Aspermont describes itself as a leading media supplier for the global mining and resources sectors. It provides print, content, digital, research, event and marketing services.
Last FY the company claimed revenue of $16.4m, up 16.7% on 2018. Gross margin was 54.4%, 40 basis points higher than previous FY. Unfortunately to facilitate a $1.34m increase in gross profit, the company spent an additional $1.34m in marketing as well as $1.42m in administrative expenses.
Net loss for the year came to $7.47m, though admittedly this was impacted by $4.9m in impairment of loan receivable. It is worth noting though that the company was last profitable in 2013, when it boasted revenue of $40.2m.
The company demonstrates better financials from a cash perspective with FCF around -$1.0m for the 2019 year. At year end, however, the company held just $727k cash as well as a non-cash working capital deficit of $7.4m.
Currently, Aspermont holds $4.7m income in advance that relates to subscription, advertising and event revenue. It is unclear how much exactly relates though to two upcoming events that the company has postponed until COVID-19 travel restrictions are eased. The company describes this as disappointing, particularly given the strength of pre-bookings.
My understanding is that rescheduling of an event generally will qualify all those who have prepaid for refund or at the very least will require them to agree to new terms.
https://www.commerce.wa.gov.au/sites/default/files/atoms/files/aclpreventingunfairnessineventticketingterms.pdf
It is unclear how the company could recapitalise with few tangible assetts on the balance sheet and already ~2.5 billion shares (including unlisted options) on issue. I would assume that Aspermont will have great difficulty raising capital or will be forced to do so on greatly unfavourable terms.
With a book value of just $2.6m, it is difficult to determine exactly how Aspermont came to be valued on market at $20.4m. More than half the company's total assets are intangibles, majority of which (~$7.9m) relate to "purchased mastheads." The notes to this line item state that the valuation considers significant estimates and judgements by management with relation to future economic conditions and the ongoing structure of the publishing and digital industries. One of these assuptions is of average EBITDA growth of 200%. Alarmingly, the company also states that "in determining that no impairment was required at 30 September 2019, Management also took into consideration that the market capitalisation of the Group was above the book value of its equity."
I'm not sure if consideration of this fact is non-standard for an asset of this type, but certainly it does act to compound any error of the market in correctly assigning value to Aspendale's business. For this to be impaired by even one third would bring the book value of the company's equity to 0, along with no earnings, no real tangible assets and a meaningful component of the group's activities suspended.
In light of disruption caused by COVID-19, it is worth considering which of the ASX's currently listed businesses may struggle to survive. Unfortunately, I think Aspermont could be one of these businesses, or at the very least it may be subject to a capital raise that could be highly dilutive to existing investors.
I will continue to watch, as the company's fast-growing event sponsorship segment could be an attractive prospect for future growth, however until these events can resume and until clarity can be offered in relation to the company's cash position, I would not be comfortable buying at any price.
