Following is cover page from Newings note. I could not cut and paste detailed numbers. Really not much change, but recent announcements help confirm his earlier forecasts. Personally I want more contract announcements and details of nature of agreements with Chinese partner. My experience suggests operating in China is full of traps for newcomers.
Phoslock Water Solutions Ltd (ASXHK)
Listed shares 425.2 million ord fp Employee 9¢ options 7.5 million expiring 30 Sep 2017 Lindt 7.1¢ options 2.5 million expiring 20 March 2018 Performance 10.5¢ options 65.0 million, subject to financials, expiring 20 Dec 2019 Total securities 500.2 million
Share price 18¢ as at 11 September 2017 Market cap $77m on listed shares, $90m fully diluted
Potential confirmed
• This is a short update on the research note I published on 18 May 2017. Please refer to that report for more detailed information on the company.
• In May I allowed for sales revenue for FY18 through FY20 to be $20m, $40m and $60m. For these three years I projected EPS of 0.8¢, 2.4¢ and 3.5¢ fully diluted. My central valuation of the stock was 69¢, within a wide range of possible outcomes.
• At that time PHK had provided sales guidance of $15m for FY18. Last week the company came out with new guidance of $22m for FY18, which again is bound to be conservatively stated. My new sales forecasts for FY18 through FY20 are $23m, $44m and $65m.
• The effect of the increased revenue projections has been broadly offset by assuming a gross profit margin of 35% instead of 40%, noting that the margin on contract business is not as high as that on materials.
• General and admin costs were lower than I had anticipated for FY17 so I have made some cuts to those in the out years too.
• The net result is projected EPS of 0.8¢, 2.1¢ and 3.4¢ in FY18 through FY20, scarcely changed from my previous estimates. My central valuation is currently at 62¢. These projections should be considered less at risk than those in May.
• The potential for the stock has been recognised by investors with the shares rising from 15¢ when I wrote the report in May to as high as 24¢ a few weeks ago. The subsequent partial retracement could have been influenced by selling from employees to fund exercise of their options although I understand most of their new shares have been retained.
• My view remains that the shares could rise to the 40¢ to 80¢ range over the next year or two provided revenue and profit milestones are met.
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