At face value I don't think a 14 - 15x multiple is cheap - interest rates are rising and there are serious macro-economic headwinds facing every part of the global economy.
In situations like these most managers will indiscriminately allocate to quality & value stocks, and micro-caps underperform. If i was just screening companies on a multiples basis a 14-15x wouldn't get me interested or excited for a small cap, growth oriented stock focused on highly discretionary consumer spending.
They have been hit on the cost side (labour & supplies) along with most businesses. On the revenue side it remains to be seen how much in price increases can be passed on to customers, and how resilient volumes will be in a prolonged downturn. The downside for this business does seem pretty poor, what does the multiple begin to look like if you assume volumes fall 20% or more, and costs continue to increase at 5%+ in the next 12 months.
The flip side is that since IPO we are yet to see a full trading period that hasn't been impacted by COVID shutdowns so its hard to know exactly what the normalised run-rate should be now including their recent acquisitions. Commentary in recent announcements has been positive and Adj. EBITDA seemed to be trending well north of FY22, and OCF conversion seems pretty strong. On balance I don't think this is severely underpriced at all, the market has priced it conservatively, albeit appropriately given the environment. If they come out with a strong half yearly which seems likely then price may bounce quickly but the macro outlook is certainly weighing on this.
SLA Price at posting:
$1.85 Sentiment: Buy Disclosure: Held
