Pinned straw:
Interesting reading @edgescape - always good to see these fundies pumping their own books. In terms of the EGL recommendation - it was from Naomi St John (pictured below), an equity research analyst at broker Taylor Collison with a rare specialty in microcaps, who says the lack of coverage with microcaps is a feature, not a bug.
“For those able to dedicate the time to understanding the story, lack of analyst attention creates opportunity,” St John says.
“An extensively covered stock is often accompanied by considerable noise, which can make it hard to distil the core drivers of the stock.”
It’s important to note, though, that thin coverage can also mean greater volatility. The phenomenon known as pumping and dumping – the co-ordinated inflation of a share price with hype before a sell-off en masse to exploit late buyers – is much more common in microcaps than in bigger companies.
“A company’s update on a contract win or loss may cause over-corrections of price if the importance of the contract is misunderstood by investors,” St John says.
So, keep calm and stay the course with high-conviction picks.
Taylor Collison’s Naomi St John says the lack of attention on microcaps is a feature, not a bug. (Source: AFR)
Bear77's note: I just googled "Has Taylor Collison done capital raisings for The Environmental Group, when?"
Google AI Answer: "Yes, Taylor Collison acted as Joint Lead Manager and Bookrunner for a capital raising for The Environmental Group Limited (EGL) in April 2023 to support its acquisition of Airtight Pty Ltd. The capital raising involved a placement and a share purchase plan (SPP)..."
Ahh yes, after placing a number of their clients into EGL two years ago, it would be remiss of them not to remind the market of the bull case for EGL when given the opportunity.
Discl: Not Holding EGL at this point in time - sold them after their FY25 report last month on concerns which I shared here.
You bet @edgescape -- let me reach out.
I was just having a scroll through their latest deck and this caught my eye:
Quite obviously AI generated examples, which is fine, they are just trying to illustrate their target markets, but a part time teacher on $130k? One that is able, apparently, to enjoy a book and a coffee while her little one quietly sits at his desk.. ha!
And Mitch is able to somehow have investable funds after paying rent/mortgage in Sydney while earning $85k. Only surprised they didnt have him sitting in a porche.
I'm nit picking of course, but boy they're wide of the mark there I reckon.
They do offer Bitcoin (and no "cRyTo") on their platform though, so that's a win! :)
On a more serious tone, while I like the idea of anything that aims to disrupt the dominance of the major brokers, Raiz really has had a tough time reaching breakeven. And it's been a slow grind in winning customers. 5%pa average annual growth here isn't massive, especially given the significant customer acquisition spend (despite a sort of free kick they get with Seven West media being the second largest shareholder and providing advertising credits). Also, shares outstanding have grown ~25% in that time.
They also don’t disclose churn, which is critical for understanding the health of a low-ARPU, high-volume model like this. The unit economics hinge entirely on life time value Vs customer acquisition costs. Historically, CAC has exceeded LTV, which suggests unsustainable growth, although that relationship does seem to be improving in the last year.. Even so, it's not obvious to me that they are on a sustainable footing, especially given they operate in a notoriously cyclical space.
It's something i'd like to dig into if we can get the CEO along.