Soap Box, page-214

As it stand today ECS is trading on a trailing P/E of 60.81. NPAT for FY23 was $491k and this was generated from $15m revenue. There were also substantial costs incurred during FY23 including disposal of assets (loss is written off against earnings), construction of flood mitigation around the site, huge capex (written off gradually against D&A) and payments made to acquire new assets (final $1.5m Murray Meds payments). We've also read from a customer that part of their crop was infiltrated by a haemaphrodite plant causing higher than normal impairments against inventory which is also written off against earnings. Funnily enough the article written by the customer was glowing in its description of the actions taken by ECS following the unwanted discovery and mitigations put in place to prevent reocurrence.

Anyway, fast forward to today and ECS has earnt almost $12m in revenue from first half FY24 alone. There are also a number of drivers that should (I don't have a crystal ball) see margins substantially improve for FY24:

1. Costs for extraction will be slashed in half thanks to the agreement with Sun Pharma (fourth largest generic pharmaceutical company in the world). For those who don't know what extraction is it is creating oils from organic material (plants). ECS sold 106,000 units of these in Q1 FY24 so a 50% reduction in the cost of extraction is sizeable.
2. No flood-related costs, the levees are in the place and if they can withstand a 1 in 100 year flood like they did last time I think the site is safe.
3. ECS already has its own brand for Vets in market (RAP) and sales appear to be doing well (86% increase) but no mentioned of $'s.
4. ECS launching its D2C (non-Vet) brand which contains the Vesisorb IP.
5. All-year round growing thanks to their successful winter trial in the PCEs. Nan mentioned this will increase the return on assets (ROA) since the assets are only currently being used for part of the year. An increase in ROA means net income must also increase since this is the numerator in the equation.
6. Organic certification. Nan mentioned as soon as this is received they will be able to add a premium to their price tag as this is apparently something in high demand.

Anyway, I could go on but will start sounding like a broken record and everyone should make up their own minds. You can see from the table below just how undervalued ECS remains based on different potential NPAT figures for FY24. The company is most likely on track to do $2 - $3m NPAT in FY24 which puts the forward P/E at the current SP (2.7c) between 9.96 - 14.94. It only takes small increases in profit to significantly reduce the P/E. This is a growth company being priced like a supermarket stock that's been around for 100 years and has miniscule growth prospects, therein lies the opportunity.