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Voted on a straw in #Bear Case for Tesserent Limited by Scott
2 days ago
#Bear Case

Not for me - too expensive for a consulting company.

I was excited to look at this when I first heard about it in July.

This is a 'roll-up' strategy buying smaller operators with the goal of buying at a lower multiple than what TNT gets on the ASX.

They offer IT security consulting services.

What I really like is that there is a really strong tailwind in their market with people hard to get and high prices on offer.

What I don't like is that they are a consulting company and they don't make a profit. They also have a huge amount of goodwill and intangibles on their balance sheet (at June20). In fact if you take those out their liabilities are higher than their assets!

Why don't I like it that they don't make a profit? My experience of IT consulting was that the rule of thumb was that the charge out rate of the consultant was made made up of 1/3 was paid in wages, 1/3 in costs and 1/3 in profit. Now their P&L for FY 20 shows $13M of employee expense of $20M in revenue. That's 2/3 so there are a lot of people not contributing to the bottom line.

What troubles me here is that this isn't a SaaS business where the costs are relatively fixed for each widget sold. In a consulting business the costs are variable and there only way to increase profit for a fixed head count is to increase prices or increase utilisation. So there is no SaaS inflection point for this business where all the new sales go to the bottom line.

A good point is the last 4C showed increase in revenue with a small reduction in exployee expense.

This might be ok with a reasonable valuation, but the market cap @ $0.40 is $400M. Their Q1 4C showed a cash profit of $0.4M on $15M revenue. They need a profit after tax of $10M to have a P/E of 40.

It's nice that the management is predicting a run-rate of $150M/year by end of FY21. It's off-putting that they don't project the profit.

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Voted on a straw in #H1 21 result QnA for Alcidion Group Limited by Noicewon11
3 days ago
#H1 21 result QnA

My notes attached on the QnA for Alcidion.


Given that this is one of my key holdings, I put a fair bit of time into prepation and took plenty away from this call.


Also, @G3xu8 - "There is $12.5M of cash on hand but I have to consider that there is still a possibility of another capital raising being needed before ALC gets to profitability."

I'm not sure how you can conclude ALC will need to capital raise again considering how close they are to the inflexion point. Even given that they currently cash flow negative, the amount of cash burned is very low (2.9m in the entire of FY20, and will be less than that in FY21 given my calculations). Unless things go horribly wrong for management and new sales, I can't see them coming anywhere near a cap raise in the future. (apart from an M&A deal or something similar).


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Voted on a straw in #HY 2021 Results for Envirosuite Limited by Strawman
5 days ago
#HY 2021 Results

For the first half of FY21, Envirosuite reported a 17% lift in revenue over the preceeding half (HY20, which only had a 4month contribution from the EMS acquisition). Normalising for this, revenue would be flat, to slightly down on the preceeding half.

Operating expenses were however down due to savings measures, and gross margins improved significantly from 32% to 41%. So overall the adjusted EBITDA improved from -$6.9m to -$3.5m

Recurring revenue, as a percentage of the total, also increased from 77% to 85%, due to the covid related deferral of project work, which hit non-recurring revenue.

Envirosuite has $9.7m in cash, having burnt through $5.8m in the half (exclduing acqusition related costs), this is expected to reduce in the current half, although they didnt offer more clarity than that.

Importantly, management are forecasting a much improved second half, with new ARR sales orders expected to double in the second half. Recurring revenue is expected to grow 4-8%, the rest will be related to project delivery from new contract wins.

The business will still report a negative EBITDA for FY21, although will be improved in H2 on an adjusted basis. But the company reiterated that it still expects to report a positive EBITDA in Q4 (although will be dependent on timing of non-recurring revenue).

All in all, the business has been pretty resilient during covid, but it's definitely been impacted by it in terms of non-recurring project work and some discounts to airports. Project work in China also took a big step back (although this was associated with lower margin equipment sales), and the business says it is looking to focus more on higher margin subscription contracts there. There was a lot of potential promised when they first moved into China -- but there's not really much to show for it as yet...

Outside of airports, recurring revenues were 18% higher, so the original part of the business seems to be still doing well. This was always the part i liked the most.

The EMS integration and Covid make an effective comparison against earlier expectations more difficult. But when trying to normalise for this, I still see a business that should deliver lower double digit revenue growth in the coming years, and sustainably move past breakeven. (Hopefully another capital raise isnt needed, but it is a definite possibility).

Some good contract wins and achieving their target for psoitive EBITDA by Q4 is essential to drive the price materially higher from here in my opinion. 

Disc. Held

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Voted on a straw in #Overview for Pointerra Limited by Strawman
3 weeks ago

Pointera allows customers to store, manages, analyse and share their 3D geospatial data.

As with the scan images that ProMedicus (ASX:PME) handle, the data sets can be very large and cumbersome. Pointera's product stores and processes this data in the cloud which enables users to access and use it without requiring a lot of processing power and bandwidth.

Technologies like laser scanning, which have dramatically fallen in price, is underpinning an explosion of 3D data sets, so there appears to be a solid tailwind.

The company reverse listed on the ASX in April 2016 (prospectus is here), following around 3 years of development as a private company. Shares were issued at 3c, and the company has undergone a couple of capital raisings since then.

Dr Rob Newman, the CEO of Nearmap, helped float the company and only recetly stepped down as Chairman due to the increasing time commitments of running Nearmap. As at the last notice, he had 13m shares and 5m options.

After a long period of burning cash, the business is now cash flow positive on an ARR runrate basis.

Sales are growing very strongly, albeit off a small base and contract wins are lumpy.

As of Jan 2021, ACV stands at US$6.88m, up 40% since september.

The company has 670m shares on issueand 5m options. So on a fully diluted basis, at the current market price (72c), the market capitalisation is ~$486m. That's about 50x the ACV.

Overall, I like that Pointera appears to have strong product validation, good sales momentum, and all the lovely attributes of a SaaS business. There's a also a decent tailwind, patented tech and first mover advantage. Good to see managamenet with a very large shareholding too.

I've left a lot of profit on the table by selling down a big part of my Pointerra holding in the last year, but I just find the valuation hard to wrap my head around. Not that I can't see it as being evenutally validated by strong and sustained growth, but if the company falls anywhere short of that high bar, the long-term returns will likley be poor at current prices.

Disc: still hold a small amount on Strawman and in real life.

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Voted on a straw in #Bull Case for 8common Limited by Noicewon11
4 months ago
#Bull Case
  • Found & led and run, with management and the board totalling a ~30% stake in the company (shareholder & management alignment)
    • (Recent insider purchasing of shares within the past year indicates sentiment)
  • Very sticky customers - large government clientele, both federal & state which make up around 2/3 of revenues.
  • More of a shifting to recurring revenues, predominantly through Expense 8, with ~70% of revenues being ARR.
  • Introduction of a new, innovative product in CardHero, with the aim of boosting and diversifying their revenue stream
  • Strong growth prior to COVID and hence gives the proposal of a strong tailwind when the economy is fully open again, and more employees are travelling & carrying out work-related spending.
  • Transition to cash flow positive is beginning to spin out!


{I do not hold 8CO shares as I have only just begun some in-depth research, but my initial thoughts are positive. I would like to see CardHero hit the ground running with the winning of an NDIS customer being a goal for management. Overall very capital light business which makes me think scalability is very achieveable once a cost base has been established. Potential for expansion overseas also in future years.....?}

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