R.e September Quarter -- It’s a disappointing performance from...

R.e September Quarter --

It’s a disappointing performance from Spectur when taken at pure face value. Luckily there is a lot more to talk about than meets the eye.

It was the companies second biggest quarter in terms of received cash receipts, which represented 67% growth on the Previous Corresponding Period (SQ20).

Note that last quarter was a bumper month in sales due to the changes made to Instant asset write off tax rulings in the period leading to the end of financial year. Management confirmed this.

Because of the external short-term influences, I think its fair to say that that SQ has been the company’s best sales month yet.

And then we need to consider that Q1 & Q3 represent the ‘out-of-season’ period hence making the result look stronger.

Cash Flow

In terms of the cash flow performance, the company burned through >$600k in cash in the quarter.

Managed had cited (& listed) the business incurs a lot of annual costs in the first quarter and that such costs are not repeated until next year thus the rate of burn in Q1 is not likely to continue.

Once the annual costs have been stripped out, the cost of operations remains fairly similar to recent quarters.

Funding

The outlay of cash in this quarter really highlights the concerns regarding whether company is adequately funded to continue its operations.

With just over $900k on the balance sheet, it looks certain they are going to have to take up EGP Capital’s debt facility - $1.5m @ 7% p.a.

Spectur are also incurring a 3% fee for the facility to simply be available, so it is already costing shareholders a dime to have access to this cash.

Safe to say, I think it’s likely that the company will need to raise capital again.

Valuation

I think reality really does bite with SP3.

Given the uncertainty around cash flows, funding, equity on issue and sustainability it makes for one rough and therefore possibly pointless exercise in trying to derive what the intrinsic value for the company is.

Gun to my head:

If by FY23, the company issues a further 15 million shares @ 10 cents to raise $1.5M to secure the balance sheet. (Or keep the lights on).

The options totalling circa 6m are also exercised raising the share count to total 127m.

Hypothetically speaking, the company will generate sustainability in cash flows that normalise at $1.5m p.a (Conservative talk).

Given an 18x MC-to-free cash flow multiple, the company has a $27m mc and a share price of 21 cents.

Discounted back to PV @ 10% p.a gives fair value of 17 cents.