again and you can't help feeling that now is about the time to take some chips off the table. And so I am closing 7 positions - (I) BHP - because its a big blue chip (2) APX- sterling run about to end in the short term (but am sure will resume its run after a long overdue retracement) 70% return in 5 months! (3) CTD- 35% return in 4 months (4) NZK- not comfortable with disclosure about its major shareholder-a controversial Malaysian tycoon (timber lord) (5) A2M - already bought in at a high price so to run with 6.6% return is decent (6) MP1 - large losses more than I hoped for (7) SFC- 9.4% return in less than a month, looking tired and technically weak on low liquidity.

Column 1 Column 2 Column 3 Column 4 Column 5

0 COVERAGE DATE STOCKS PRICE ON COVERAGE DATE PRICE @MIDDAY GAIN%

1 3/9 NST $ 8.140 $ 8.355 2.6%

2 29/8 SVA $ 0.037 $ 0.035 -5.4%

3 20/8 NGI $ 5.810 $ 5.685 -2.2%

4 8/8-close SFC $ 15.050 $ 16.470 9.4%

5 6/8 CGL $ 7.080 $ 7.710 8.9%

6 31/7 MYE $ 1.180 $ 1.295 9.7%

7 30/7-close MP1 $ 4.370 $ 3.990 -8.7%

8 26/7 SKF $ 0.150 $ 0.230 53.3%

9 24/7 ZEN $ 1.060 $ 0.950 -10.4%

10 23/7 CXL $ 0.630 $ 0.890 41.3%

11 17/7 COE $ 0.445 $ 0.445 0.0%

12 13/7 SHL $ 26.500 $ 25.830 -2.5%

13 29/6 BYE $ 0.340 $ 0.270 -20.6%

14 28/6 ATC $ 0.195 $ 0.155 -20.5%

15 18/6-close A2M $ 10.780 $ 11.490 6.6%

16 18/6 CGC $ 8.750 $ 6.910 -21.0%

17 14/6-close NZK $ 2.240 $ 2.480 10.7%

18 4/6 BUB $ 0.830 $ 0.675 -18.7%

19 15/5 SW1 $ 0.410 $ 0.365 -11.0%

20 14/5 RHC $ 65.420 $ 54.800 -16.2%

21 9/5 FYI $ 0.145 $ 0.085 -41.4%

22 3/5 4DS $ 0.057 $ 0.122 114.0%

23 2/5 PME $ 8.150 $ 10.600 30.1%

24 1/5 TTT $ 1.540 $ 2.060 33.8%

25 30/4-close CTD $ 24.880 $ 33.540 34.8%

26 18/4 CLV $ 1.030 $ 1.445 40.3%

27 18/4 VIV $ 0.054 $ 0.044 -18.5%

28 11/4-close APX $ 8.820 $ 15.010 70.2%

29 11/4-close BHP $ 29.440 $ 32.385 10.0%

30 11/4 PPS $ 0.595 $ 1.010 69.7%

31 11/4 PTB $ 0.545 $ 0.640 17.4%

32 Return @ 11.10% assuming @ $1k even per stock

0 Great analysis

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