As i do a partial reset on my portfolio, i'm going to restate the investment thesis for each holding over the coming weeks. For Stealth it is as follows:

Big Picture

Stealth is basically a distribution engine. Its whole business is about moving industrial, workplace, and consumer products from suppliers to customers — faster, cheaper, and more efficiently than the next guy. The faster and cheaper they do it, the better the margins and cash flow. The bigger the volume, the bigger the revenue base.

The growth play here is simple (in theory):

- Sell more stuff.

- At better margins.

- Sweat the fixed assets harder (better warehouse/store use).

Every dollar invested (whether new capital, retained earnings, or debt) needs to push those levers and deliver a strong return.

Some Key Insights

Low-margin, high-turnover game

Half their assets are tied up in working capital (mainly receivables and inventory). If inventory turnover slows, it balloons working capital and tanks ROA. Worse, slow-moving stock usually ends up discounted, wrecking margins. They finance some inventory with debt at ~7% p.a., so if turnover isn’t tight, the carrying cost eats into profits fast.

Wide SKU base makes inventory tough

Tens of thousands of SKUs! Great for customers, brutal for management.

Managing such a wide and deep product catalog creates a constant balancing act: maintaining enough stock to meet customer expectations without tying up excessive capital or risking obsolescence. Every product line needs active oversight on turnover rates, gross margins, seasonality, and supplier terms.

Without disciplined inventory control — leveraging real-time data and predictive analytics — bloat creeps in fast, working capital balloons, and ultimately, margins and cashflow suffer. The operational complexity multiplies as Stealth expands into more categories and retail channels, making IT systems, demand forecasting, and inventory analytics absolutely critical to maintaining efficiency and profitability.

Non-discretionary core product offering

Most of what they sell (safety gear, tooling, automotive parts) isn’t optional for customers. Stealth Group states that over 90% of the products they sell are considered non-discretionary items​​​.

Think things like safety gear, industrial supplies, automotive parts, and workplace essentials. The kind of stuff that customers need to keep operating day-to-day, even in tougher economic conditions. This gives them a resilience edge...to a point. If their customers (mining, construction, trades) go through a slowdown, and these are very cyclical sectors, volumes will absolutely still get hit and net margins could collapse.

IT and ERP systems are the secret sauce, hopefully

Good IT is non-negotiable here. Their ERP system needs to manage tens of thousands of SKUs across multiple divisions in real time — flagging aging stock, managing dynamic supplier pricing, and enabling better demand planning. In FY23 and FY24, Stealth invested around $2.8 million into technology, automation, ERP upgrades, and digital customer channels.

Specifically:

Consolidating ERP platforms across Heatleys and Skippers to centralise buying and improve inventory demand planning.

Launching AI-driven customer service platforms, now handling 95% of industrial support queries.

Expanding cybersecurity, e-commerce, and digital sales channels.

Automating distribution centre operations to improve order speed and accuracy.

Management views IT as a strategic weapon, not just a cost center, with a strong focus on "simplifying work" and "delivering superior customer experience through data, digital and automation." IT, data, and automation are now core pillars in their FY28 strategic plan, supporting a scalable, higher-margin business model. As they scale revenue and SKU complexity, these systems will be critical to protect margins, speed up cash conversion, and support future acquisitions.

ROE is modest and debt-aided

ROE sits at 6.1%, reflecting a business that is still sub-scale.

A DuPont analysis is helpful here, breaking ROE down into three drivers: profitability (net margins), efficiency (asset turnover), and leverage (equity multiplier).

For Stealth:

• Net Margin: 1.2% — extremely tight, highlighting limited pricing power today.
• Asset Turnover: 1.34x — solid but room to improve through better inventory and sales efficiency.
• Equity Multiplier: ~3.8x — moderate use of leverage to boost otherwise low returns.

So, at present, it’s primarily financial leverage doing the heavy lifting. To unlock the Bull Case ROE improvement, Stealth must:

• Expand gross margins through own-brand sales (like RIVO) and improved supplier terms.
• Accelerate asset turnover by increasing sales faster than growth in working capital.
• Maintain disciplined leverage to ensure operating gains — not debt — drive higher returns.

