Preamble/Context

I've been a bit slow to commit to a valuation on SM for $AIM, despite having held it for just over a year. It is now another core holding in my RL ASX portfolio, thanks once again to the StrawPeople who got there earlier, as well as the opportunity to hear from CEO Tony in the SM Meetings. (I wasn't convinced after the first SM Meeting, but last year September's one got me over the line.)

A second reason for holding back on publishing my valuation was that, as other holders will know, if you buy into the FY29 Targets of "$150m revenue; $60m EBITDA; a billion $ company" - a message that Tony promotes with irrepressible consistency - you get such a large valuation that you'd be tempted to back up the truck ,...if you believed it.

Although I have set out some scenarios here that fall well short of Tony's vision, everything that follows is firmly anchored on the vision. And so, insofar as the vision fails to be realised, then so too the valuation will fall short. That's why I've entitled this Straw a "Bull Case".

Going through the exercise has enabled me to unpick the business and get a better understanding of the value drivers. As such (and as is the case for all my valuations) it is as much a tool to track the progress of the business over the coming years.

The good news is that there is a lot of room for the business to fall short of Tony's targets and still be a very valuable investment. Of course, it is in a very fast-moving space, and who knows what disruptions will emerge over the next 4 years!

The final reason to push myself to do this, is as part of preparing for the next SM Meeting with Tony, on 28th October.

SUMMARY of Valuation (the TLDR bit)

Method 1: FY29 P/Es of 35, 40, 45: $2.60 ($1.30 - $3.60)

Method 3: EV / EBITDA of 20, 25, 30: $2.40 ($1.30 - $3.80)

Note: Selected ratios considered conservative becaue EPS growth in FY29 typically in the range 55% - 80%. So there is every chance that if the market believes $AIM can achieve and sustain it's growth, we might well experience a Super Bull case, where a much higher P/E is offered by the market ... for a period of time.

Valuation Details

I start with Tony's FY29 target and I assume $AIM will fall well short of the goal. It is aspirational after all, and we are moving in a space where there will doubtless be innovation and competition.

However, there are some "Building Blocks" that I assume.

Building Block 1: Today's business with the human transcription service which is being shut down as we speak

Building Block 2: Tech Revenue, with an increase compoent of fast-growing ARR. The ARR has a %GM of 86%. Having looked at the trajectory to date, I assume the overall Tech Revenue will have a %GM that starts at around 80% today, and scales to 83% by FY29 - driven by the ARR component. This is hard-wired into all scenarios.

Building Block 3: A new services model, essentially a 50% Gross Margin professional services business to clients. Tony aspires to this delivering $30m in revenue by FY29. I am less ambitious, and have it contributing $5m in FY26 and adding $5m each year, as the business services a global existing and prospective client portfolio. This segement therefore gets to $20m revenue in FY29.

The Opex Base: Because we have the existing Opex Base, and can isolate the COGS of the two revenue streams, I am able to consider various scenarios for how the Opex scales over time. There are two sets of 5 scenarios.

Scenarios

I have run 10 scenarios (sensitivities, really) across two dominant group.

One group is a high revenue growth and relatively high opex growth model, where scaling the revenue entails higher costs, whether in sales and marketing effort or product development, tailoring solutions to meet client needs. In this case I consider annual Opex growth scenarios of between 6% and 12% per annum. Over the next 4 years the Tech Revenue growth is sequentially, +30%, +27%, +23% and +20%.

In the second case, more cost efficient growth is achieved as revenues are not chased so hard. Opex growth ranges between 6% and 10% per annum, achieving Tech Revenue growth sequentially of +27%, +24%, +21% and +18%.

To keep the model simple, I have applied a common D&A set of assumptions, on the basis that variations in platform development costs have been included in the Opex Scenarios, and most development is expenses.

Common Parameters

The "New" Professional Services Revenue and Gross Margins (50%) are common across Scenarios: $5m, $10, $15, and $20m over the next 4 years.

