The Good

• Significant improvement in sales from the access division, which was previously indicated by management on the back of the certification of the cobalt series of locks. These are stocking orders under the framework agreement, so whether or not the level of sales can be maintained is yet to be seen.

The Not So Good

• Revenue guidance for H1FY24 of $14.2m to $15.2m which is in line with $15m from H2FY23. This also means that the revenue in H2 needs to be at least $22m to meet management’s previous 3 year targets from the September investor presentation.

• Illuminate division still struggling to show signs of growth. This was put down to macro factors. Management once again reiterated confidence in seeing growth in FY24.

Watch Status:

What To Watch

• Slower sales in detect was put down to sales cycles and likely to see an uptick in Q2.
• Q2 sales orders will need to be significantly higher for revenues to enable time for revenue to land in FY24.
• Potential sales growth in illuminate from growing global footprint.

Have been away from me desk all morning, but I got an alert while I was on the go that Ava's first quarter update was out. A quick check of the price (as you do) and saw it was about 5% higher -- "must be good news", I thought!

Anyway, just got back in the saddle to have a look at the update and noticed the price is now down 7%.

Not sure how many times I need to be reminded how irrelevant the market price signal can be for small, illiquid stocks. In this instance (at the time of writing) we're talking about a price move that has been affected by less than $50k worth of trades, and where the high and low of the day ranges from 19c to 21.5c

Anyway, having now read the actual update, and thought for myself (as opposed to letting the market tell me what to think), I think the news is respectable.

I'll let you read the finer details yourself, but the big picture takeaway for me is that although sales order intake was basically flat ($7.7m vs $7.8m in the pcp, and $7.7m in Q4 FY2023), the Access segment (locks) finally saw a good bump as product certification was received for their Cobalt Lock range and Ava's partner Dormakaba stocked up, and the contraction in the Detect segment (fibre optic perimeter detection) was seemingly a timing issue with new orders expected to close in the current quarter.

(The illuminate segment was again disappointing with AVA again citing difficult economic conditions in the UK. The expectation is for FTY growth here -- we'll see i guess)

So adding that all together, the revenue outlook for the first half is for $14.2-$15.2m, an 8% lift on H1FY23 at the midpoint.

What we really need here is for all the segments to fire at the same time -- But it seems one always seems to zig when the others zag. As Mal told us earlier this year, this is a lumpy business.

Nevertheless, Ava seems to be winning new customers in the detect segment, they now have new products and distribution in America and Europe and, for what it's worth, management remain very optimistic for the full year:

"..management expects that second half revenue will substantively exceed the first half."

Take from that what you will, but given the margin assumptions AVA have previously released, it looks very likely that they will at least double FY23's EBITDA. Frankly, with FY revenue of $35m and a 14% operating margin, EBITDA could grow by 150% or so.

Anyway, thesis seems to still be on track.

HELD.

In general speaking, not a terrible update.

The reason behind the 36% drop in FFT sales is not clear. It sounds like the company is trying to get some really big deals but failed to close them. If those deals are going to increase the revenue substantively, as claimed by the company, we should hear about it in the next two months.

Personally, I don’t like this kind of communication. It reminds me of how AVA was talking about Aura IQ years ago.

AVA should probably stop talking about any growth projections, start with the 3 year $100M plan. It’s very unlikely that the revenue will exceed $36M. The 2nd half will have to be phenomenal to reach the target.

I’m sure Mal will have to answer many tough questions this week at AGM. Will follow up after that.

$AVA has announced a new contract by its Access segment.

ASX Announcement

Full text

BQT Solutions secures orders with key distribution partner dormakaba for new Cobalt series locks

Ava Risk Group Limited (ASX: AVA) (“Ava Risk Group” or “the Company”) is pleased to advise that the Access division has secured the first major order for the supply of its new Cobalt series locks to dormakaba AV under its global framework agreement. The Company will supply over $1.3m of the new Cobalt 2 locks into North America with delivery expected to occur during Q1 and Q2 FY24. These orders demonstrate the market opportunity for the Cobalt series locks and highlight the strength of our key distribution partners. Cobalt locks deliver unmatched performance, outstanding durability and address two of the biggest issues in door locking - the ability to align a misaligned door and to release when requested, even with excessive load on the door.

Ava Risk Group CEO, Mal Maginnis commented: “We are pleased to expand our relationship with dormakaba to the North American market and appreciate their continued confidence in our products and our company. We view these orders as a testament to the quality and superior performance of the Cobalt series locks and are confident of further orders from our global distribution partners.”

My Observations

Another not-strictly-material announcement from $AVA, who are clearly making sure the market is aware of every significant sale.

That said, the Access segment is the smallest of the three segments with FY23 sales orders of A$3.9m, so the announced $1.3m order is a decent piece of business for the year for this segment, and you'd expect a similar quantum of new business each quarter if this segment is going to pull its weight.

