I've only recently returned from some travelling, so I'm late to review the Stealth FY25 results. Overall I thought the results were pretty solid. Once again almost every metric improved, with Stealth now solidly profitable despite a challenging economy. The one clear disappointment, already highlighted by @mikebrisy, @Tom73 and @Strawman, is weak organic growth.

Here are the notes I made while listening to Mike's presentation and trawling through the results. Feel free to skip these if you're not interested in the detail, I'm mostly recording them here for future reference. I'll separately revise my valuation for Stealth - spoiler, it is essentially unchanged.

Notes from FY25 results:

• Results presented by CEO Mike Arnold who spoke comfortably, positively and knowledgeably. Overall, I thought the results were solid. Again, almost every metric is steadily improving.
• Continues to promote FY28 target of $300m in sales, 8%+ EBITDA, 5%+ NPAT
• Mike: “FY25 results aligned to FY28 plan”; that's hard to reconcile that given it involves doubling revenue in 3 years; $300m will require 27% CAGR from FY25 sales
• Mike mentioned that the many acquisitions over the life of Stealth have add significant shareholder value through scale benefits, operating leverage, cost synergies, Force gave HK/China relationships and opportunities (products, distribution networks); curiously though there was no mention of future growth through acquisition, with the graph showing the bridge between current revenue and $300m primarily based on existing strategic initiatives
• Exclusive/private label already 16% of sales (FY28 original target was 10%); EBITDA margin ahead of plan
• The presentation focused on sales of $145m rather than revenue of $142m, which felt a tad misleading, and unnecessary given the difference is small; it suggests Mike is sensitive to revenue not being as high as he'd hoped; thankfully no normalised or underlying figures reported
• Doubled the number of shareholders over last couple of years, and looking to double again over roughly next 12 months, although I’m not sure how that will happen or why this warrants attention
• Revenue ($145m sales, $142m revenue), EBITDA (7%), NPAT ($3.1m, 2.2%), EPS (2.6c), net debt ($6.8m), cash ($14.4m), dividend (1c per share, up from 0.84c, 42% of earnings), all up
• Last year gave up $11m revenue from closure of underperforming areas of the business
• Capex FY24 1.5m, FY25 4.8, will return to <1>
• Blamed drop in cashflow from operations (7.8 to 6.7) on 2.7m of cash received on 1 and 2 Jul; bit weak given delays can be expected as BAU; but the delayed cash should boost H1FY26 cashflow - we’ll see if that occurs
• Free cashflow dropped 4.7m to 0.1m; biggest impact was increase in capex (see above) which Mike said would return to normal (ie reduce by ~3m) in FY26
• Industrial division grew 3% from 101 to 104m, excluding FY24 11m in sales that were discontinued (reduction from 9 to 7 company owned stores, 53 to 36 trade partner stores, 6 to 0 onsite customer stores)
• Doesn’t line up with “run rate of $159m” (incl Force) reported at FY24 AGM
• Below the 9% like-for-like growth reported in H1FY25
• Doesn’t hit guides of 10% and “double digit” organic growth given in FY24
• Mike tried to explain the low organic growth with “Our competitors had sales downgrades” which is accurate, eg Wesfarmers Industrial and Safety reported a revenue decline of 1% to $2.0b, EBITDA decline of 2% to $191m (9.6%), estimated (by ChatGPT) NPAT of $76m (3.8%)
• Consumer products sales $41.4m; FY24 Force revenue was reported as $44m at time of acquisition, so there’s a drop in revenue in this division
• There is a lot changing in the drive to hit the $300m goal
• New digital channels, 3 new online shops with JB Hifi marketplace, Woolworths marketplace and own United Supply Co platform
• Loyalty program, has started in 22 stores, with Heatleys to be added Oct
• Tool hire starting 1 Oct
• Private label products in both industrial and consumer segments
• Exclusive distribution agreements
• Mike’s strategic plan “sounds” good, we’ll see how it plays out

FY25 Results Presentation (3/9/25)

It was a long presentation and deck, but Mike powered through it like a Panzer Division through Poland, focusing on the underlying strategic objectives of the business which remains consistent. The path is not a straight line to FY28 he noted, so he dismissed any interim guidance and flagged track record for credibility. Points I noted:

·        FY25 Capex of 3.3% of sales is more than double the expected amount going forward.

·        ROI rather than top line growth for the sake of it remains the north star

·        FY28 targets are on track, several already achieved but are remaining as is and of the current initiatives no one in particular is critical to reaching the sales target.

·        Mike was more candid on slipping timelines (see slide 32) for growth initiatives, talking directly to the drop shipping strategy in particular which has been a pain point for investors.

·        A lot of questions at the end which emphasis’s Mikes point investor numbers have doubled and liquidity has improved significantly over the past year.

·        Mike flagged the $2.7m of receipts landed in the first week of July that were expected in the year that explains the YoY operating CF variances and was generally very positive about debt and cash management. Slide 50 is a very good view of capital management, the capital raise effectively covered Growth Enabled Initiative capex and repayment of borrowings.

·        Mike continues to be very business finance metric focused, ratio’s and % compared to industry norms, rationalising expenses out of the business (doesn’t believe in redundancy… and someone leaving is an opportunity to rearrange work rather than hire a replacement).

·        Sounds like the change in CFO’s was to Mikes satisfaction.

·        The trade war between China and the US is now playing in SGI’s favour as Chinees vendors are more willing to reduce prices and shipping costs are down. Freight costs was a point in the slide deck explaining reduced GP%. 

·        Mike focused on GP% improvements expected going forward from the new range and business lines. A question asked about the GP% for the lease business, which Mike said was going to be 85%.

·        Inventory to sales ratio control was seen as “critical”, cash conversion of sales a focus.

·        Mike wants us to use the DRP, flagging how well those who took up the DRP at 22c last year have done.

Mike founded the business and runs it like it’s his own and for the long term. Profit is important but so is growth, but only growth that adds to profit. We saw some improved transparency on operational outcomes which is good, but need to be mindful that it’s Mike’s business and he will tell us what he wants, but it is clear he is very shareholder aligned.

Disc: I own RL+SM

Force was doing $44m in annual revenue. Stealth did $113m in FY24. It seems like a pretty big miss when the Force acquisition talked about the combined group doing $159m in Fy24, but FY25 has come in at $141m.

Perhaps it explains why they are moving into consumer products.