Interest Income and Cost are de minimis. Tax Rate is 30% (once profit is achieved). The discount rate is 10%.

Illustrative Revenue Profile

The figure below shows the revenue build from one scenario. A few things to get your eye in. First, FY29 hits $120m, vs. Tony's $150m aspiration. Second, we should be alert to the possibility of a significant revenue fall in FY26, as the old "Services" are switch off in December. If the market hasn't been paying attention, I wonder if we really will get one last opportunity to "back up the truck" if that happens? Particularly if the reporting of it coincides with the market being in a grumpy mood towards "growth" and "tech".

What happens in FY26 isn't really important to the valuation and I am not trying to model it - so it is not my forecast - but I will use the result to update the model!

Full Table of Scenario Inputs

Full Table of Scenario Outputs

Valuations

So When Would I Sell?

It is unlikely the market is going to offer prices that have me selling on these valuation grounds any time soon. So it is important not to anchor on these numbers as some kind of pre-ordained truth. They are just assumptions.

For me to hold, I really need to see the Tech Revenue sustaining high growth at good margins. I couldn't really care less about the "New Professional Services", nor do I mind if Tony starts to reset his $150m in FY29.

As long as Tech. Revenue is growing strongly consistent with one or more of these scenarios, then I'm likely to hold on tight, and I might even add more.

Disc: Held in RL and SM

Interesting long format interview on Investorhub with Tony Abrahams.

Investor Hub CEO Discussion

While a lot of the content will already be familiar to investors, there were several new insights I found interesting, including Tony's articulation of the changing of the guard on the investor register, as well as aspects of how he has led the required transformation within the business, and also more examples of use cases for the tech.

On thing is clear to me, FY26 is going to be an important pivotal year as in 1H "old" services transition to zero, and in 2H we see the emergence of the tech business on its own.

Analogous to the "capital sales to SaaS revenue" transition that many of us have played to great benefit over the last 5 years in several businesses, will we see the same value creation from the Services-to-Tech transition here? Answer = yes, if the tech trajectory is as strong as Tony thinks it will be.

While I am still getting up the learning curve on this one, having held in RL for only 1 year and 8 days (!) - this is one of the small number of stocks in my portfolio for which I have real excitement. (... not necessarily a siccess indicator!)

I love a founder CEO with a bold vision.

Disc: Held in RL and SM

Some may wonder why $AIM SP opened up strongly after the release of the results this morning, but then has actually dropped significantly after the investor call.

Before explaining why I think this has happened, I want to say that, in my opinion, $AIM gave a reasonable update today. I haven't gone through it in detail yet, but I'll jot down some of the highlights at the end of this straw.

So What's the Big Deal?

I wonder if anyone else noticed the sleight of hand which - to me anyway - is a significant change in strategy? (I wrote this sentence when the SP was still up amost 10%, and I guess the answer is "yes" lot's have noticed!)

Spot the difference in the following 2 slides: the first is today's at FY25, and the second from 1H FY25.

From today at FY25

From 1H FY25 6-months ago

Put simply, the target for FY29 Tech revenue has come off from $150m to $120m in 6 months.

And so, a continuing Services revenue (being new professional services to help clients embed new products) has been created.

Magically, $30m revenue is targeted for this new Services product, so the $150m overall revenue target remains, but presumably the previous $60m EBITDA will be reduced. However, what the $60m has become was not communicated (but can easily be calculated).

I was a bit slow at picking up this difference (didn't realise until it came up on the Q&A), and so I consider that Tony and his CFO were less clear in explaining the change in thinking.

My Assessment

For those of us who have modelled what a $150m revenue tech business in FY29 looks like in terms of value, the SP today does not reflect this value. In fact, the margin of safety is so large, that there is ample room for several more "downgrades" like today.

If you want to have a quick look, consider @Travisty's recent valuation (noting the discount rate as well as margin of safety applied!)

Pending a deeper analysis of today's result, I think $AIM is making progress. But this material change in just 6 months is - to my way of thinking - a clear demonstration of why a high discount rate and/or factor of safety is warranted for this business.

