My first post on HC... but certainly not my last.I can see lots of wishful thinking among the HotCopper members of the QFE forums, with little to no analysis backing the claims.
I am not a short though, nor am I going to belittle this micro-cap... in fact I am greatly optimistic about Quickfee and now I am going to show you why.
I was able to quickly draft a rough DCF of the expected FCF for the next 5 years of Quickfee's operations using the below assumptions.
My assumptions (which I admit are realistic...even pessimistic) are as follows:
Income Statement- Aus Revenue will grow at 25% p.a for the next 3 years, tapering off to 20% onwards. [past 2 years growth has roughly been 25%, should grow with brand recognition]
- US Revenue will grow at 80% p.a tapering off minimally. [minimal US revenue currently so % amounts are quite outlandish from a traditional point of view, however previous results show even 80% could be considered pessimistic]
- COGS will remain consistent, showing the past 4 years being roughly 30% of revenue. [Unless debt facilities are able to sourced cheaper (a high possibility) this will remain constant]
- SGA should also grow (with the addition of staff) however tapers off as revenue grows, becoming a lesser amount of gross revenue.
- Depreciation should be ignored due to the minimal amount we are dealing with (if any).
Balance Sheet- Cash growth, with expansion takes a lot of cash... I believe I am quite realistic assuming it grows at 5%... with additional access to equity. [however cash is not important to this business]
read on..-
Trade Receivables and Trade Payables... The Wheel that Steers the Ship... The Receivables are the biggest driver of this DCF Model and where ultimately the value of QFE lies. The whole point of a Factoring Company (which QFE ultimately is) is receiving more than what you paid. I ultimately allocated the same growth rates to both the Receivables and Payables, which should reflect similarly to the AUS/US rev growth rates (note: Receivables growth rates are higher than AUS due to eventual scenario in which US loans values surpass AUS loan values. [looking back, i shouldve split the two demographics with seperate assumptions, but its really not detrimental... DCF's should only be another viewpoint... not a religion.
- Following on from the above: I allocated a set rate of 10% bad debts to the receivables within the forecasted BS. As we know, this is quite pessimistic given the backing of professional services firms (who imo are among the safest financial institutions among Australia and the U.S due to the minimal debt outlay they have (minimal infrastructure needed to run a firm) and historically high profit margins on work they do perform.
Now... what you all wanted to see. Given the above and as you can see in my market assumptions, the US professional services industry is expected to grow 3.5% p.a til 2024, AUS professional service industry will roughly grow 1.9%. I thought it was quite conservative to use 2.5% as the terminal growth, hopefully as the business finds larger success in America given the size.
Of course, this is still an extremely risky stock. The barrier of entry for this market is quite low (just look at the influx of APT competitors since inception) I feel comfortable attaching a 25% discount rate to this stock and by no means should anybody believe this is a sure thing.
$1.80... is my conclusion, depending on if they successfully accomplish my assumptions.
'til next time
~
Blackjackson
(20min delay)