For a stock that could hardly be described as ‘loved’ two weeks...

For a stock that could hardly be described as ‘loved’ two weeks ago, HC commentary over the past week carries expectations which IMO are becoming unrealistic. Yes, the market is forward looking blah, blah, blah, but within two weeks the Company will release financials for FY2020, which on a stand-alone basis will hardly inspire. 70% of the year reflecting usual cash burn diluted with 30% of lower cash outflows, but supported by COVID-19 measures. No question, Revenue has been impacted by COVID-19. Worth remembering that Revenue is derived via credits usage, not credit sales.

So, whilst 4c’s and accompanying narrative have remained respectable (cash inflows), building conviction based on these invariably leads to disappointment when we get to see the income statement. Analysis of the income statement in combination with the balance sheet (credits sold not used) rebuilds conviction, but I would suggest the greater market misses this detail.

All said, I remain high conviction on Xref, but my timeline on returns is far longer than some are indicating. Cohort analysis (trend) is very encouraging, the HR Block news this week is exciting and the return to higher credit usage in a post COVID environment enhances the proposition. The financial picture will only really improve with the HY financials in Feb 2021. The Company could improve market confidence via the narrative, but demonstrating operational leverage will only come with the numbers.

My two cents worth, and in this instance, I would be delighted to be proven wrong.

Rokewa