Noddy74
No worries @Rick
I think the market is reacting to the cashflow in the half. The lack of analyst coverage is reflected in the share registry and thus you have a lot of 'retail investors' who drive the share price. Whenever I tried to point out to HC posters that the December cash balance would be significantly less than the June cash balance, I generally got accused of being a downramper and/or not knowing what I'm talking about (that last one is probably fair tbh). That probably gives you an idea of the level of shareholder sophistication. The cash balance was even lower than I expected to be honest but is explained by the investment in inventory. It would be good to know how much of that inventory relates to the $35m in orders they plan to deliver in FY23/24. I'm sure some is but they haven't explained it as such. Instead they've said it's to mitigate supply chain disruption and enable rapid delivery. Overall I take the inventory build as bullish.
Now the Ukraine order is out of the way I'm expecting a few of things to happen. One is cashflow should now normalise and I'd expect positive flows in 2H. Second is revenue has probably hit a high water mark for a half year for the time being. Their strategy is targeting big military deals and that's great (if it works out) as it will allow for repeats of the growth we've seen in the past 12 months, but is likely to be lumpy. The third is margins are likely to contract. You've got a combination of exceptional margins from the Ukraine deal (now finished) plus the biggest contribution to the 2H result - i.e. drone sales - being a relatively low margin product. But I take the view that as long as you know to expect those things you can profit from them.
Probably the thing that most interested me in the most in the result was the disclosure they're progressing plans to build an XTclave in the "US and other regions in FY24". I don't know exactly how to feel about that. On the one hand the new management said they wouldn't do that unless there was a specific driver for it - the most cited being awarded the US army's next generation combat helmet contract - and so doing so without that is a break in trust. On the other hand you can take the view that they're signalling a deal like that is imminent. Under the previous management I wouldn't trust that the latter was the case and although I have a better opinion of current management, I'm still nervous as they're not cheap to build. If they did win that contract it would be an absolute game changer.
Just on the analyst coverage there's a couple of analyst research notes on the XTEK website. One is Bell Potter and is predictably bullish given they no doubt will be sniffing around for corporate work, and the other is MST Access.
Rick
Thanks @Noddy74. I’m not really a chart person, but looking at the MACD for the day, the blue line is above the red line and it’s heading back towards positive territory. If it crosses the zero line I might add a few more shares. This has nothing to do with valuation of course, and is probably complete BS! Any chartists out there?
Saiton
Ok So You ask for a chartist opinion. There is a lot to discuss and I hope I get it all across clearly. In short I can see why it dropped with some reasonable degree of certainty.
Nothing is for certain however, I trade to probabilites of a direction and there were a lot of signs saying to me to get out.
Ill break it up into 2 sections, the negatives and the positives.
Negatives (Then) (the morning of the 1H Finacials report shown by the candlestick bar in the top right hand side of the 1 Day chart)
The first big point is the fact that it was going for its 3rd attempt to break above the 0.73 to 0.76 zone as shown easily on the 3Day chart.
At the time of the latest attempt the indicators on the 1D were presenting with a divergence of price compared to the stochastic and was also showing a double top in the days leading up to the announcement. Notice the report was released at around 8.30am. So all sat there watching to see if it was going to climb convincinglywith decent volume (the indicator at the bottom of the 1D with blue bars), however the day traded as normal with slightly elevated Volume (no big deal) and closed the day going nowhere. Well that was the confirmation that some big players needed to see if the Retail or other investors would join in to make it go higher on the news however they didnt by the close of day. All 3 time frames were running highish on their Stochastic indicators.
Next morning not only did it go down, it gapped down and the snow ball just built from there( herd mentality). I think there would have been a lot of profits being held to see if it could break the prior tops as shown on the 3 day chart. Once it opened gapping down with some decent vigor then it was all over from there.
I have a rule of 3. If it cant break up or down (depending on its current direction) on it's 3rd attempt, then its going in the opposite direction with gusto before it tries again (effectively resetting the Stocastic indicators for another go at the top).