My assessment of risk also means I will maintain my current position size of 5%.

Should, in future reports, $AIM demonstrate that it can scale towards its lofty ambition, there will be ample opportunity to add more.

Selected Other Highlights

Above, I have focused on the big shift of the day, there is also a lot to like in the FY delivery, including:

• Encoders growing by +39%
• Tech revenue up +19%, accelerating +$23.6m in H2 from +$17.5m from 1H
• Cash balance up by +$3.8m to $14,2m and no debt - aided by change to structure of contracts
• Investment in product fully expensed ($3.5m off EBITDA)
• Expanded from 11 to 25 countries, driven by EU
• LEXI Voice is now being implemented in initial customers, with revenue expected in H2 FY26
• LEXI AI is targeted for launch at the NAB show in April 2026

There are a few technical revenue issues that I need to work through, including it sounds like some restatement of last year. (Note to self to have a closer look.)

Tony peppered the presentation with progress at several high profile clients. A few examples:

AWS is switching off its human services and moving fully to Lexi, one of $AIMs largest enterprise customers, for the live events it hosts. (Breaking news today,....based on accuracy of the AI being better than humans.)

Wins in the US Government (US Congress and US Senate, leveraging a reference case from the US) and Canadian parliament - indicating progress on the Government row of the 9x9..

Conclusion

Long term aspirational targets are a double-edged sword, Initially last year we saw the $AIM SP benefit from them, and today we are seeing it suffer. However, overall, this business is executing its strategy, and is growing strongly, with the new products moving into commercialisation phase and potentially opening up the addressible market.

While the aspiration has been reset, from my perspective, the overall thesis is intact and the changes are relatively minor within the margin of safety.

Disc: Held in SM and RL

I'm just off the $AIM 1H FY25 Results call. I'm not going to summarise the results here. At the headline level they look underwhelming as the business transitions from a legacy people-supervised AI translation service, to a fully AI model. In fact, the market reacted to the headlines opening down 10% as - I assume - holders who don't understand the business traded out on the headline. Hopefully we'll get more opportunities like that, as I'll likely be on the other side of any such price action.

Instead this is a recommendation to any StrawPeople (whether holders in $AIM or not) to watch the recording of the call when it becomes available. My head is buzzing with everything CEO Tony shared with us and, to be honest, I'm going to have to watch the whole two hours again to really understand it.

But what stands out for me, is the evidence this presents in how the "application layer" of software leveraging AI is disrupting business processes, not just in $AIM's legacy media business, but pretty much everywhere.

Tony was very generous with his time in explaining the use cases and key metrics, and there is a lot to unpack in the presentation.

Although in RL I have taken only a modest 3.8% position in $AIM, I was asking myself over and again during the presentation the question @Strawman put to me during my SM meeting last year, along the lines of "how much would you be prepared to put behind a "fat pitch"?" I really am starting to wonder if $AIM is such a fat pitch.

Of course, it is important to temper the excitement that naturally comes from listening to Tony with the reality that there are countless other players moving to be part of the AI disruption and revolution. I have no doubt $AIM will be successful in the top row of its 9-square matrix (see below chart), but it is probably important to be somewhat more circumspect about the rest.

But with Lexi Voice and Lexi Brew, maybe they ARE moving fast enough. If they can execute successfully across the entire 9-squares, then all bets are off as to the valuation.

For those StrawPeople who are Trekkies, during the call, I whatsapp'd my daugher in London a picture of Lexi Voice, with the message "The Universal Translater is Launching on 27th April, with an initial 125 languages".

Related to discussions here today and yesterday about another Strawman favourite, Tony is the exact opposite in terms of communication. He is clear, deliberate, almost to the point of painful detail of explaining what they are doing and what the key metrics are to track. Every question got answered ... in detail ... with supplementary questions returned to as well. A full 2-hour call.

I'm not going to do anything rash or hasty here. But I do wonder whether this is a "fat pitch".

Disc: Held in RL and SM