OAK (ASX) XPE long Term Holders

Originally posted by elphamale ↑

Good morning all,

Have not posted here in a while so apologies for the length and depth of this post. In the last week and a half I’ve been getting up to speed and gathering my thoughts following a 'digital free' break in the tropics (on mission to help protect some endangered wildlife from deforestation). The timing of my break was a little unfortunate in the sense that I arrived home after the volume led crash from 6 cents to just under 3 cents (when more than half of XPE's on market value was wiped in the space of a few days).

My first reaction was that wow…there must have been some extremely bad news that I had missed during the course of my absence. However when I searched through the few announcements expecting to find a headline along the likes of 'Intel collaboration terminated' or 'Telink enters into administration', there was nothing to be found. So it made me think… was I actually back at home….or did the aircraft I was on mysteriously enter into a twilight zone that bared little resemblance to my previous reality?

To answer that question I decided to double check my computer files and low and behold I was able to locate the below wheel and spoke diagram and thus my reality did indeed still exist....phew!!

View attachment 245154

BUT...due to the massive takedown (who we now know was cleverly orchestrated by Open Markets and UBS or at least clients thereof) I was convinced that something must have broken on the FA side of the equation to compliment the broken TA (charts) and so I began searching for broken spokes in the above diagram.

I thought that if several spokes had broken then the above wheel might better resemble a square or block (an extremely difficult object to roll or create momentum with) and thus that might be a good enough reason for me to sell some or all of my investment while were/are hovering near a four month low. However as I was unable to find any broken spokes, an easy decision was made to not only continue to hold (despite warnings from our resident lunatics that the ship was/is sinking) but to add to my holdings.

However even in the absence of confirmed damage to the FA, I will say that at the time I was annoyed that management let things slide (while I was away) to the point where major damage has now obviously been done to both sentiment and the price perception of this great little company. And unless a game-changing announcement is forthcoming in the very near term (very possible I might add) sentiment and perception will take time to recover to where it was earlier in the year.

It is worth noting that TMT analytics (whilst maintaining their 24c target) recently confirmed what many of us were thinking i.e. that Lisa Zhang's departure was poorly communicated. But it was also the general sense of an apparent withdrawal from communicating with the market more regularly and willingly that had me concerned the most. After all there are more than enough irons in the fire to maintain consistent news flow, just like we witnessed in April and May when sentiment was at an all-time high.

But since the board changes were announced in early July, it became obvious that the news flow had dried up somewhat (at least until very recently).

So now that the company has taken steps to inform the market regarding a number of issues (albeit there a still a few obvious questions that need to be answered - the status of our MOU's would be a good start) hopefully the new performance incentives that have been put in place will ensure that the company maintains an acceptable frequency of news flow given the many potential sources of revenue and other developments that we can look forward to.

Speaking of revenue, I was glad to see that the company has finally provided some financial insight into JCT's past performance. We now know that JCT's revenue for FY 2014/15 was approx. $1.5 million. I am also led to believe that JCT’s revenue is fairly consistent on a per period basis and thus I think we could expect revenue for this quarter to be roughly in line with last year’s annualised approximation i.e. $1.5m / 4 quarters = approx. $375,000 per quarter.

Why the JCT revenue announcement caught my attention

The confirmation of revenue announcement is significant for a couple of reasons.

Firstly the revenue that JCT is currently generating does not include the exponential growth expected to be generated over the coming months from new channel partners, resellers and the significant boost to working capital to facilitate larger production orders coming out of China.

Secondly the company is letting the market know that Xped is now a revenue generating company and have finally divulged some actual figures as an initial base to grow from. I don’t think that the market has woken up to this ‘lightbulb' moment yet (probably due to all of the other news that it is still digesting) but when it does it will realise that Xped is providing some certainty for investors here. And because Xped is no longer just another speculative local tech stock earning zero (or next to zero) revenue, it’s only a matter of time before a premium is attached or added to its otherwise speculative value.

Furthermore we are told that JCT is well on its way to delivering the targeted $3m revenue this financial year. Using this figure only and applying a revenue multiple of 20, a relative to peer revenue base valuation for Xped (i.e. excluding Telink, Intel and any other progressive but so far incomeless deals) is @$60 million. Thus IMO the market should and I think will eventually add 3 cents per share (approx.) to the otherwise speculative value of XPE.