You'll also notice on the last top on the 1 day chart, the 9D Stochastic had dropped away (showing weakness)
The momentum indicator on the 3D (the second indicator down) shows the momentum getting weaker (noted as 3,1,2 above the momentum line) on each of the past 2 tops and the current one even lower (again weakness)
My Thoughts - I think the mere fact it was trying for a 3rd time to crack the zone to go higher and the day really didn’t show much effort in doing so, explains the bail out the next day. If the bar on the day of the release showed a narrow range bar with lots of volume then the fight was on. Personally I'm surprised they didnt sell out around 3.45pm the day of the report release as they would have known by then. The charts needed to reset which this drastic drop has now faciltated. I can say that if its terrible news or good news, it usually takes off within the first hr of trade. No so in this case.
Positives (Now)
Well now we have the reset we need to push on to higher Highs. As I have circled on the 9D chart, there is good support just below. For this reason, the stock has joined my 1K Club. When Im interested in a stock I place 1K on it which keeps it in my holdings, although way down on priority. Nothing sparks my attentioin like seeing on Commsec a stock being in profit by 12+%. I find just having it in my watchlist with no skin in the game, causes it to fly under the radar and I miss the setups I look for on the charts. I usually take these positions when they have had quiet a large draw down (sometimes warranted though often over exagerated, herd mentallity).
So I'm in with a small token value of my overall portfolio and now watch. It may drop a little further though I highly doubt it will go below the 0.47 to 0.50 range/ support shown on the 9D chart. As @Rick and @Noddy74 have said the company is doing great overall with a question on the cash balance. However do you really feel the cash balance issue warrants that kind of drop on such good figures anyway?
Its also way below an inclining Linear Regression Channel on the 3D day chart. Whats this mean? It shouldnt be there. Its like the 2.0 standard deviation of the Bollinger Bands, Its extreme past 2.0. That means to me it will go back up to stay within the range or close the gap the price has made with the channel OR the price will go sideways for some time until the Channel turns around slowly and comes down to meet it. Again this all comes down to probability or odds and the odds of it dropping much further are slim. So and investment here with good support just under and the 1D on the bottom and the 3D very close to the bottom makes for much better odds it will go up or play around sideways for some time within a range.
Look for the Stochastic and momentum to turn up on the 1D and then becomes even more probable when the 3D Stoch and Momentum turn up also.
Now is the time @Rick & @Noddy74 need to attempt a couple of valuations to see how the company now sits at this price as I rely on their skills here to try complete the picture until I gain more experience on valuing companies myself. Thanks for refering to the Valuation models you use @Rick for certain situations as it allows me to look it up and continue to learn.
One thing I can say for certain is that there is a great deal of herd mentality when it comes to the markets. That can be exploited if done wisely.
Keep up the good ladies and gents
Rick
Thanks @Saiton for your detailed breakdown of the charts. I find this interesting. There is no way I can explain what is happening to Xtek from a fundamental/valuation perspective. Unless there is something Im missing. 0r something a few big investors know that I don’t.
I suspect the price is as you say @Saiton, driven down by herd mentality and panic after the share price started to gape down on day 2. It has had no technical support.
I wish I had your knowledge. It would have saved me some hard cash IRL. I have bought more wisely on SM than IRL and I am down over 10% there. I’m waiting for my last buy on SM (Friday) to go through.
I don’t know if it means anything, but I was going to wait for the 5 day MACD mother line to break through into positive territory to buy again (MACD blue line below). It has attempted this twice and failed. It looks like it is about to break through today for the first time since the announcement. If it does that I’m going to join your $1K club IRL.
Disc: Accumulating IRL and SM
Rick
It looks like the price movement for XTEK has turned negative again, the MACD (5 day chart) has come within a whisker of, but failed to break through into positive territory for a third time. I don’t think I’ll be joining the 1K club today @Saiton! I want to buy more for fundamental reasons but can’t today!
