I think I largely feel similar @Chagsy
Listening to Scott the other day a few words came to mind. Marbles, mouth, underwater were three. He didn’t ever use 10 words where 100 would suffice and that type of salesy patter doesn’t really float my boat. Although he gave the full spiel there wasn’t a lot I haven’t heard him say before. On the other hand, I try not to bias against a company where a CEO is excessively understated either. I’m not always successful at tuning out how something is said and focusing on what is said (and more importantly what is done) but I try.
This current management team and board don’t have a lot of history to judge them on but what history there is shows…at least to me…a lot of considered, professional and measured delivery. Also combined with a fair bit of luck – the Ukraine War and the resulting deal they got was a triple Bar jackpot for them commercially. The difficult bit is figuring out how much is luck and how much is competence, but I’m a big believer the more you practice, the luckier you get – so I’m willing to give the benefit of the doubt until they stuff up.
The other thing I’d note is the last mob appear to have been heroically incompetent and yet somehow managed to keep the doors open. To give you an idea, in March 2021 the previous management bought a distribution agreement for a COVID screening device. How is that in their circle of competence? They bought the inventory from a UK startup even though it didn’t have TGA approval! That decision ended up leading to a $2.5m write down in last year’s accounts. Seriously.
I think the questions you identify are all fair. In terms of remuneration the Annual Report disclosures are a bare minimum but the remuneration table does suggest the payments are not excessive, relative to other companies I look at. But I fully agree their disclosures are inadequate – there isn’t enough information to make an informed judgement. Scott’s answer re: incentives was fine, but general. I would of loved for him to say “…as an example, my STIP is based off X, Y and Z and my LTIP is based on A”.
I was pretty specific in my question about acquisitions (i.e. access to markets/product/IP/just cos we can), not because I wanted to hear a specific answer (although ‘just cos we can’ wouldn’t be my favourite) but because I wanted to know they were very clear with what they needed. As you say his answer was rambly and I didn’t really get any more clarity from it.
Something to be aware of here is that the strategy under Scott has been to pivot more towards big defence contracts than ever. For obvious reasons DoDs will prefer to deal with domestic companies, or at least those with a domestic presence. The most lucrative countries (or blocs) may insist that manufacturing is done domestically. That’s partly the reason I asked about the cost of setting up a new XTClave – I’ve heard Scott say if they were to, for instance, win the Next Generation Helmet contract for the US Army, that would be the catalyst to make that investment. In my mind that’s good capital allocation and contrasts with the last mob who were already talking about building a second plant before they’d gotten the first to work.
One tidbit Scott did disclose in the meeting was the board would be announcing a European expansion at the AGM in a couple of weeks. That could be anything from a sales office to a full blown greenfield build but it signals where they see demand coming from…for obvious reasons I guess.
Competition is a tough one. Briefly on the Technology division, their moat isn’t technology ironically enough. They’re largely a reseller in the hardware space, which is highly fragmented and competitive, and although they’ve got their own software, there is no shortage of undergraduate IT projects that seek to write mapping programs for UGVs. What they do have are the existing relationships and history of delivering with Australian Defence, and although that is a significant moat it isn’t very scalable.
In terms of Ballistics, I’ve spent some time down that rabbit hole and one thing I can say is if I ever watch another YouTube video of hillbillies firing at armour in rural USA, it will be too soon. Although I learnt a lot, I couldn’t tell you with any degree of confidence that they’ve got some game changer that no one else can match. There are a lot of factors that go into it beyond just whether they can stop a bullet. There’s weight, comfort, how many of those bullets they can stop before they fail, price, how they perform in different climates, how well they accommodate different comms, goggles etc etc. The balance between those different factors change from one customer to another and so it’s really hard to be definitive.
I suspect the reality is somewhere between Scott’s reality and a no-moat completely generic offering. For instance, Diamond Age is a US supplier that claims to have a rifle resistant helmet at a similar weight to what Scott said. They disclose an independent test that looks good but it only includes testing from a single round, whereas the standard seems to be four rounds of different calibres. Who knows, I don’t, and there’s only so many Guns & Ammo articles one can read.
You’re right to call it out as first order thinking, but without first order thinking I’m not sure how much thinking I’d do!
As it stands it’s a 2% allocation in my real life portfolio and that reflects similar questions I have to you. Given the valuation, it’s a bet that heads I win big, tails I don’t lose too much. If they keep delivering – as I hope they will – I’d be happy to average up, if not it’s not going to kill me (unlike @Strawman 's scones by the sound of it).