Basically: sustainable ROE improvement will need to come from capable operational execution, not just balance sheet engineering. Stealth has built the IT, logistics, and branding foundations...now it’s all about delivery.

Reason for optimism

Stealth has been more or less consistent in its messaging and we have started to see encouraging signs of unfolding operational leverage -- something that hopefully becomes more obvious now that underperforming stores have been closed down, the various business units have been streamlined and the new IT systems are delivering clearer insights.

The recent institutional raise, while annoying it bypassed retail shareholders, gives them cheaper capital, a stronger balance sheet and should also improve liquidity (which might open Stealth up to bigger capital managers). It also represents a sign of confidence, especially given the tough environment for capital markets at present.

A maiden dividend, improved cash flows and better inventory/revenue ratio are all encouraging. And management has an ambitious target -- even getting close to it should reveal a big uplift in profit (see below)

Risks

- Execution risk around inventory management, accounts receivable and general working capital.

- Margin pressure if own-brand products (like RIVO) underperform.

- Customer concentration in cyclical sectors. A downturn in customer activity could really knock the wind out of their sales

- Leverage risk if sales slow but debt obligations remain. Could force a costly cap raise.

- Poor acquisitions could really derail things -- not only in wasting capital in the purchase and integration, but also in management time and focus

What does growth look like?

Well, if we take management's targets at face value, you're looking at a FY28 revenue and EBITDA of $300m and $24m respectively. Ideally, that's be an NPAT of ~$14m or so. That compares to a pro-forma NPAT in FY24 (assuming a full year contribution from force) of roughly $3 - 3.5m or so.

But if we knock back the revenue target to $250m, and give it a 6% operating margin, and a 3.5% net margin, NPAT is closer to $8.8m. Still a big jump over three years, but could be further reduced by an increased share count.

Avoiding the specifics, the point remains that there is still an asymmetric upside if they execute well -- even if they fall short of these ambitious targets.

What to watch

Operating and net margins MUST trend higher:

Margins are tight today. Gross margin expansion through own-brand sales (like RIVO) and better sourcing deals must drive operating leverage. Watch quarterly gross margins carefully.

Organic top-line growth is key:

Acquisition growth is useful, but organic growth is the real acid test. Watch same-customer sales growth and contribution from online/digital channels (not just total revenue).

No bloat in working capital:

Monitor inventory days and receivables turnover closely. Bloating here would signal operational discipline slipping and would sap cash flow.

Improved ROE:

ROE must rise through higher margins and faster asset turnover — not just by leveraging up more debt. Look for rising returns on both invested capital (ROIC) and equity.

Sensible, bolt-on acquisitions:

Acquisitions must be disciplined: small, strategic, and margin-accretive. Watch for any large, high-risk bets (a red flag).

Stealth is undertaking a cap raise. No details as yet.

Acquisition? Strengthen the balance sheet after a strong rally and with macro headwinds ahead? Something else?

I may have, for the first time ever, been lucky with a sell decision. Usually stocks rally after I sell! Although, that's still a possibility...

Ive just updated my valuation for Stealth and came up with a pretty bullish figure of $1.15 (at least compared to the current market price).

Still, i'm noting here that I will be selling down a large chunk today -- purely for portfolio weighting reasons and to free up some cash. I will still retain a very substantial holding, it's just a bit tough to justify the current 30% weighting!

I'll never understand why companies release their results just ahead of market open or, worse, during market hours. For me, the gold standard is after market close on a Friday (although i know not everyone agrees). My reasoning is that it gives investors the most time possible to digest the results before trade resumes. In other words, it helps ensure 'the market' is as informed as possible. At least do it after 4pm.

Stealth decided to do it at 3:30pm.

It really isn't a big deal, but one of those small things that irks me.

Aaaanyway..

My initial thoughts in regard to the results were 'ok'. Although things seem to be more or less on track.

The revenue growth was a bit 'meh' at just 2.4%. In fact, comparing H2 last year to the most recent 6 months, revenue slipped 2.4%. All the growth came from H1.

Actually, it's a bit worse when you strip out the $1.9m revenue contributed by Force, which provided one month's worth of sales due to the timing of the acquisition. FY organic revenue growth was just 0.7% when you factor that in.

