The SPP has closed oversubscribed ($1.34m Vs $1.0m) and the board has decided to allow for that oversubscription rather than scale back, which is good.

However, they only needed 34 shareholders taking up the maximum $30k for the SPP to be fully subscribed, so while I welcome the fact AVA got the cash they need, it's not a massive vote of confidence. It also helped that trade in shares bottomed at the $0.13 price (only a few trades below this), they would have struggled if the share price fell below it for even a few days while the SPP was open.

Conclusion - ok support at $0.13, company has a little more cash than they say they need and now the market can get back to thinking about the real value of the company rather than anchor on the SPP price.

Disc: I own RL+SM

Agree @Strawman, it’s a mixed result. 

I was very disappointed at the sales order intake which is the guide we have been told they use and should use. The emphasis on YTD order intake is a disturbing attempt to distract from the quarter on quarter drop from 12.0 to 6.8m or -46% and on a 12 month rolling basis the growth is 11.4% which is below the YTD comparative of 15% but I will note that previous quarterly updates have focused on YTD, so it is at least consistent.

After I got over the initial shock in the drop in order intake I checked the chances of them reaching the target $16-$20m in sales for the half and hence reach their FY24 $30-$35m target range and it looks possible. Given order backlog only dropped $0.6m in the quarter ($8.9 to $8.3) then Q3 sales should be $7.4m (0.6 order drop plus 6.8 new orders), leaving $8.7m in sales required to hit the $30.4m bottom of the guidance range.

If the estimated $5.3m of open orders expected to land in Q4 happens this leaves $3.4m of new orders required in Q4 that are filled in Q4. This seems reasonable and the $8.7m sales in the quarter is not much above the previous 2 quarters of $8.3m (Q2) and $7.4m (Q3). Its a step up from $6.0m in Q1, but if they have the momentum they say they do then it’s not an unreasonable expectation.

It’s going to be lumpy, no illusions on that but the play book seems to be in tacked and as such will participate in the SPP.

Disc: I own RL+SM

AVA CEO Rob Broomfield interviewed on Ausbiz today on the FY21 update:

No risks ahead for Ava Risk Group on ausbiz

Bad Half, Good Year:

AVA’s trading update today focuses heavily on PCP and YOY comparatives which look good but hide a very poor Half on Half comparison.  None the less they have landed very close to the forecast in my valuation and without further information on a likely sale value of the Service Division, I will leave my valuation as is for the moment but would like to shout out @Rapstar for his valuation thoughts which are quite sound. Any variance to my IV is about future growth potential which is guess work.

Update Key Points: (unable to attach announcement due to file size…)

·         FY21 Sales $64.8m (+41% YOY), EBITDA ~$15.3m (+107% YOY), EBITDA Margin ~23.5% (+46% YOY), 17m cash and no debit.

·         Tech Division (FFT + BQT) $24.7m (+17% YOY), but this means that Q2 revenue was $8.0m Vs Q1 revenue of $16.7m (-52.5%).  $5.8m in Backlog and Delays were cited, of which if added still leaves H2 sales down 17% on H1.  FY22 success will be based on the up and coming Aura-IQ system revenues which is going through proof of value programs.  $50m of sales pipeline over 3 years is expected to start contributing in FY22… We will see.

·         AVA Global Logistics Division (Service Division) $40.1m (+60% YOY), Q2 revenues of $21.7m Vs $18.4m in Q1 show QoQ growth of +15.7% and save the year.   However this is the division that is up for sale and management incentives to sell (about 1/3 of the net proceeds) it have been extended until 30 June 2022.  After management incentives and cost of sale AVA will probably realised around $30m for this division or about 1/3 of current market value.

·         Cash position of 17m is an increase of 4m on the end of H1 which shows the business remains FCF positive but again H2 generated about half the FCF than H1.

The bull case remains that they get a good price for the Service Division, Aura-IQ system revenue takes off and grows strongly and they are able to replicate the IMoD licence fee revenues to some extent going forward.

The bear case is mostly that the bull assumptions don’t happen, which means AVA’s Tech Division becomes competitively week and fails to grow.

The market likes the news (+12% as I write), but an update is always welcome and AVA may have been beaten down a bit with tax loss selling…  I continue to hold

H1 FY21 Results out and are as flagged mid-January (others have quoted), additional information & points of note:

·         IMOD contract saw sales in India grow 241%, about 40% of the growth YOY – not a surprise

·         Europe accounted for 47% of growth YOY and remains the largest market at 44% of sales.  I suspect this is linked to the 101% growth in the Logistics business.

·         USA sales dropped 50% and now account for just 7% of sales – disappointing.

No change to valuation, FY21 full year forecast is under baked but until we see more contracts like the IMOD, there are gaps to fill for future sales