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You can only pull the "more debt for revenue" lever so many...

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ASXspecialist

203 Posts.

236

11/06/20

02:48

Post #: 45148812
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Originally posted by KABI1979: ↑

I have bought into EN1.

I have always invested in technology stocks. I started buying into APT at $5.60 and Z1P from $1 and these investments have paid me very handsomely. My investment thesis is to buy into tech stocks at their early days as soon as they show impressive increasing revenues after 2 consecutive quarters.

Over the last few days I started buying into EN1. I decided to off-load 50% of my investment in A2M which I first bought at $0.84c (my only investment in non-tech stocks) because I fear the China government may target A2M in its campaign to play up on Australia's products as it has done to our beef and barley recently. After topping up on my APT and Z1P, i am left with $200k to slowly build my position in EN1 over the next 6 months. I am comfortable with the risk-reward balance at current sp.

I dont trade and my investment time frame is usually at least 3 years.

The way I see it is:

EN1 has turned around in terms of revenue performance since Oct last year. It has had 6 consecutive months of revenue growth compared to previous corresponding year time frames. And therefore it fits into my criteria of investment. Lucky for me, during the last few months I was busy with other stocks and so didnt buy into EN1 yet and as a result I have been able to start buying EN1 at 0.9c and 0.8c.

With USD $150K loan from EIDL = AUD $220K at FX of AUD $0.68 = equivalent $550k in extra revenue at 40% gross margin. This loan payment terms is 30 years at 3.75% interest rate and the first payment is 12 months away from now at $731 per month. I consider this as virtually free money.

With the other USD $435K assistance from US PPP = equivalent to AUD $640K at FX rate of AUD $0.68 = equivalent to $1.6M in extra revenue for EN1. Therefore Q2 revenue is likely to be $1.2M April (adjusted for FX rate of AUD $0.68) + $1.25M May + Estimated $1.5M June + $1.6M equivalent extra revenue from the US PPP + $0.55M from the EIDL = $6.1M at 40% gross margin.

Q1 was $1.5M Jan + $1.7M Feb + $2M. However I adjust March rev of $2mil down to $1.8M for FX rate from AUD $0.61 at the end of March to the standard FX rate of AUD $0.68 which we saw through most of last year. So, Q1 = $5M.

So, for me I think EN1 was impacted during the current quarter by the Covid but was helped by the PPP and the EIDL packages. In fact, Q2 is not bad at all. It is about 20% higher than Q1.

The impact from the Covid pandemic in the US is fortunate and unavoidable for EN1 but the underlying trend in revenue performance from Oct to March was undeniably strong. That was 6 consecutive months of revenue growth over corresponding periods. And that is what I follow.

EN1 also start adding incremental revenue from new website traffic which Ted said it could MATCH the existing app-base business. I think if new web-base business can add 20% extra revenue in Q4 this year, it would lift the total revenue figure very nicely and by middle of next year the new web business could add 40% extra to current app business, then it would be fantastic.

That's my take on this stock and not in any way an advice to anyone.

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You can only pull the "more debt for revenue" lever so many times in order to obtain loans to support the business and increase revenue, until it makes a profit. Pretty certain EN1 has pulled the lever its last time, so the debt-fueled revenue you focused on for your valuation isn't the most apt of choices.

EN1 Price at posting: 0.8¢ Sentiment: Sell Disclosure: Not Held
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