Stealth put this down to inflation and higher rates, which they say dampened demand. Fair enough, but they have previously talked up how non-discretionary their products are.. hmmm

The gross margins did improve slightly, 29.6% vs 29.4% supported by "operational initiatives focused on margin protection, inventory velocity, product profiling, and rebate uplifts, collaboratively with both customers and suppliers." Good to see.

Importantly, the EBITDA margin improved to 5.3% from 4.8% (in fact, slightly better on an underlying basis if you strip out one-off growth related investments). Also good to see a big jump in the return on funds improved, and an uptick in the ROE. Cost of doing business likewise improved.

This is all evidence of sound operational performance and gives credence to what Mike and the team have been saying for some time.

The cash balance increased 31%, but part of that was a drawdown on their facility. And while debt was reduced by 33%, that's only if you exclude Force (which had $5.9m in working capital debt). Still, they seem to have been able to reduce leverage associated with the existing part of the business and still paid a maiden dividend (although, as others have said, i'd prefer they keep the cash at this stage of their development).

So all told, we saw a 50% boost to NPAT, but there are more shares on issue post Force. So we need to look on a EPS basis. And we should also consider things pro-forma.

If we assume Force was held for a FY, we could thumb suck a pro-forma EBITDA of closer to $8m and an EPS of closer to 2cps (very rough estimate). But that's a good improvement on FY23's 0.9cps and puts shares on a PE of ~12

And they have again reiterated expectations for FY28 revenue of $300 million at an 8% EBITDA margin. That'd be something in the order of 7-8 cps in EPS, which is obviously a lot of growth from here (IF they can deliver). Acquisitions are clearly a part of this -- they say about a quarter of the extra $141m in revenue will come from acquisitions. So that's something to be mindful of (acquisitions dont always work out!), but good to see that organic growth is expected to do much of the heavy lifting.

I'm still a bit uncertain about Force, and the lack of any organic revenue growth is a bit concerning. But shares remain cheap (if you assume no further deterioration in earnings from cont. operations) and they have made measurable progress on their efficiency initiatives.

Happy to hold for the time being.

(I'd welcome a sanity check on any of this -- i did this in a bit of a hurry)

Stealth just issued another slide deck, as part of a presentation to ShareCafe.

I'll highlight what i see as the new information in a minute, but boy, this really hasn't been a smooth process.. As others have noted, you have weird (nonsensical?) performance calculations & inaccurate charts, and less than 24 hours after your own investor briefing, you do another with a 3rd party that includes new information..!

Probably a reflection of a small team, and maybe it's a good thing they aren't engaging some IR firm to manage things (and exaggerate them). But still.. it's a bit amateurish!

Anyway, here's the latest presentation -- Stealth-Investor-Webinar-Presentation2.PDF

The key differences to yesterday's presentation i saw were:

1. The most important difference is Slide 18 which provides specific financial guidance for FY24, including expected year-on-year growth ranges for sales, gross profit, EBITDA, EPS, and capex. This forward-looking information may have been discussed verbally yesterday? But I don't believe so.
2. Slide 10 provides updated "Key Numbers" after the acquisition, such as the $159.0m pro forma FY24f revenue, 250 team members, and over 3,310 retail reseller stores. The first presentation had slightly different figures.

So if NPAT is 25% higher, that gives us a FY24 value of $1.125m (last year was $0.9m)

Of course, post acquisition there will be an extra 14.4m shares on issue, or let's call it ~115m in total. So that's an EPS of 0.98cps. Last year they did 0.91cps, so that's growth of 7.7%.

SGI is right that EPS growth will be 25% if you exclude the Force acquisition (about 3 weeks contribution and extra shares). Maybe it's too late on a Friday, but I'm struggling to work out what the EPS will be in FY25 based on what has been said.

Here's my thought process (someone please correct me if needed!):

• FY24 NPAT (ex-Force) = 0.9m x 1.25 = 1.125 million
• On a per share basis, accounting for dilution, that's 0.98c
• FY25 EPS including the accretive impact of Force (expected to be ~26%) = 0.98 * 1.26 = 1.23 cents (this is before any new revenue contribution)
• So that puts SGI on a forward PE (using FY25 forecast as FY24 is essentially over) of 22.5c (current market price) / 1.23c = ~18.3x
• 
  

I'm just not sure if i'm interpreting what they are saying correctly...? Still, that's a higher PE than I was expecting, but if I'm understanding things right that doesn't include any organic growth from the legacy business or the new one. And you'd like to think we get some of that!

