Technicals, page-55

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throwerw

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29/04/19

20:14

Post #: 38313205
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Originally posted by throwerw: ↑

Yes what will ultimately matter more is gross profit per kilo. I suspect that the gross profit per kilo is roughly the same for powder as it is for the dispersion, my logic being that it is the powder that is proprietary and thus where they make their margins.

We've heard from @vestro that the precursor input cost is about $4 per kilo. They are using existing floorspace and labor for the new capacity, so I dont think we should expect too much of an increase in fixed costs. This time around, no price decrease necessary as the capacity is already booked. No significant marketing or distribution costs.

Let's say they earn $20 of gross profit per kilo for the new capacity and the fixed cost structure remains the same. They will add $15m of annual gross profit ($20*1000*750) which would drop straight down to operating income. In Q3 we think they did $1.8m of operating income or $7.2m annually. So that would be how you triple the earnings run rate. I just pulled that $20 out of the air, but I think thats the minimum. Trailing gross margins are 55%. I think there are a lot of relatively fixed costs in cost of goods sold, like factory rent and labor, and incremental gross margins this time around could be 80-90%.

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And I should add that I am assuming that whenever management talks about capacity, they are referring only to powder capacity. Otherwise they would really be playing games with us.

ANO Price at posting: $4.64 Sentiment: Buy Disclosure: Held
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Technicals, page-55

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Technicals, page-55

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