For example TMT analytics have valued Xped’s semiconductor/ADRC business at 24 cents per share. i.e. they did not take into account the JCT acquisition and the significant opportunities that exist both locally (NDIS) and abroad (aging global population) . Therefore adding $3m revenue p.a. from Xped’s healthcare business (3 cent valuation) implies a combined valuation of 27 cents per share.

Re: the appointment of Martin Despain as MD, the below chart highlights the ‘gaps’ created by the initial Telink announcement and also the initial ex Intel appointment (Lisa Zhang) Note that with the fundamentals looking better than ever, not only are we trading at four month lows but we are also trading at a 3 cent discount to the low that was when Lisa was appointed. I won't comment about whether this latest gap will be filled or not but I will say that the new Managing Director appointment is more significant and important than Lisa’s ‘Executive Director’ appointment and again it is only a matter of time before the market applies a ‘Marty ex Intel’ premium to the current market value.

View attachment 245172

It also seems most of what needed to be said has already been said in relation to musical chairs at board and management level. However I would like to add that I am only here because of John Schultz and Chris Wood (and no-one else) and the revolutionary technology that they invented and still control via their 30% odd stake in the company. Yes folks, rest assured that they are still pulling the strings behind the scenes.

Following this week’s update it is obvious that both John and Chris hold Athan in high regard and IMO Athan has done a solid job to

a) help guide the company through the re-listing process efficiently and in a timely manner

b) help diversify the business via the acquisition of JCT and

c) provide the company with first class leadership via the appointment of Martin Despain.

Therefore it might be beneficial for holders to re-consider their pre-conceived negative opinions of Athan. IMO John and Chris would have sent him packing if he was not performing or behaving to the best of his duties. Also now that we have an incredibly experienced, tech savvy and highly regarded Managing Director on board, the argument that Athan may not be suited to the traditional CEO tech company role is a moot point.

Also I am happy that John and Chris agreed to transfer their performance shares as per the following.

View attachment 245190

As you can see the MC targets have been significantly raised. And although I would have preferred higher performance targets (as three out of the four conditions were reached earlier this year) John and Chris have done the right thing by at least incentivising both leaders and new advisors to ensure that everyone is working together to recover the SP from the current low. After all they could have pocketed these shares without any fanfare but instead they relinquished their shares to fix an 'on market' problem.

Back to some further TA, the weekly chart below shows an extremely oversold position with a possible turnaround underway to compliment the improved FA (Martin's appointment as MD). Note the higher lows in the past two weeks and a higher high posted this week. However I would like to see us back in the 4s by the end of today, which would in effect create a lower wick (shadow) on the current weekly candlestick to verify the strong support that exists in the high 3s (and currently preventing the gap from being filled).

View attachment 245241

Here's an updated snapshot versus two of our closest peers. Note the Enterprise Value for each company. We are valued less than BRN and amazingly less than one third of RAP who btw still have no revenue to speak of.

View attachment 245292

Finally there have been some brilliant factual posts from the likes of Vintage, Londoner, Purple Turtle, The Equaliser, Northern munky, Techmeister and many others who have put things into perspective in recent weeks, so thankyou to those people.

And to those one or two line keyboard warriors who continue to frequently scaremonger with headlines like 'Google to dominate IOT space', please stop as you only make yourselves you look even more foolish than what you have publicly demonstrated to this group so far.
View attachment 245211

GLTA and please DYOR.

Cheers
Elpha

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Great post @elphamale! Thanks for your time and energy in writing this up

(20min delay)
Last 6.7¢		Change 0.000(0.00%)		Mkt cap ! $1.808M

Open	High	Low	Value	Volume
0.0¢	0.0¢	0.0¢	$0	0

No.	Vol.	Price($)
3	380	0.067
1	34272	0.062
1	20100	0.061
1	82000	0.060
1	55000	0.053

Price($)	Vol.	No.
0.099	65728	1
0.105	1524	1
0.175	22450	1
0.180	30000	1
0.190	29137	1

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