Snazzy New Website
Certainly looks better than the old one which looked like it had been created 15 years ago (which might not be too far off given they started operating in 2007).
Thanks to the Strawman community, namely Wini, MrKrabs , Noicewon11 and INTJ for putting these guys on my radar. I started researching into the company months back and have been pleased with what I’ve uncovered so far.
As mentioned by some prior:
The recent half year report was a little light on growth at 5% (discounting of course stimulus received), but they claim they will make up for it with a very strong pipeline now building up.
Things on mind that I am keen to see and hear if you guys have any opinion on:
Today’s dip of 14% which is certainly not uncommon in stocks like this makes it a very appealing opportunity.
Founder and major shareholder recently purchased shares on market at 12.6c. Good sign.
29/1/21 Quarterly Report for Q2 of FY21
Another solid quarterly from AER, receipts of $503k in line with the current ~$2m ARR. Roughly $40k free cash flow but $78k in tax and Gov grants meant cash increased $116k and totalled $1.2m at the end of the quarter (with further R&D rebates to be received in 3Q I believe).
My investment thesis that the business will largely be run at cashflow breakeven with profits re-invested back into new verticals continues to play out. The major opportunity is the new Climate Risk Analysis platform that appears to be close to commercialisation with management confirming an update in the current quarter and quantifying the size of the market they are targeting.
While there are risks with any new business ventures, it should not be overlooked that AER's core business has numerous blue chip customers which makes any cross-sell opportunities much easier.
29/10/20 Quarterly Report for Q1 of FY21
A decent quarterly for AER, a good base for FY21 to build from. $499k receipts is in line with their ~$2m ARR and commentary was positive on the current pipeline to win some new customers.
Extreme weather has begun on the east coast and is always a driver of new business.
Good quarterly from AER. Cash on hand up to $1.1M on MC of only $6M. Gained new customers and retained all existing with good enquiry. The quarterly customer receipts have been showing steady rises. Low capital business with costs now well controlled and building revenues, looks well priced at this SP.
These guys have developed a ‘system’ known as the Early Warning Network (EWN) which is a predictive data platform designed to identify the risk of severe weather, natural hazards and other risks and give early warnings to businesses to mitigate such risks.
This system has been operating continuously since early 2007 and has been used over 18,000 times to deliver millions of alerts Australia-wide.
Currently Australian based, however they won their first client overseas in NZ recently.
Current financials have dipped back into cashflow negative for Q3 FY2020 as per quoted “increased R&D spending” and “late payments from customers”. The board have claimed they do not expect stay cashflow negative for any further periods.
No current debt
Founder & CEO has a ~39% stake in the firm and has increased his holding recently. One good sign for me is the owner having skin in the game.
More research needed!
AER is my favourite stock selection on Strawman (which is a worry because my highest convinction instincts don't necessarily work best on the stock market).
Fits my strategy of looking for microcaps under $10m with multifold upside.
The difference between AER and some others that I am drawn to is that it is as much a revenue play as a narrative play as it is only about -$200k below breakeven so the focus is on what the exponential potential revenue uplifts could be.
ESRI looks like a blue sky opportunity in this regard even if I don't understand the technicals of it. Likewise developing climate change related software was mentioned as a growth avenue.
Being in a qualitatively trendy industry does add some narrative appeal though sometimes that can pull you into bad businesses too.
The lack of significant cashburn limits downside and provides on going 'optionality'. It appears they have retained their revenue levels during Coronavirus / Recession which also adds to the quality of their financials.
Bull case is if they can achieve a step change in revenue growth and if that is the case at just $5m market cap see the possibility of multifold returns.
The company had great momentum prior to CoVID-19. Management said that they have lost many potential sales due to the current crisis.
3Q of 2020 also seems to suggest fewer customer receipts compare to pcp.
This will linger around for a while before it picks up.
Hopefully, doesn't lose any big customer along the way otherwise back to square one.
I think it is very hard for anyone to accurately predict on a macro level how long the current downturn lasts for and the long term effects of it. What we can and should do though is look at individual businesses and assess the impacts to them from the coronavirus, positive or negative.
For AER, I recently spoke to the CEO Kerry Plowright just to get his view on what impacts he is seeing on the business, right now and potentially into the future. He said they have yet to see any impacts from coronavirus with business as usual. He and the General Manager reviewed their customer list and identified two very small clients in the leisure sector who are at risk of removing their subscription, however for most clients AER's service is critical and comparatively very low cost to other areas where customers could cut costs.
On top of that, the alerting platform was originally built to handle viral outbreaks and AER quickly implemented available datasets into the platform and are now providing data to Esri who has integrated the coronavirus into their geographic information system. At the time Kerry said there were only a handful of clients subscribed but it is a very low cost vertical and may grow if the outbreak is unfortunately unable to be contained.
Tiny SAAS business that offers risk management software for businesses and people potentially exposed to damage from natural disasters. Core product is the Early Warning Network, a comprehensive offering that allows customers to receive customised alerts and warnings when a potential threat could impact their business, employees or property.
Revenues are 94% monthly subscription based, with growth of 27% in FY18. Management stated they believed this growth was "modest" with ambitions for higher growth in FY19. All FY18 clients have been retained with several new clients onboarded in 4Q18 (including AER's first international client in New Zealand) providing the platform for this growth.
International growth is a focus for management, they have stated numerous times the cloud based SAAS model allows them to scale internationally with no additional resourcing (other than potential sales staff). The other focus for growth is the monetisation of the company's rich database of geographical information through established networks with reseller, revenue share and partnership agreements.
FY18 represented AER's first profitable year of $50k (this did require an R&D tax refund of nearly $500k), with 4Q18 being the company's first operationally cashflow positive quarter of $15k. Given the expected revenue growth with the scalability of operating expenses, I expect the company to grow their operational cashflow and potentially be profitable without the R&D tax refund in FY19.
The profitability was largely driven by an operational review in mid-2017 which saw the company re-focus on it's core EWN product and align it's cost base to annuity revenues. By the end of FY18, monthly cash expenses were more than halved to roughly $100k. Monthly annuity revenue has now grown to $1.4m, exceeding the relatively fixed monthly cash cost base. AER's balance sheet remains extremely clean with no debt or intangibles and over $1m in cash.