Saiton
Hi Rick
The Charts I use are the 1D, 3D and 9D. Multiples of 3 work the best for me and have so for many years so I cant comment on the 5D. I also notice you are using the 5min chart in you attached pics. Personally I dont go any lower really than the 4hr, maybe down to the 2hr. I only use mins for intra day trading in Forex. I wouldnt look at such small increments for Stock as there is just too much noise / fluctuations in such small time frames. Watching those short charts will keep you on the edge of your seat all day long. No thanks not for me. Need to give things room to move.
Ok an update might be in order for how the charts look today. So the Day went right down and touched that lower figure I mentioned in my last post. Thats a test right there. Often bigger investors will play that trick to see if there is anymore left in the tank before they enter there positions. You see they are in and out regularly and quickly to see how the stock (or other investors out there will react).
I entered @ 0.53. Im not worried even if it goes down 10 20 30 % because its only a token amount for my size of account. Even if it was down 50% I still see it day to day, month to month in my holding. Then all of a sudden I notice its come back and is now at 35%. Then the alarm bells ring and I go hunting to see whats happening. If im happy fundamentally I will then look for the technical setups on the charts that satisfy my rules and enter a much larger positon and ride it up. If there has been no news (so whats changed, stock holders are pre empting a come back or they like the name who knows), then I will decide if im going to ride the wave if it has some momentum to it (a short term position as nothing fundamentally changed). Because the initial investment was so small, the loss is tiny and I can make that back in short order on a 20K or so position. Depoends how I feel about the charts.
For my style of investment, Charts are the first stop. I dont care if the fundamantals are good. The charts are now and fundamantals later (sometimes much later).
Let me ask you, how many times have the books been in good shape and a good report comes in and the stock falls. WHAT WHY? . Who knows. The charts are here and now. Play the charts first and the fundamentals second.
How many times has a stock risen with no news at all. All the time. The charts are showing how people feel right now. Or in my case in the past 4hrs, 1Day, 3Days, and the last 9Days.
I have clawed back my large position on TYR to bring me in with a slight profit using this technique. I made the mistake of taking someones advice and open way to large a position without doing my homework on the charts / fundamentals. I was way down. You'd cringe at the figure. Now nothing changed about the business except they had others sniffing for a take over and that obviously was going to cause a lift in its $. I looked for a spot with good support and took a large position and rode the wave up and got out right on the top. To do that I baby sat the position 3 times a day for couple of months. I have done this with Kogan also. They are righting there ship quickly causing nice jumps. So in In the process of work this one also which will take me a good year to get out of that whole. That one was also sujested by the same person..
Aynway back to the charts now for Xtek. It came back towards the end of the day after bouncing of the support. It may drop again, depends on the day and how the markets is feeling. It had a little jump up of the bottom with excellant volume. That says there all there ready to rip. It doesnt mean it will go straight up though. It may be rocky or slow or come back down to test the 0.47 again. We'll see though at least the the 1D indicators has made a change to the upside. Have a look at the 9D Stoch @ 5.08 compared with yesterdays figure of 37.68. Its taken up a lot of the slack there. mm interesting. Chiken money flow indicator on the 1D (3rd indicator down) has turned up, nice. Lets have a look at the 4hr below.
Well Chalkin Money is up, Momentum has just turned up (green end on it on the 2nd indicator down) and the Stoch is looking, well Stoked. All turning up. Love it.
Can I also say the current $ is way down from the 50 here on the 4hr. Have a look back over a month to see just how far away it gets from the 50 and it will tell you its large. So the price spends its life going above and below backwards and forwards, so when I see a large distance between them well odd's are its going to look to retrace back to it or at least the 15.
Something else I have found is forget taking positions for the long term in a bear market or even when people are feeling edgy. You'll go into profit and it will take it all back again and then some. Thats happened loads to me lately. Im currently in a position on DRO and WBT where im way ahead and cant decide if it will go sideways consolidatiing or drop. See the charts tell me there way ahead of where they should be. Well It could take a big drawdown back to the mean or it could consolidat and wait for the Linear Regression Channel on the 3D to catch up. MMMM.
