8common Limited

ASX:8CO

8common Limited

ASX:8CO
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$0.030 (-6.3%)
Last close price
#40
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51
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Reports (7) My Report Forum Investors
Forum Topics 8CO 8CO Cash Position

Pinned straw:
JPPicard
Added 8 months ago

Strong Year for 8 Common: A Closer Look at Their Financial Position

It's evident that 8 Common has had a strong year. This is now ‘common’ information.

Their ability to execute on closed contracts is commendable and instills confidence in their prospects for the upcoming year.

However, while the overall outlook appears positive, I maintain a sense of prudence with these guys. Specifically looking at cash reserves. 

It's worth noting their significant improvement in cash management and their efforts to reassure investors with statements like:

"With a growing user base and heightened activity, alongside reduced development and implementation costs related to the GovERP technology startup, our company anticipates moving towards positive cash flow in FY24. With over $1.8 million in cash on hand, we remain fully equipped to drive this growth."

Yet, I’m still not 100% sold on the ‘fully equipped’ dream. 

Why? 2 things:

  1. What transpired in Q4 cannot be simply annualised; government customers tend to pay predominantly in the fourth quarter. Hence, it's plausible to anticipate more quarters with cash burn, and it wouldn't be unreasonable for them to consider raising funds once again to ensure a more secure path towards sustainable cash flow.
  2. They’ve done it in the past. 


Holders, am I missing anything? Who’s got a differing opinions on this matter? 
Hackofalltrades
8 months ago

Thanks for mentioning this JPPicard.


I was also wondering about this. It wouldn't surprise me if they do a cap raise. I hope they don't do a substantial raise at these prices.

9
Slideup
8 months ago

@JPPicard, I think the chance of a cap raise is actually very low and would for ne be a thesis breaker against trust in management. Management have repeatedly affirmed over the last 12 months(?) that they have enough cash to get them through to positive FCF and profitability. The only justification for a cap raise would be afor an aquisition but I don't see this as very likely, as I can't see ajustification to grow inorganically given their niche. While they have raised capital when required in the past I can't remember a time when they have been as adamant as not needing it as they currently are. For now I am taking them at face value.

I think the FCF trend will axcellerate over the next year as more of the Federal goverment workers go live and start to contribute to the ARR at $45-55. In the time between these going live we also get the steady stream of implementation revenue, which is really what made Q4 such a highpoint. So going forward I am expecting positive FCF transitoning to profitability towards end FY2024.

From where we are now if they have a large negative cash flow quarter, or fail to maintain positive growing FCF trend then I would become concerned start to reassess, but for now I am comfortable taking management at face value as they have largely delivered against what they said they would do.

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mikebrisy
8 months ago

@JPPicard $1.8m isn’t a large margin, so I don’t think you are missing anything, as such.

But have a look at the cash burn trend charts I posted in my last 4C straw. The FCF TTM curve is on a clear upward trend. The last 12m burn was $1.6m which was a progressive, quarter by quarter improvement from about $3.6m (the peak) at Q4 FY22.

Over that period, investment spend has ramped down, new customers have gone live, and ARPU has increased. If these trends continue, then the rate of burn should continue to decrease, and we could soon be in cash generative territory.

So, it is in the balance, and all I would say is that the recent trend is our friend.

My thesis rests on this trend continuing as this is not a stock I am prepared to hold if it can’t blast through the inflection point. I’ll cut it one or two Qs of slack. My rationale is that $8CO is interesting if it can be a small, profitable business. The payments field is too competitive if it has to take an age to scale to achieve profitability.

Disc. held in RL and SM.

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