Support Levels, page-15

Hi JCoure

I would see anything less than 20% sales growth as a 'lose' situation.

The AUD/USD exchange rate has has improved from an AUD reporting perspective. The average exchange rate for 6 months ended 31-Dec-13 was 95.33c, compared to the average AUD/USD rate of 92.41c for the 6 months ended 31-Dec-14. Sales should increase on currency movements alone.

At a 20% p/a compounded sales growth, my modelling spits out a -9% p/a return based on my 78c buy price and the following assumptions:
- 65% gross profit margin
- 7% annual increase in overheads
- Tax rate of 30% from year 1
- Trading on a p/e multiple of 22x in year 5.

This is my bear case scenario and the assumptions could obviously be tweaked. For example, I were to assume:
- 70% GP margin
- 5% annual increase in overheads.
- 0% tax rate (carry forward losses utilised)
- Trading on a multiple of 25x in year 5.
My return would be an estimated 5.86% p/a over the 5 years. Still hardly impressive and if you bought at the current price that return drop into the the negative again to -3.35%.

Note: The above return doesn't account for possible dividends or cash held, but arguably a p/e of 25 would account for some cash on hand.

If I assume a 30% sales growth (ie: FY19 sales of ~$80m), using the above two scenarios my forecast return increases to 13.37% pa and 30.70% pa respectively based on my 78c purchase price, or 3.5% and 19.32% p/a on todays price of $1.23.

$80m would represent only 27% of their potential market ($300m as stated by NAN), so there is potential to extrapolate those numbers out further. In the interests of conservativeness I'll stick to $80m and 5 years.

Regards
Gralynchett