it&e (ITE).Subject: Profit Margins and high Ebita/NPAT Nubers in...

it&e (ITE).

Subject: Profit Margins and high Ebita/NPAT Nubers in this Sector....

... Hi there,

Getting a few emails-- ....why is this--??-- re Profit Margins and ebita amounts... errrr....."again"......!!

Without getting too ...."deep" ....a quick word on.... Profit Margins and crossing the rubicon ....from ebita in the red,.... to ebita in the black ....with PROPERITARY, trademarked and licenced "toll road style " Software and Internet/Web enabled globally competitive special niche IT companies.

First point to make; this is why this Internet Enabled Proprietary Software "Business Model" is so rare-- and also ...so... often... loved.... by Investors.... around the world; and is reflected in higher PE ratio s and valuations.

Secondly; it is why .....shares like Amazon.com, stayed up ....at such Huge Market Caps-- for years and years.... before the firm went into Profit-- and why the First Profits..... were in the hundereds of millions.

It is why ....Google paid over $1 billions for You Tube.....

It is why ...Murdoch ...did similar.... for My Space.com ...

..> ....Why then, Robbo...??

Answer: Coz they have ....profit margins ....of a lousy 20%...?

..... No way...

...... Back to earth... then...

Some companies with which you may be familiar...and....

Their ebita profit margins...are as follows:

Senetas--(SEN)-- 42%. ....(and their first decent profit from a period in the red was just shy of $8 Millions... which due to tax losses was also ....a NPAT....

Wotif.com. --(WTF) -- 53 %

Jumbuck (JMB) --50%

Oakton-- (OKN) --26%

Seek (SEK) --- 46%

Iress (ITE) -- 42%

Info media (IFM)-- 43%

Webjet-- (WEB) -- 33%

Reckon (RKN)--24%

Technology One (TNE) -- 25%

Objective Corp-- (OCL) -- 26% .

.... Next point.....

Factually, it&e's .... Gross Sales (over all divisions)-- revenues were up 56% last year....

However; Costs of Sales ....was down....yes down-- down over 20%-- and yet the company was continuing with expansion..... into USA, UK ....and also India, and Asia....

....How and why.... does that work ..... mathematically ... ???

.....So we go over the basic numbers.... again....

....And this time ....we are going to lower the Profit percentage.... to... at the end of this mathematical exercize--to 20%-- off the Top Line Base number....

Now if the seven (7) New Sales are posted-- at say -- even $4.5 millions each-- and add say only ... $ 1m for the Qld Treasury-- and then 10 m for Maintenance Revenue-- which is too light-- but there you are anyway -- that is a number of: 42.5...

Now costs ...last year ...were...down significantly coz of scale... at 15 m.

So make that ....for no good reason at all ...go up now, ....to ...$ 18 m.

There we have ...the 24 millions ... ebita/npat----- which sounds.... a bit high...although "spunds is a non rational word, ....but let's go with it. ...

....Okay then....

Make the profit margin say ....35% -- on the Top Line of $ 41m....which is balderdash-- but it might give some comfort.....even though it is STATIC and fails to signify.... (and incorporate into Market Cap valuation-- Share Price) ...what the seven new Banks... as New Clients really represents and signifes.....to Market as already explained ....ad nauseum....

So again... on a 35% profit margin-- of $ 41m is: # 14 Millions to: ebita/npat.

Okay then... bring that down... for no good reason... to 8 -9 Millions ....if....why...??-- it makes you feel better....

-So out profit margin is now... down ...to 20% .....

However :-- Please be clear here: -->>>-- that is not what the Basic Maths that can be deduced ...imo.... already indicates....

It does not matter.

What is a NPAT of even 8 at a PE of 30.... given all we have discussed...calibrate market cap out to...?

Answer: 240 Millions.

And how does that compare with current market cap...?

Which is around # $ 33 --34 ....millions

And what is therefore the margin of safety...here .... ?

And what is the outlook from there.... going forward ....again...?

Again however: --->> we are in Grave Danger-- of missing the main Point.... re Profit Margins...imo....

This is not a Oakton or Objective Corp --Australian based" contractural services style IT company.... (and they are great firms .....btw !!)....

This is a global-- IT Software company with unique Knowledge Capital with High Barrirs to entry....

It has -- say it again-- inimitable-- PROPRIETARY, trademarked and licenced "toll road style " Software -- which has won Global Awards.

....It is.... best of breed.

It has been tried--and put in the market place of fierce global competition--globally-- and ...keeps coming up trumps.

It has been refined... in the fire ....against global competitors ....and it keeps getting selected.... by global Banks...

....Why...???

....Fluke...????.....

Surely; I do not have to re-produce "the list"-- .... again ....do I ...??

....Every time from here on in... they (ITE) now-- ship out... another extra.... 3 Banking Sector Licences -- for $6 millions a piece-- = $ 18 Millions extra-- how much of that money.... goes straight.... like a Ball of Lead ....to the Bottom line.....as ebita profit for it&e (ITE)...??

..... Only 12 % of it ... ???...

That is not why the highly successful and respected... UXC --market cap around 320 Millions... recently ---took a strategic 14% stake in the company folks--...

-And it is not why..... Smith Bayes--Mercedes /Mclaren-- became a networked Partner....

That is ...also....not why..... one of the head guys at Reuters--....from the UK-- Greg Meekings ----joined the (ITE) Board folks...

And, That is not why ....Ellis Bugg.... joined the Board either folks...

....errrr..... that is... not ...how it works people.....

This is a much Bigger Pond, River and Lake .... than some folk have calibrated...

Hope that gives you something--anyway--to work with.

Kindest Regards,

Robbo .

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