@Hahniceman,
Yes, along with a budding young analyst who has started working with me, we spent a bit of time after the IPO researching and analysing this business and its prospects.
Apologies for responding only now to your message, but I took the liberty of reserving judgment
[*] because its a highly illiquid little critter and I have been active in the stock (and still intend to be, but now only off the back foot).
My thinking is that PTG has ample scope to become materially larger than the mere $35m Enterprise Value business it is today.
As with all nascent business models, the specific growth trajectory is hard to predict with certainty, but what can be said in this case is that the growth opportunity is large, with numerous discrete drivers, plenty of them being organic:
1. Organic #1 - Australia: Infilling more of the 3,500 real estate offices already serviced by Proptech with VaultRE (currently just 1,000 offices utilise VaultRE)
2. Organic #2 - Australia: Use VaultRE to gain market share - current VaultRE share of market = 8% (1,000 offices out of a total market in excess of ~12,500 real estate offices in Australia)
3. Organic #3 - UK: Use VaultRE to gain market share - current VaultRE share of UK market = 1% (250 offices out of a total market in excess of ~25,000 real estate offices in UK, so they haven't even scratched the surface there).
4. Organic #4: Price leverage. Average Revenue Per Agency (ARPA) for Australia is around $200 per month. This has been declining as VaultRE has been introduced to displace PTG's legacy CRM and property management systems (MyDesktop), but once ValutRE's value-in-use is demonstrated, scope exists for upwards price adjustments. Ditto for the UK, where ARPA is the equivalent of just $86 pm, clearly a reflection of market entry pricing strategy there.
5. Organic #5: Cross-sell and up-sell. Real Estate Investar (includes profiling of 150,000 property investors) and Rentfind Inspector (app-based digital property inspection tool) products.
6. Organic #5: Grow into "adjacencies" - Software product extension possibilities abound e.g., Agent Marketing, Finance and Mortgage Broking software, Big Data/AI, Property Research & Analytics and Valuation tools.
7. Inorganic: Acquisitions. The company starts its listed life on $2.5m pa in EBITDA, generating free cash flow of around $1mpa and with $3m in Net Cash, so it has some acquisition funding capacity (of, maybe $5m, if the board was happy to take on a mill. or two in borrowings, which would still leave Net debt-to-EBITDA well below 1.0 times)
As I said, while I'm unsure of exactly what the growth trajectory will look like over the next 3 or 4 years, but what is clear to me is that there is an abundance of growth opportunity to be had.
Whether this business will be booking $40m pa in Revenue in three years'time or $30m pa in four years is uncertain, but what I am prepared to say with some certainty is that it will be several multiples higher at those points in time, than the current $10m pa.
And with GP Margins of circa 90%, a decent chunk of that incremental Revenue drops through to the bottom line.
Even allowing - generously - for a 50% uplift in Cost of Doing Business, from the current $8m, to $12m, it will only take a Revenue objective of $18m to justify the current valuation of the business (assuming a conservative 10x EV/EBIT multiple):
View attachment 2835644I'm not sure exactly what ultimate level of Revenue will be achieved, and by when, but what I do know is that it has every chance to be a lot higher than it is today, and for any reasonably successful final revenue outcome, the upside to the equity value is clearly significant.
As to the downside risk, this I consider to be quite minimal given the existing earnings base of the business: even if zero Revenue growth is achieved (highly unlikely) the company could shrink back the loss-making UK business, and in the process rip out $1m or $1.5m in overheads, thereby resulting in sustainable EBIT of $3m to $3.5m pa. Applying a bombed-out EV/EBIT multiple of, say, 7.5x to this scenario, results in a target EV of $24m/$25m and Equity Value of circa $27m/28m.
So around 25% to 30% potential downside risk in the event of no execution success at all, despite all the Revenue levers that are able to be pulled.
Conclusion: 150% upside potential (base case), compared with 30% downside risk.
Attractive enough risk-reward asymmetry to justify buying the stock, in my assessment.
In closing, it bears noting that this is not merely some conceptual start-up; it's products/services have been in existence, and have indeed been commercialised, for a number of years already.
So there's no proof-of-concept needed; just execution on the already-existing growth opportunity.
Sure, because the real growth journey has only just begun, it does admittedly boil down to a bit of a "Trust-Them" exercise.
But on that score, it is PTG's management team - and its history of successful business development in this space - that forms a large part of my attraction to this company.
[*] Not that I for a minute think that I am any kind of market influencer; it's just that this particular stock is extremely illiquid and it will take only one or two incremental sellers/buyers to mop up what limited liquidity exists at any point in time.
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