recent performance, page-4

Posted this as a tip on the STTCOMP. IMO XTE is a very low risk investment here with material upside should they deliver on the sales side as per the plan.

MC $20m, EV $14.4m
SOI 46.6m
SP $0.43
CASH $6.6m

XTE sell and maintain UAV’s to the Australian military (ongoing $101m contract) as well as developing proprietary technology. XTclave being the main propriety technology produces lightweight and strong composite armor plates and helmets with recent moves towards production of space cargo's. The material is 30% lighter than standard armor and the helmet is marketed as the only helmet capable of stopping a bullet from an AK47. The XTclave manufacturing capability is being built out to handle larger scale orders and is expected to come online later in 2019 in line with anticipated sales growth.

XTE lodge their prelim report at the end of August, this in my view will be a catalyst for a significant move in share price.

In 2016 they had $3.35m revenue and a net loss of $1.6m
In 2017 they had $9.0m revenue and a net profit of $0.06m
In 2018 they had $17.3m revenue and a net profit of $0.14m
In 2019 the revenue guidance doubles 2018 and is for between $30-35m, $8.4m was generated in H1 therefore H2 will need to be $21.6m to meet the lower end of guidance. In recent management interviews the $35m was referred to.

The company’s gross profit generally ranges between 20-30% with the last HY result coming in at the lower end at 21%. This was noted by management as likely to improve as the revenue shifts from one off UAV sales towards ongoing repair and maintenance contracts attracting a higher margin. With a largely fixed cost structure the material improvement in revenue should directly translate to bottom line profit. At 21% margin on $21.6m they will make around $4.5m of gross profit, take away corp and admin as well as R&D and they should be recording a net profit of around $1-1.5m for the second half.

Being an Australian defense-based business, they have typically generated the bulk of their revenue from the Australian military. In the last few weeks they acquired a US based armor solutions company who generate $10m p.a in revenue at a GP of ~40%. Perhaps the most important part of this acquisition however is that they are buying an entry to the world’s largest military market. The acquisition target HighCom Armor Solutions have contracts in place with the US department of defense as well as hundreds of local level law enforcement agencies.

“Our North American customer base includes many federal, state, and local law enforcement agencies including the U.S. Department of Defense, Department of Homeland Security, Department of State along with U.S. Embassies and allied forces around the world. We also export our products throughout the world and currently distribute our products in Asia, Africa, Europe, Latin America and the Middle East”

In summary this a company that has basically doubled revenue every year and predominantly done so while making a profit. The revenue has now grown to a point where material profits are likely to be seen. At an EV of ~$14m and plenty of cash in the coffers the market have not rewarded them with SP appreciation however it’s hard to imagine that this will not be the case late August when the results are released to show that H2 has seen revenue growth of ~250% and generated a profit