1. The buy thesisSo why should you start to look or get...

1. The buy thesis

So why should you start to look or get interested in MWR?

Firstly, by way of a very brief business background, MWR consists of two businesses (1) Wearables, which includes the SpaceTalk watch and the AllMyTribe app and (2) Schools.

• Schools is a mature business that generates around $2m in sales per year with good margins (according to management). While management have said they have a positive view on this part of the business, it's unlikely to contribute anything meaningful to growth. But it does create a good, consistent base that helps support cashflow and the wearables segment - this is very useful and is a positive for MWR
• Wearables is the growth part of the business and is why you should get interested. I'll touch on the product and growth in more detail in Section (4) but it's a well credentialed, highly rated, well built phone/watch that participates in a fast growing market segment - children 5-12

The reasons why I think MWR is a compelling buy

• It's the market leader in a fast growing product category
• Industry tailwinds are hugely positive - birth rates and the 5-12 year old cohort keeps growing + more children in this cohort own or use phones
• The valuation and market cap remain extremely low with bad news priced in - I'll explain this in later posts
• Despite the recent sales miss, there is huge and positive sales momentum and potential - the business should generate sales growth of +100% in FY2020
• The product is highly rated and regarded
• The opportunity to expand into new markets represents significant blue sky potential. They've just entered the UK, they're in NZ and obviously Aust
• The opportunity to expand into new verticals (eg elderly, disabled + field workers) provides further opportunity
• They've partnered with Sky in the UK who are paying for marketing costs to promote the product. This is supported by an exclusivity agreement with a minimum volume quote of 15,000 units in FY2020 (~5k done at 1H20)
• Product specifications can easily improve i.e. moving to 4G, which should create further sales momentum
• Management have significant skin in the game. Mark, the CEO, is the biggest shareholder
• There are limited institutional shareholders on the register - when this changes then this will re-rate
• There are a number of large + positive catalysts that should occur in 2020 (i.e. distribution agreements, enhanced product specs, new verticals, EBITDA and potentially NPAT profitability in FY2020 etc)
• The AllMyTrive app provides a consistent, highly margin accretive and scalable business/segment/service that compliments the business and ensures it's not just a 'product' business - having a SaaS component can also be very supportive in the valuation
• Finally, even in a downside case scenario the numbers in FY2021 and beyond look extremely compelling