WFL (ASX) Valuation of Export Corporation (Aust) Pty Limited

Originally posted by Pman: ↑

Hi B

US/AUD has fallen 4% over the qtr alone.
Looking at the data itself there is a drop in sales which is concerning. would like to understand why?

Margin should pick up as the AUD/USD recovers.
Seems we are paying overs on the deal

What are we buying
23 million in stock which is cashflow in the future so no issue as long as the stock is not old
23 million of Director loans which have no due date (this is a problem for me) as we we are paying for this rather than netting off the sale price and less dilution. I think every one should question this.

Danny took over 10m out of the business as a loan between the year. Not a good look as a director. And not obvious in the cashflow, wonder if it went through as employee costs in operating????

WA has a tax receivable ie pays no tax???? if profitable we will be able to offset tax losses in the future I would suspect
10 million or so in cash and other debtors again could have come off the price less dilution.

The end goal here is marginalization of current holders for the mates/directors to get a big slice of the company with the aim for the final big score in the near future.

Debt facility of 20m will be put in place. That is a shit load of facility.

At least there is a hurdle on the last 10m of shares. They normally do not get hit.

PS got to be the laziest proforma I have ever seen. Could have tried.

End of the day, it seems this is a cashflow positive business which takes pressure off.

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Pretty much agree with most of this.

You say it is cash flow positive, but the Accounts Payable has increased $4.7m (+131%) in the six months to December 2018. Their Net Cash from Operating Activities was only $1.7m for the period. So there is a big question mark on this. There is a very real chance that they may not really be cash flow positive in the future. It appears that Nutrition Systems is a distributor only and not a producer of any product it sells. The margins not great, with COS at almost 80%. The OBJ Highlight statement that this is a "highly profitable" distributor is a statement that I cannot agree with.

The loans to the Director is definitely something that needs more information. The company appeared to have a very healthy cash balance. Instead of paying a dividend and getting the cash out, the cash has been transferred out as a loan. There are a heap of tax rules around all of this, but it is something that stands out as a huge query.

The accounts of the Nutrition Systems companies are a bit of a mess and should have been all cleaned up (ie. no Loans to Directors, etc) if they thought they were going public. A consolidated set of accounts for the group for the year ended 30 June 2019 is needed so a true financial position can be viewed. This really should be demanded before the AGM. Also, there is no visibility as to the likely collection of Trade Debtors.

Note that there are also fees payable of 5% and 1.75% for this all successfully going through.

Inventory is another question. Is this inventory all saleable? It shows inventory levels are about 40% of the annual sales. So, they have almost 5 months worth of inventory on hand and it has increased 25% in the six months since 30 June 2018, even though revenue has gone down by -16% when compared to the previous December half. (this is just in the main Australian company, NZ is different and possibly worse.)

The acquisition includes a $12m building. This is not great either, in my view. It is owned by "an entity associated with Export Corporation". My guess it is owned by Mr Pavlovich's Superfund, but it definitely is owned by Mr Pavlovich in some way. Why does OBJ want this? It is just a $12m investment (that needs to be financed with equity, so reducing the current OBJ shareholder value) that has nothing to add value to the business. A waste of capital, in my view.

Again, up to date accounts are very important here. OBJ will change its' name to Wellfully and its' business will be a Nutritional Supplements Distributor - a far cry from OBJ technologies.