As has been noted, Mike suggested $300m in revenue by FY28. Let's assume a EBITDA margin of 6% by then (it should be 5.7% this year, compared to 4.7% last year, and they have suggested previously 8% is reasonable at more scale). That'd be a FY28 EBITDA of $18m, which is almost 3x what they should do this year.

Let's thumb suck a net margin of 3% to get a FY28 NPAT of $9m, or 7.8cps

That's certainly a lot of growth, and even if you do use a forward PE of 18, that'd be more than justified if true. But it comes down to a lot of revenue growth (around 20%pa, and continued margin expansion).

It seems possible, but the expected sales growth for FY24 isnt huge (and why is there such a range given there's only 3 weeks left in the financial year)..

Anyway, too much thinking out loud for me. I need to ponder this a lot more..

Mike and the team have a good track record of acquisitions, but I was a bit surprised to see them move into the mobile and tablet accessories market. Seems like a bit of a departure from the current product set (although, that's quite diverse in itself)

Full details here, but some early thoughts from me are:

• 4x EBITDA multiple seems reasonable
• New shares represent ~14.5% of current shares on issue.
• Pro-rata H1 EBITDA for stealth (pre-acquisition) gives $5.6m in FY24 EBITDA. Force should add ~$2.6m (pre-synergy), which is a 47% lift (ie. it is certainly accretive, and tracks what Stealth says about the deal being 43% EPS accretive before synergies)
• The vendors will have a 12.5% ownership stake in Stealth post acquisition. Combined with the earn out bonus there should be some good alignment. ie. the vendors will have some incentive to stay engaged and ensure a successful integration.
• Not sure how high the hurdle is for the earn out payment -- Force is already exceed the threshold in the current year.
• Synergies are always talked up with acquisitions, but it does seem reasonable to assume there will be some degree of opportunity here given SGI's investment into logistics and warehousing.
• Debt wont be too onerous after the deal -- they'll have $11.2m in debt, and Stealth said they will use cash flows to help deleverage things in the coming years.

I'll try and tune into the investor call tomorrow. But overall this looks like a positive.

Stealth copped a "please explain" from the ASX today, following the spike in share price after the presentation they gave for ShareCafe.

You can read their response here, but honestly this was an obvious and easily avoided mistake.

An investor presentation the day before results were out, in which unaudited numbers were disclosed is, frankly, bizarre.

They reckon this information was already out there, referencing guidance and progress made in November, but some guidance in November is hardly the same as pre-audit numbers after the period end.

It doesn't really change the thesis for me, but it's a mark against them.

I hope they learn from this and take better care in the future.

This presentation was marked as market sensitive, but I really can't see anything new here that you'd class as material and undisclosed.

One small point, this looks like a bit of a chart crime:

Maybe i'm missing something, but shouldn't that dark blue square should be only 23% larger in area than the light blue..?

Poor old SGI just can't catch a bid. Not the results were bad -- far from it!

On a statutory basis, revenue was 11.4% higher, (or over 17% if you just look at continuing customers). Revenue for continuing operations has averaged 29% per year over the last 3 years.

It's also lifted prices recently, which it expects to boost future profits, and has reiterated its non-discretionary nature as an 'all-weather' distributor.

As you go down the income statement, things get more interesting, with some real operating leverage starting to emerge.

• EBITDA was up 32.5%
• Pre-tax profit was up 85.7%
• and NPAT was up 50% (51.7% on a per share basis)

The cash balance improved significantly to 7.7m and net debt dropped almost 30% to $7.2m. Free cash flow was +$5.6m. So they seem well positioned to start dividends as promised.

The company has an Enterprise value of $19.7m, so it's on a EV/EBITDA of just 3.7x.

The PE is 13.2.

There's not a huge amount of detail in the ASX Release, but I'll try and line up another meeting with the CEO to see if we can get some more insights.

