Forum Topics Thinking out loud about my observation

As I have been watching the market closely during this reporting season, I wanted to share my perspective for people to comment on and share their thinking. It's clear to me that the current economic environment is going through some tough times, with employee costs and inflation causing a reduction in margins for many companies. But I don't think this is the end of the world for the market, and there are still opportunities to be had.

One of the key characteristics I am looking for in companies right now is pricing power. It's important to invest in companies that can increase their prices without losing a significant amount of customers. Xero and Audinate are two examples of companies that I am aware of which have been able to increase their prices without much churn.

Another essential factor to consider is the company's balance sheet. I am looking for companies that are self-sufficient and capable of taking advantage of the current market conditions with smart management at the helm of things. Objective Corp and Nanosonic are two examples of companies that fit this bill.

Lastly, I think it's important to invest in companies that are being run by management who are aware of the market conditions and can steer the company toward profitability. It's important to avoid investing in companies that are only chasing revenue at any cost. for example, Megaport and Dubber they both are growth companies and had significant fan following last year, both have been increasing their revenue along with expense but Megaport has recently started to put breaks on the spending and started cost-cutting exercise with plan to reach free cash flow stage with existing cash on other hand Dubber has no sign of it and it still lives in la la land. If Megaport achieves what it promises, there will be significant upside from here in my view.

There will be other kinds of companies that will face more effects because of the nature of their business, for example, Symbio - counts US Tech company as its clients and if US Tech company are putting a break on their spending there will be affect on Symbio no doubt as we have seen recently in their guidance downgrade but again Management plays a crucial role here, It would be interesting to see how it pans out.

Regarding the tech sector, I am of the view that it still has significant upside potential. There have been some recent lay-offs by tech giants like Microsoft, Google, and Amazon, but I don't think this is a sign that these companies are in financial difficulty. Rather, they were in a hiring frenzy last year and are now removing higher risk bets and allocating their resources more prudently. I believe these cost-cutting measures will shine through in future reports and that tech giants will maintain their margins and continue to grow.

Overall, I believe that there are still opportunities for investors to find quality companies and make smart investments in the current market conditions. It's important to do your due diligence and look for companies that have strong fundamentals and can weather the current economic environment.


@Valueinvestor0909 i think your observations are quite correct, i have been thinking much the same. idk if the companies you mentioned are what i would use as specific examples, but that is what makes a market. i did note two of my large holdings REA and CAR were both pulling the price lever in the last result, protecting margins because they can.


a month ago

@Valueinvestor0909 I have also been thinking along similar lines. In assessing my watchlist (which contains many of the cash incinerators I fortunately exited in mid-21), I have been keeping an eye out for those firms which have started to manage costs while still maintaining strong revenue growth.

$VHT: I have recently on SM and RL re-initiated a small position in $VHT. Having exited in 2021, as commented here by others, the new CEO has taken action on costs and energised S&M activity to focus on larger and more profitable accounts. While the last Q was a standout with strong growth in receipts that will not be repeated this Q, benefits of the headcount cull showing through, and a handy government contribution, overall free cash flow turned positive for the first time, but importantly, the delta from the previous Q was significantly material to signal the ship has been turned. This has been achieved while organic growth in TTM y-o-y cash receipts for the last 4 Qs has been 45%, 45%, 37% and 41%, with a suite of new contracts annouced in January. With costs now under control, if revenue/receipts growth can be maintained at 25-40%, this starts to look like an interesting proposition again.

$MP1: I am looking closely at $MP1 again (like you). Again, costs are starting to be managed well and growth in revenue and receipts is still holding up. In this case some of the volumetric KPIs indicate a slowing growth, but it appears that existing customers are growing their use and the partner channel is still in the early days of ramping up. Important, a major capex program is coming to an end. Again, having been on the sidelines from $MP1 for a couple of years, I have taken a small position in RL, and will align SM today. $MP1 are still burning cash, and may well need another capital raise in the next 12-15m, but as my standard CF chart shows, the trend in OpCF and FinCF is up. (Note: they recently changed their treatment of lease payments in the 4C, so you have to take out lease payments from OpCF, otherwise it makes the trend look better than it really is.)

Again, the key is strong revenue/receipts growth AND cost control. In the case of $MP1 that last 4 quarterly y-o-y revenue growth rates have been 42%, 35%, 37%, 39%, which is actually very consistent running further back. A question for $MP1 is with companies being more cautious in their spending, will we see macro-headwinds over the coming periods?

Note that the trend lines in the graph beloware for the last 8 x Qs only.

Just to re-iterate, it is early days for both $VHT and $MP1. Neither is "cheap" at the moment at 6x and 7x revenue multiples, repsectively. However, if the trends continue, I'll add more, if not, my exposure is minimal.

Given some of the relative disappointments in my speculative portfolio over the last year (e.g. $3DP (held), $ALC(held), and $EVS (exited)), I felt that $MP1 and $VHT are starting to earn their seats back at the table - and it is strong revenue growth with cost control that has got them there.



a month ago

Nice one @mikebrisy. I hold some $VHT, and $MP1 has been on my watchlist for what seems like an eternity. Still cautious of companies like this against a challenging macro-backdrop, given their still rich valuations and their non-existent track record in achieving sustainable profitability.