@jcmleng Just going back over some posts from last week and saw this one from you.

I sold some $CAT on SM only recently, also to free up cash for initiating on $AIM!

In RL, I exited $CAT years ago (May-2021), ahead of the interest rate cycle. I reinitiated in RL this year with purchases on 14-Feb ($1.35), 29-Apr ($1.475) and 13-May ($1.86).

I currently have a RL 3.2% position, and am not adding more at this stage, as I still see it as fairly high risk.

I've noticed the uptrend on SP, and I'll probably put some more effort into valuation should it continue past $2.50, as I don't have a good handle on the risk-reward.

I've haven't sold any this year in RL, and as I have a reasonable cash holding in my fund at the moment, even though it is in the bottom 5 of my "merit order", I don't anticipate having to sell any and will likely update my view at the HY result, later this year.

@jcmleng @Strawman and @mikebrisy I haven't followed Catapult as closely as all of you, so can anyone please help me with what I am missing...

When does this business become financially viable, for the long term?

As a sports lover I see the product everywhere, on top athletes and teams all over the world. These are well funded sports that would be willing to pay up to improve player performance and reduce injuries, so I think CAT should have pricing power. And yet the financials of the business have been terrible from the day they listed. Never made a profit. Doubled the share count since listing, as they have to raise capital to stay solvent. Shareholder equity has declined by $25 million over the past 3 years. They have even started to take on some debt in the last few years.

Sales have grown by 15 times since listing and yet the loss has gone from $4 million to $25 million a year, despite the revenue growth. The tale of the key metrics to date are below -

So, sincerely, given the high regard and respect I have for each of you as investors, what do you expect to see over the next few years?

Way to rain on the parade @Karmast! We long suffering shareholders finally have a good run, and you want to be a wet blanket!? ;)

Ok, fair enough, it's a great question. The short answer is, the original leaders weren't great at capital management and perhaps were a tad too hubristic.

They expanded too far, too soon, into places and products they probably shouldn't have.

So you had a bloated cost base and low return investments which may have helped grow revenues, but ensured the cash only flowed the wrong way.

The board copped a lot for it at the time, and finally resolved to do something about it. A delicate task given the ones who needed replacing were the founders with decent shareholdings..

But they scored a big win (imo) by securing Will Lopes. He has restructured and refocused the business, and brought a sharpe focus to economic rationality. COVID hit right after he started, and that set things back, but I think since then you've started to see genuine progress in reforming the business, while still sustaining strong revenue growth.

If he can keep things on an even keel, I think profits -actual statutory profits - will show up pretty soon. And should grow faster the revenue for a time.

We will see!

Fair enough and I will cross my fingers for all of you! It is obviously a great product so hopefully Will can bring home the bacon and fry it in the pan...

@Karmast I can't really add to @Strawman 's summary of the history. It is one of the businesses where looking at the long term history only tells you that it has taken a long time to get into its stride. And, of course, we can't be certain it has - time will tell. Hence I only hold a small RL position, now grown to 3.4%.

I've been interested in $CAT for a long time because of it's potentially attractive operating economics, and leadership position in its global market segments. And, of course, its one of those businesses with the potential to create further value from all its data.

The question is, can it scale, so that the operating leverage continues the recent trend of starting to show through?

I got back onboard about 9 months ago (after exiting in early 2021) because it's starting to look like the answer could be "yes".

Below, I plot the recent cash flows, which I prefer because the financials look ugly given all the historical investments. They're sunk costs and not of great interest to me. Of course, even the financials are also trending well over the last few years.

If they can maintain a decent slope on the FCF line below, then my thesis remains intact.

(Note: this graph doesn't adjust for dilution; SOI has gone from 193 m end FY21 to 249m end of FY24, so this has to be kept in mind.

I can't say I am high conviction on this one, and if the trend doesn't continue, then I'd probably get out pretty quickly (perhaps one 6m period of grace). To stay in, I need to see sustained revenue growth with good cost control.

So far so good.

Those are very good and valid questions @Karmast.

