Re-posting after checking numbers. Cost of finance was under by a factor of three. But still a small impact in the bigger picture.
We know that opex is essentially fixed at USD424k per month. Using an exchange rate of (say) 0.67, this is A$633k per month. Being conservative and adding a provision for a couple of more heads, perhaps A$650k a month is a reasonable hurdle for opex break even. Gross margins have been consistently at 35-36%, and if we assume, as a minimum, that these are maintained....opex break even (at 35% GP) is A$1.86m per month. Or A$5.6m per quarter. Or A$11.2m per half year. Or A$22.4m.
Of course opex break even is nice, but it is not sufficient as we have the cost of debt to cover as well. I'll come back to that below, as the modelling unknown is how much of the ZCS will be drawn down over the course of the year.
Which will probably be a function of revenue (and associated COGS to be paid for on NetZero). As documented in earlier posts, my model assumes a monthly profile within a reporting quarter of 30/30/40...and a quarterly profile within a calendar year of 15/20/25/40. If this holds true, then 2020 revenue on the basis of A$1.55m January revenues, could be A$34.4m. (ie. 1.55/0.3/0.15). Lets just round that down to A$34m in potential 2020 calendar year revenue.
Which means a COGS of approx A$22m (based on GP of approx 35%).
In an earlier post I illustrated how the cost of carrying A$100k of ZCS debt (issued) was a little under A$1k per month, or a little under A$4k for a max 4 month working capital carry cycle. So, a A$100k drawdown can pay for A$300k of COGS over a year (ie 3 lots of 4 month cycles), which at 35% GP, accounts for approx A$460k of revenue.
Working backwards, from the 2020 projection further above...A$34m in calendar year revenues...if totally funded on Net Zero (which is highly implausible, but also highly conservative), would require approx A$7.4m in NetZero funds applied, and carried for a full year to cover three turns of the working capital cycle. The cost of which would be approx a little under A$900k for the year. Or A$75k per month. (I know this is a simplistic assumption...but it works for a high level model with a conservative bias).
So let me add that A$75k to the opex costs above of A$650k, and that gives us a break even target of A$725k per month. At 35%GP...a little under A$2.1m revenue should do the trick. Now the A$34m projection is approx A$2.8m per month. Which delivers approx A$1m per month gross profit. Which should deliver a minimum of A$275k per month of net profit (before taxes and any accounting adjustments).
But we know that seasonality hides that. So January $1.55m in revenue at 36% GP and with no evidence that opex has increased yet...indicates to me that a worst case projection for the calendar year (ifvarious modelling assumption noted above hold true) is a PBT of around A$3.3m. Which implies a forward P/E of under 3.5 x PBT. Clearly market does not hold the same view of my projections. Which is why I believe that this is a bargain at current prices.
The challenge is for monthly data to vindicate the assumptions. And for my (admittedly uncertain) assumptions on how ZCS would impact to be validated. Let's see.
All IMO and GLTA.
Expand