Disc. Held

3rd quarter sales hit $29.2m, up 12.6%. For the first 9 months of the year, sales are up 17.4%. Both are records for the company.

If they achieve the same result next quarter, or we just pro-rata the first 9 months, it puts Stealth at around $110m in FY23 sales for continuing operations.

36% of revenue comes from mining, resources and infrastructure, which the company is seeing "ongoing high demand".

Inflation still a challenge, but price increases is expected to contribute to an increase in profit.

The Skipper and United Tools acquisitions are still yet to realise "significant" cost synergies.

The company has previously said it expects margins to improve -- and this is a big part of the investment thesis -- but if you assume a net margin of just 1% in FY23, the forward PE is around 10. Not bad for a company enjoying double digit revenue growth.

See full ASX announcement here.

Disc. Held.

Here's a recording of the recent results meeting: https://vimeo.com/805827197

Key points:

• It's a very resilient market. Most of what they sell (95%) they class as non-discretionary.
• The addressable market estimate is now over $50b -- and very fragmented. I read that as a lot of acquisition opportunity, and an opportunity to build a scale advantage over other players.
• Strategy is clear and consistent, with a focus on ROI and capital management. There's a long way to go before the vision is fully realised, but I think you can say objectively that the company's growth and execution has been pretty decent to date.
• Higher fuel costs and other cost issues a factor, but have the ability to pass on higher costs. Price rises will help improve margins in the coming quarters. Gross margins were mostly maintained in the reported period
• Getting more invitation to tenders. Not just about cost competitiveness, but range and reach.
• $260m worth of spend across the group -- have set up a procurement division to better leverage this to negotiate for better terms.
• Closed unprofitable sites accounting for $2.4m in annual sales. Only interested in sites that make financial sense, and will be focused on further rationalisation if needed. This should improve margins across the group, even though it will have a revenue impact. It's the right thing to do.
• Brands will likely be consolidated under one banner.
• Proprietary products expected to grow to 15% of total (also leads to better margins)
• Technology expected to help improve efficiency -- overall, very focused on costs and margins.
• Inaugural dividend proposed for FY24 (maybe 30% of FCF).
• Acquisitions remain a core part of the growth strategy, but next 6 months will remain focused on bedding down recent purchases. Have walked away from lots of opportunities. Must make financial sense.

Thesis remains on track.

Held.

@DrPete123

Yeah I found Mike to be very straightforward, and with a clear vision for the business.

On top of what you have mentioned, I liked:

• How they have walked away from several acquisitions. For a company with a clear focus on consolidation, that takes a hell of a lot of discipline.
• How they are prudent in terms of their use of capital. Choosing debt over equity is smart, in my opinion, given the current market price. He was extremely aware of the risk of dilution. Also, given the multiples paid, the payback period on some of these acquisitions will be very short.
• Mike seemed to have a clear focus on employees, recognising their value and investing time and effort into incorporating acquired staff into the culture.
• Buying growth is one thing, delivering organic growth post acquisition is another. They seem to be doing really well on this front.
• The 'plug-and-play' nature of ERP systems and logistics assets should allow them to bed down acquisitions relatively quickly, and unlock a good deal of synergies.

I'd also reiterate that this seems very asymmetric in terms of possible outcomes. On a 2% underlying net margin, Stealth is on a PE of something like 6 (give or take). This is a business on a $100m revenue run rate trading at $12m...For a business that's looking to grow at 25%, is profitable and delivering positive operating cash flows, that just seems extremely undemanding.

Ok, maybe their growth doesn't turn out what they expect it to be. Maybe margins don't grow as hoped. Maybe the market will never ascribe a high multiple -- but the margin of safety is huge.

On the negative side of things, I wish companies would forget about trying to engage IR people (no offense to those in this space). I understand how it's frustrating when the market doesn't see the value, and i can appreciate wanting to spread the story far and wide, but i just wish they'd let the fundamentals tell the story. SenSen and others have also mentioned their efforts on this front. To his credit, Mike did say his focus was on just getting on with executing the strategy. Anyway, it's not a big deal, just a small gripe of mine.

I added more to my Strawman portfolio today, and would like to add more in real life when i get some spare cash.