This is clearly a dog stock, but is there value at 10c?

Why a dog? Share price is down from over $1.70, 13 months ago, to 10.5c yesterday. Seems to be ex growth and making a loss. Cash flow was negative in both halves of last FY, with cash burn over negative $30M for FY22. Ouch!

I bought some on SM (not IRL) based on the precipitous reaction to the cap raise before looking closer.

There has got to be some value here - they have innovative video products, a new cloud strategy and roughly $80M in annual sales. Also, there will be cash in the bank from the cap raise and new management focussed on a turn-around.

After all the bad news (but before the CR ann) the market was happy to pay 15c a share. Cap raise was placement plus a 4 for 7 accelerated non-renounceable rights issue at 10c. Normal reaction is for sellers to stock up at 10c and happily sell at anything above that, eg 10.5 or 11c. So short term, there will be a lid on the price and an anchor at 10c.

But AMS needed the cash so and the dilution, while substantial, doesn't explain the full fall. The TERP, the theoretical ex-rights price, takes the dilution and new cast into account. If 15c was a fair price before the raise, it should be about 12.5c, ex rights.

The rights issue was fully underwritten. That's a double-edged sword. It could mean someone sees great value at 10c (and an underwriting fee) but it could mean that the underwriter will dump the shortfall on the market.

Overall, I think 10c or 10.5c represents good value. Give the management a year to turn this around and you could get a nice return at this price. They may even get a takeover offer for the technology.

Here's my rough TERP calc:

• Old SOI 223M shares @ 15c = MC of $33.5M
• Add 179M shares. Add $17.9M cash less $1M for costs - should add about $17M to the MC
• New MC should be about $50M divided by new SOI of 400M = 12.5c / share. 10.5c is good value !?

* this assumes a bunch of stuff, like 15c was fair before.