Other positives are that the sales order is for the new Cobalt series of locks launched earlier this year, and the sale is via the dormakaba distribution partner into North America, demonstrating that the partner has got into action with the new product line.

So good news; however, as someone else here has commented, with the appearance being that any significant sales order is getting an ASX annoucement, periods of radio silence may generate concern with some holders. So that potentially puts $AVA on an announcement treadmill.

Disc: Held in RL and SM

I spotlighted them in my article this week (https://www.goforgrowth.co/p/10-growers-in-fy23-part-3). For the strawman community most of the article will be common knowledge. I'll just paste here want I think is important over the next 12 months:

• Large Contracts. Following the final report, AVA announced two contract wins, totalling $1.8 million. The vas majority of AVA’s revenue isn’t recurring, so achieving $40 million for the year would require securing numerous such contracts. Ideally, they would also secure more substantial deals ("elephant" contracts) to drive substantial growth. Keep an eye out for those.
• Acceleration of Growth. With the company openly stating its aim to reach $70-$100 million in 3 years, we’ll need to see sustained and even accelerated growth. If this doesn't materialise in the next 2-3 reporting periods, it may test the patience of investors who are already eager. This would not be great. While their current organic growth of 36% aligns with the lower end of their goal, it's important to remember that as the base expands, achieving such growth can become progressively challenging each year.
• Profitability on the Horizon. The market's response, or lack thereof, to AVA's positive results likely stems from the investor's desire for profit and cash flow. AVA didn't deliver these this year. However, the improvements in nearly all metrics above the Net Profit After Tax (NPAT) line, along with management's emphasis on future dividends, suggest that these are forthcoming. Although AVA doesn't provide a 4C report every quarter, they still offer updates. While these updates typically omit the bottom line, I'll analyse them for any subtle hints.

Another contract announcement for Aura Ai-X

Relatively small (A$1m), like the one announced recently, but great to see some traction for the product since its launch 6 months ago.

Held.

New contract announcement.

Not strictly material, so an annoucement wasn't required, so I guess management consider the value of the business isn't recognised in the SP. Text of announcement follows:

--------

Ava Risk Group secures multiple EU Airport detection contracts for Aura Ai-X Ava Risk Group Limited

(ASX: AVA) (“Ava Risk Group” or “the Company”) is pleased to advise that it’s new Aura Ai-X fibre optic sensing technology has been selected to protect a critical group of European Airports.

With a total value of approximately US$0.5 million (A$0.8 million), the contracts for Satu Mare and Sibiu Airports in Romania and another Western European hub are for the supply of detection software and equipment as well as a five-year contract to provide software upgrades and support. Delivery of the detection software and equipment is expected to occur during Q1 FY24.

These contracts confirm the market opportunity for Aura Ai-X, which features an embedded deep learning engine to enhance system performance by referencing algorithm upgrades backed by the Company’s global data library.

With unrivalled performance and exceptional event classification accuracy, Aura Ai-X delivers a leading Probability of Detection (POD) combined with the lowest Nuisance Alarms Rate (NAR).

Ava Risk Group CEO, Mal Maginnis commented: “Securing these contracts is a vote of confidence in what we believe to be the most advanced perimeter intrusion detection technology on the market. We are confident that Aura Ai-X will fast become the solution of choice for the smart protection of critical infrastructure worldwide.”

Disc: Held RL and SM

You can watch the recording for today's briefing here (passcode: B3@&hDEJ)

Some notes from the call

• Mal has been in the role for 8 months
• Sales order intake is the key KPI for the board
• Detect has the longest sales cycles
• Mal called Access a "world leader" & "outstanding business"
• Illuminate largely off the shelf products
• Access & Illuminate are largely distribution businesses, with much shorter sales cycles. But good channel into the Detect offering.
• Commercial side of the business has been completely restructured in just five months
• Aura AI-X launch has been "very successful" with uptake in "critical European border"
• Illuminate gives a great base for expansion into European market, and is where the group CTO is based.
• Detect and Illuminate as a combined offering is compelling, and enables cross-sell
• Sales order intake has mapped to new revenue well, so it does seem like a credible forward indicator.
• Illuminate gross margins are around 48%
• Neville (CFO) said EBITDA margin effectively double and evidence of how well the cost base can scale
• "really well placed" to see an acceleration in orders through Access segment in FY24 as certifications locked in.
• Significant potential for more expansion in the US
• Higher receivables just timing with Detect orders at the end of the year
• Inventory build-up is very deliberate. And has helped maintain margins as prices locked in.
• Mal said plan to grow was still "fundamentally sound" and supported by second half results.
• Recurring and OEM/Distribution revenue to grow to 60% of the base
• First major sales through Dormakaba in current year
• Huge infrastructure growth in MENA
• Corrections and Energy are growth areas in North America
• Geographic reach is significant, with senior execs in each location
• New commercial team have brought existing contacts with them.
• All 3 tech platforms are market leaders
• The market size is huge, and AVA only addressing a very small part at present
• The "hardening of security" is a tailwind
• Net profit is expected in FY24. On the path to profitability "quite meaningfully"
• EBITDA margin should be "solidly" in double digits for current year (currently 7%), around 14-15%
• July & August have seen "solid" orders for Illuminate and Access, which gives confidence for FY24 growth target of 25-57%.
• Licensing deals seem to be low priority under Mal. More focused on the high-end large programs (where there are a lot of opportunities). Mal doesn't want the one-off deals
• Dividends will commence in the next three years