Agree with @Strawman and @mikebrisy here.

Turning a business around is a bit like trying to turn the Titanic—it takes time before you start seeing results after you change direction. From a cash flow perspective, we’ve started to see those shifts, and I am hopeful the improvements will be visible soon. However, like any major ship, there are still risks involved, and recent price increases have added to that risks. There’s a saying, "turnarounds seldom turn," but when they do, you typically see signs of it beforehand - its a "signal" or "noise" - time will tell..

@mikebrisy Fair enough and yes it's good to see FCF positive last half. I see their FCF was also positive for 18 months in FY20 and FY21 before turning down sharply again for a couple of years. Let's hope this time is different because this doesn't look like a sales/revenue turnaround to me, based on the strong and consistent growth there over the years.

Their high level problem seems to have been that operating expenses increase as fast (or faster) than sales do.

And a very wise and successful old investor once told me a great story once about these kinds of businesses as follows -

"If I sold cars (let's say Ferrari's) and I sold them for $400 000 when they cost me $500 000 to buy from Ferrari, I'd probably be able to sell lot's of them. And I'd probably be able to sell more and more every year. So my sales would keep going up and that story would be a great one to show my investors.

I'd also be bale to point to my great sales growth and what a great job I'm doing growing the company, which is why my investors should pay me a healthy salary/bonus.

The only problem of course is that I'm losing $100 000 for every car I sell, so unless my investors keep tipping more money in, or I keep taking on more debt, sooner or later the game will be up..."

I'm not saying that's the case at CAT because I don't know it properly. And of course many point to Amazon or Xero as examples where they were investing and grabbing share before turning profitable. So it can work. The big difference though at Amazon was there were making money at an operating level and then investing it into new revenue ideas like the Kindle, or Audible, or AWS for example. And Xero built a business that was super sticky with big switching cost/pain for clients, so they could put prices up over time and not lose them to competitors.

I'd hope CAT is like the Xero example however unlike Xero there are probably only so many new athletes and teams they could sign up, so you'll hopefully see the statutory profits show up pretty soon...

Good luck to all those who have had the conviction and patience to see it through.

@Karmast - you are right. This isn't a sales / revenue turnaround story. Over the last 5 years the story is muddy and hard to understand when looking at the top level numbers.

Over the last 5 years since Will Lopes joined, several things have been going on:

• COVID put the brakes on revenue growth for FY21, but we've now seen this return with more stable growth FY23/FY22 and FY24/23
• During FY20 and FY21, COVID payments, and cut backs in investment in the platform, and working captial effects contributed to "premature" postive FCF
• Will Lopes has progressively steered the ship as indicated by @Valueinvestor0909 from the situation described by @Strawman, focusing the product offering while managing the expense base
• There has been a continued transition from capital sales to SaaS, which has made the transition to postive FCF a longer journey, as other firms have also found (e.g. $RUL)
• On cash-flow, period-to-period swings in changes in working capital mean you need to look across multiple years, which is of course hard to do with everything else that has been going on. (I look at this by smoothing working capital changes across adjacent periods, as overall, things have to balance out.)
• During all this noise, $CAT also changed their reporting calendar from an end-June FY to an end-Mar FY - which I never understood.

All these reasons are why I only plotted my graph over 3-years, as normally, I like to look at longer trends as well.

Looking through all the noise, I was able to convince myself there was value there earlier this year. I do consider the SP has moved up into the realm of fair value now, but valuing $CAT is difficult, as we are still only just at the inflection point on cashflow.

So I think it really is all about the next couple of 6m results. Given all the historical noise, I need those data points to help understand the quality of the company. With a large SaaS customer base, there really can't be any excuse for inconsistency from here.

We get the next data point on Thursday.

Could the change of financial year be due to the sports seasons? Ie., make sure you are getting a full summer/winter, rather than half of each? I suspect their payments are tied to the seasons.

