just topped up, page-13

I came into this stock via a placement in December 2020 last year.

On reflection even I was caught up in the market frothiness that has encapsulated the past 12 months of investor activity on ASX.

My mistake of course. These things do happen.

Now this is not to say the company will not recover, small caps have a way of being able to pivot business models or restructure things rapidly, purely as a function of their size.

There are some qualitative characteristics that stand out for me:

1. James Tsiolis (CEO/Executive Director)

• Significant skin in the game (130m shares)
• I don't like how his salary is $600k for FY21 though

2. Stephen Gibbs (Chairman)

• He is the chairman of Australian Ethical Investment ($1.3b company)
• His reputation is massively on the line here if NET fails

3. Shareholders

• Regal is a notable substantial shareholder (not great they have recently offloaded a bit of their holdings)
• There are other funds/institutions holding shares
• Top 20 is ~49% of register which is fairly tightly held

Some of the quantitative aspects that stand out are:

1. MC/Enterprise Value/Cash on Hand

• ~$51m/$43m/$9m respectively
• While I am sure they will need to raise capital again in the future, it should not be required during these doldrum times

2. Revenue is growing YoY, but not profitable

• $0.6m (FY19) to $14m (FY21)
• It is not uncommon for a tech business to have top line growth but be unprofitable

3. Revenue is becoming easier

• Lions share is now recurring
• This should translate into much higher margin (i.e. software has infinite ability to be sold over and over again as opposed to "capturing margin")

4. Cost are reducing

• Hopefully it wont be to the detriment of sales

5. Debt free (almost)

• ~$1m in debt (factored in to EV above)
• The company has done its best to restructure its balance sheet and rid the debt

I would say the valuation has reached a point of potentially attractive entry. The business is revenue generating and has a strategy it is trying to execute on. Its not exactly throwing darts at a dartboard. This is valued at roughly 3 - 4 times its FY21 revenue which is low in the tech world.

Of course buy at your own peril. I am down so much on this that I may as well wait it out to see what happens.

Wolf