just doing the sums, page-3

Hi Try,

There are a few assumptions that you have made that are incorrect.

"The company made a profit of $0.2 mill last 6 months" - True

"They generated revenue of $30.5 mill, meaning a margin of HALF a percent!!" - False

Have a look at page 9/20 of their half yearly and follow along.

This is not correct because there is a fixed cost component in NTC's expenses, such as wages, inventories, admin. This is expected to remain the same, or only slightly increase (It was the same last period also when they made a ~840K loss)

To look at the companies margin, compare the Revenue from sale of goods - 30m to the Raw materials consumed (To produce those goods) - 23.4m and you get a margin of approx. 24%.
You can expect depreciation expenses to slightly increase over the coming years as they expand, but it should not be significant, and finance costs are to remain where they are due to minimal borrowings.

If you add all of this up it means that any extra revenue they make (Top line - Revenue), 24% should make it through to their bottom line (Profit) i.e. the 12m smart meter contract should add around 3.5-4m to the profit.

"They are estimating an increase to their EDITDA in 2H of around $50%, being generous and applying the same ratio to profit they should generate a total result of $0.5m profit in FY14."

Provided Depreciation remains under control, and Finance costs don't change, this increase ALL goes to Profit. Therefor the profit for the next 1/2 should be in the ballpark of $1-$1.4m

"Equalling an expected end of FY14 nose p/e ratio of 190!!! Nose bleed worthy!"

Lets pick the middle of the range of 1.2m, extrapolating to a full year of 2.4m profit. This gives a P/E of around 40.

"So tell me does anyone actually believe the $500 mill in revenue will occur, and if so from which sources are these expected as opposed to the sources of revenue being generated this year?"

If we make the conservative assumption that they only win 1 of the contracts listed in their investor roadshow presentation of 1m units. At a conservative price of $100 per unit (Their more expensive ones are closer to 300), then that is revenue of $100m. Lets give it a smaller margin due to R&D and development costs, of 18%. This means 18m makes it to the bottom line, and we have ourselves a 200m market cap company at a P/E of around 12. This is double where it is now and this is a very realistic estimate.


Hope this all makes sense and justifies the current valuation. Let me know if you need further clarification.

-SS