Long positions are built and left when economic sentiment, business, mums and dads, spending has turned positve. I invest in mood as its mood that drives a stock. If people dont like a product they dont buy it and the company makes no money and the books look terrible. Right. Always try to think like the other investors in the stock you follow and that will answer your questions. Another words, study the charts then the books.
Back to Xtek. If it gets to the 15 and manages to get above, always look for the retrace back to the 15 again to test it and then enter a larger positon when it rises of it. Thats may play. I still dont ignore my holdings. I keep a keen eye every day. Oh and set alerts alerts alerts. Hate to see how many hours I spend doing that.
Please excuse any mistakes, I type slow and I have many other things to do, so just laugh at them
Noddy74
Interesting timing @Minku1973 as I've been working on a write up on them in the last week. The complication with XTEK is the massive and possibly game changing order they received early this year, which was only part completed at year end (it's widely assumed the order was for Ukraine but that hasn't been confirmed). Given the urgency for the order to be delivered, it was made on very favourable terms. This included price and led to a gross margin jump from 27% in 1H to 52% in 2H. It also included payment terms as they received the full amount of the order up front. That up front payment explains the jump in free cash flow but expect that to unwind in FY23 as they pay for the remainder of the order to be completed (my guess is they'll be cash flow negative in FY23 and almost certainly in 1H). There was some horrendous accounting treatment of the unfulfilled portion of that payment in the Annual Report, which was shown as Trade Payables instead of Unearned Income and not even explained in the Notes. I spoke to the CFO about this and the explanation for that was...unsatisfactory.
As you said the company believes it can beat FY22 revenue this year. My view is if they don't, they may as well give up. Fulfilling the remainder of that one order, which they have now done, means they've already booked more than half the total revenue of last year without doing anything else in either their Ballistics division or Technology division. I would be hoping to see something like $45 million in 1H and $25 million in 2H, but it will be a lumpy business so we'll see.
Normally I'd step back from a company like this, realise they've been a serial disappointer for decades and write them off as a business who have received a one-off windfall (possibly on the back of misery of others). But in this case I suspect there is more going on here. They're under completely new management who are showing the early signs of streamlining the business and are well positioned to benefit from a broad tailwind, both in terms of specific global tensions and a broad thematic of governments generally growing the size of their armed forces. What it makes XTEK worth is the really tough question I'm struggling to answer though. Anyway I'll try to finish the write up in the next couple of days.
You may have already seen it but they appeared on Coffee Microcaps a couple of weeks ago, which you can access here - starts at about 1:02:30.
[Bought small parcel of them here yesterday and in RL (at better prices) a couple of weeks ago]
Noddy74
A few new developments for XTEK in recent weeks may point to future positive announcements in 2023. In addition to the recent $26.9m aerial drone deal announcement for the Army Aviation division, Austender data shows an immaterial deal with Diggerworks (Army procurement) for ballistic armour. The details (per below) suggest the deal was in relation to a trial or research of the armour, but at least they're actively looking at it.
In addition, today, they have announced the opening of a sales office and forward supply center in Poland. Clearly they are positioning themselves to be in the best position for follow orders from Ukraine, but also the whole region is talking of the need to increase defence spending generally. A European development was hinted at by the CEO when he spoke to Strawman members on the 10th of November. Half year revenue of $47m and FY revenue of $82m was reiterated, the latter seems conservative given previous releases.
Finally, Bell Potter initiated coverage of XTEK with an initial valuation of 95 cents. That report can be found here. It's fairly detailed and I learnt a couple of things I didn't know. I think their cash forecast of $8.7m as at 30 Jun 23 is a bit pessimistic (it was $36m as at 30 Jun 22). I suspect they've fallen into the trap of plugging in the Jun 2022 balance sheet, which was poorly disclosed, and extrapolating forward without drilling into the detail, but maybe they're right and I'm wrong.
[Held]