I have a bit of a frustrating history with this stock. I looked at it so many times and always had an issue with it. First it was that I thought the technology was a bit of a gimmick. I probably underestimated the 'professionalism' of sport and how seriously teams around the world would value the technology. Then I was concerned about the valuation as it never really made a profit and traded on what was quite astronomical metrics.

I then analysed it quite significantly during the Covid sell-off. At the time sports were just in the doldrums and the tech seemed kind of non-essential. So my thought was, while this will eventually turnaround when sports come back, in the short-term all these teams, organisations and leagues around the world are going to chop the fat, and CAT's product looked like fat to me. But seemingly investment from stakeholders and customers continued. I am probably scorned because of my history and although I can acknowledge that Covid was a unique time, I just can't really shake the bias I formed during that time.

Hkowever, Andrew Brown was a big buyer of the stock and presented a very interesting 'macro' trend which he believed would see the stock rise. He maps out his thesis in great detail in the June 2024 quarterley report of his fund, found here: https://east72.com.au/wp-content/uploads/2024/07/E72DT-Quarterly-Report-June-2024.pdf

In short, the stock rallied in accordance with his expectations and I believe he sold out a reasonably significant position (as disclosed in his most recent investment letter). I think his exit price was around $2.50-$2.60. He hasn't completely sold out because he believes in the macro headwinds described in his quarterley letter, but his position has certainly been trimmed.

Given the run it has been on, it seems foolish to want to enter a position. But as I said to some other investors recently, the reports in the media seem to be hinting a good update is coming this week. It could see a bit of a jump and a run and test entering the ASX 300.

I Still don't own the stock but I am and remain tempted but for now I think it's sitting on the sidelines. If the report this week is still OK but the market expected better and there is a pull back in the price, I may enter the position. If the result exceeds expectations and the share price moves substantially, well, I've lost out.

I might enter a small position in Strawman so I don't feel so bad if the results beat the market.

Cheers.

@Karmast @mikebrisy @Strawman this is an excellent forum and is an example of what I guess strawman is about. In terms of the company I have always wondered if pricing is appropriate however, I am allowing time for the company to execute on their “land and expand” plan.

@Karmastin reference to your Ferrari story if, they are selling $400,000 Ferraris valued at $500,000 I am ok if it’s about getting people into their ecosystem to lock in market share. I am then, looking to the 2nd, 3rd and 4th add on features to see the total value move well above $500k. It’s these add ons feature which, effectively drop to the bottom line.

From memory @mikebrisy @Hackofalltrades CAT changed their reporting to align to the US financial year (April 1 to Mar 31st) as a majority of their income (opportunity) is/was from the US and they report in USD. I remember reading it but, have not been able to locate the information

(apologise I previously posted it out of order so it’s now back in line)

Note: Hold IRL

This is another one to research on the Trump trade.

Most importantly, where are the products made? I already added a straw about Breville building up inventory for the upcoming tarriffs and moving manufacturing out of China.

Can be argued that tariffs won't just apply to China.

Interesting times....

Thanks @mikebrisy and that's good context. Sounds like a smart way to assess it for now.

Thanks @SebastianG

I didn't know Andrew Brown at East72 had/does own it. I don't follow him anymore. When I first heard him on a couple of podcasts he sounded smart and made some good observations, with some interesting example companies.

So I looked up the returns of his fund to see if he had a good track record...

This was a couple of years ago now, where he was publishing performance numbers since inception. From memory which may not be perfect, the results were not just underperformance over many years...you had actually lost about 3/4 of your investment if you had stayed in since inception, despite many years of a bull market. I just looked again today and he publishes NAV of the fund since Dec 2022. The good news is it's positive...although looks like you've still lost to the Aussie index by a few percent. If you compare to the MSCI world index given most of his investments are in US/EU, the fund is underperforming by about 50% in that time. Still clipping the ticket by 1% a year though plus a performance fee and a 0.25% fee to exit...

My style isn't to bag anyone running a fund because as we all know investing is really hard. I just want to be very careful about who I listen to, based on what their long term track record is like.

I have no interest in shorting but if I did follow him a winning strategy might be to short anything he owns!!!