Top member reports
Consensus community valuation
$0.047
Average Intrinsic Value
36.5%
Overvalued by
Active Member Straws
#H1 FY20 Results
Added 3 months ago

Fairly discouraging top and bottom numbers from Bluechiip this half, with revenue down 37% to $141k, and losses up 80% to $2.25m. The decline was due to delays in the shipments of chips from Europe, likely caused by a ramp up in manufacturing and technical improvement spend to the chip designs as they prepare to fulfil their Labcon agreement.

The consolation prize was that cash receipts were up 317% to a record $713k, keeping in mind this was due to delayed payments from Q4 2019. That and the recent cap raise (and a cheeky term deposit of $2m set aside) means the cash balance looks capable of riding out another year.

Commentary from management was that they’re back on track and shipping “tens of thousands of chips” which at a sale price of $1, still doesn’t bring us to the level we need to be to hit the agreement numbers with Labcon this year, but it does suggest there’ll be no further production and shipping woes to get us there, though the timing will likely be pushed out.

Looking at the payments to suppliers and employers in the cash flow statement however, and the figure nearly doubled, jumping to $4m – so I’m feeling a little more confident that the orders are flowing through, despite the low revenue number here. 

Even so, I’m expecting the market to react with impunity tomorrow. This business is incredibly lumpy at the moment as it tries to fulfil its agreement with Labcon, but the full year revenue number should see growth, even though it will likely come with a higher loss. Looking to the end of next FY to see the thesis play out properly (and I don't think there's enough evidence to suggest it's broken), but I suspect jumped on this one too soon. Should be doing much better in a year or two's time.

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#ASX Announcements
Added 4 months ago

30/01/20

FY20 2nd Qtr Results

A disappointing result this quarter, despite looking on track to book about $2m in total revenue this FY (based on current and projected production costs). I was hoping that the Labcon orders would materialise sooner, however that looks like playing out in the second half, based on the commentary provided and the supply issues experienced.

Although I appreciate some of the clarifying remarks that come out of the Open Briefing, it’s nonetheless disappointing to have some of the more pertinent questions responded with vague answers, such as questions 2 and 3. A couple of slippery responses there.

Another concern is the logistics issues experienced this qtr, with “shipping and customs” being the contributing factors to revenue and deliveries falling below expectations. Although it was pleasing, I guess, to have Andrew Mcllenan admit that numbers weren't as high as they would have liked, there is a distinct lack of detail about why that was the case other than 'timing' issues.

Having said that, now that those concerns are apprently over and a new supply chain agreement has been finalised, 1.5m chips are “in process”. Given that process kicked off in October with a lead time of about 2-3 months before customer delivery, it suggests about $1.75m+ in revenue should soon be recognised. 

If this flows through this next qtr, then the numbers will look much better–but again, management seem to be hedging their bets with what will happen in Q3 based on question 2.

My other hope is that the huge increase in R&D spending is largely linked to production efficiencies of the chips, which should allow greater gross margins in future orders. But It seems like some of it is also linked to temperature tracking/alerting and retrievability features based on end customer feedback. Although I encourage a large R&D and reinvestment spend on this sort of feedback, sorting out the immediate supoply chain issues, if they still lurk about, seems the priority at this stage in order to scale properly.

All in all, I don’t see a broken thesis here, as there is enough evidence to suggest that Labcon are still on board and orders are in the pipeline, however there needs to be more OEM conversions and bigger sales in the next two Qtrs for me to commit any more funds. 

My major watching point going forward is going to be how manufacturing costs scale with orders and how that impacts gross margins. I would like to think that the relatively large R&D expenses are helping improve this, but without meaningful and consistent deliveries, it’s hard to tell. It looks to be holding steady on about 40-50% based on historical numbers and projections, but the next two years will yield more solid evidence of how this plays out. Holding for now.

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#Coronavirus
Added 2 months ago

Unfortunately, I think the Coronavirus breaks the thesis here. 

With manufacturing of the chips handled in Europe, and the significant disruptions to the population there, I can't see Bluechiip fulfilling their Labcon agreement any time soon, and the likelihood of further OEM agreements is even lower now that labs will be fighting for funding. Additional expesnes will be likely low on the priority list.

It's a shame, because I think the technology could revolutionise more than just the Cold storage industry, but it's clear to me now that the company will most likely need to raise more capital within a year and the revenue is unlikely to be there to steer them through the next couple of years.

Would dip my toes back in on a severely depressed valuation, but not right now. Will wait to see that Labcon agreement play out more solidly. 

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