Just bought another 50k shares on market.

Solid result and dropped share price on the same day, can't ask for more.

With the current growth rate, reaching $36M revenue in the next 12 months is quite realistic. A 25% growth rate will do the trick.

Not so sure about the 14% margin although David was quite confident about achieving this goal during the Q&A. David also mentioned about distributing dividends in the next 3 years which could be another plus.

During the presentation, Mal mentioned that the company was underperforming in European market and it will be fixed with the new local-based sales team and executive. The 214% growth in Europe is a good starting point (not sure about the rate excluding GJD though).

One thing I picked up is that Jim Viscardi (EVP) is now one of the Key Management Personnel, replacing Matthew Nye-Hingston, COO of BQT. Mal did mention how much he value the employee performance during the Strawman interview. With 81% growth in U.S., it looks like Mal kept his word and rewarded Jim, who has only been with the company for two years, with the proper position within the organisation. I really like this kind of restructuring and hopefully it will be motivating to everyone working at AVA.

Another interesting thing is that, the performance of Mal, the group CEO, is only measured based on the share price. I suspect that there was some sort of agreement between Mal and the board prior to his appointment. I guess people are getting a bit inpatient and dissapointing with the share price movement in the past three years. But still, we haven't seen Mal doing any kind of suspicious maneuver to pump the share price since joining the company. Instead, he has been very patient with the process, and passionate about the products and services, which is respectful. As a long term shareholder, I can't ask for more from a CEO.

The company is at a very good position at the moment (a little bit less debt would be ideal though). There is a good chance that the company will reach the $70M goal (not sure about the EBITDA margin) if everything is done correctly. The shareholders are in good hands and let's see what Q1FY24 will look like.

Ava's FY23 results seem good to me. The market disagrees :)

The highlights from their results update:

If you look only at new revenue from the detect segment (an additional $3.8m in revenue), and ignore Illuminate which added $6.8m in revenue following the acquisition of GJD which was acquired in August last year, you still have a 20% lift in revenue. Indeed, around a third of orders for Detect came from North America, which saw a 20% lift in orders received over the year.

In fact, sales orders were up 36% if you ignore the GJD acquisition (up 71% in total). This is a great leading indicator for revenue growth.

Access was disappointing as the company awaits key product certification for the Cobalt 2 locks. Once received, the company expects that to open high quality distribution channels. We'll see.

Gross margins were essentially flat, which ain't bad given the shift in product mix (Illuminate products are lower margin), but the operating margin (ex restructure costs) was up 3% to 7%. A good demonstration of the operating leverage potential. They maintained their slide that highlights ambitions to growth the EBITDA margin to 14% next year, and up to 25% within 3 years. Also had the $100m sales target, which Mal talked about when we chatted with him recently. Very bold aspirations, but not unreasonable in my view.

At the bottom line there was a $1.1m net loss for the year due to higher depreciation and interest charges associated with GJD purchase. (compared to $0.7m in the prior year, ex discontinued operations).

Cash flow was negative for the full year as the business bulked up its inventory in response to supply chain issues. But op Cash flow was positive in the second half of the year. The company has $3m in net cash, but given receivables from recent orders, non-cash depreciation charges and working capital movements, I don't see a big risk of a capital raise.

At a current enterprise value of $46.8m, the EV/EBITDA ratio is 23.4x. That does not strike me as high given the pace of growth in revenue, sales order intake and the demonstrated scalability of the business.

I missed the briefing this morning, but will try and track down a recording and post here.

Full ASX presentation is here.

[HELD]

Announcement

The Good

• Maintaining FY23 revenue guidance with full year revenue falling around the $28.5m mark.
• $7.7m of sales orders for Q4 which is an improvement on the PCP. Most of this comes from the detect segment with lower sales orders from Access.

The Not So Good

• In Q3 management indicated improving orders from the Access division in Q4 going forward. Whilst there was a small improvement over Q3, order intake is still down on Q4FY22.

What To Watch

• Progress of sales now that the restructure of the sales teams has been completed.
• Certifications being gained for the access division products which are expected to be completed in Q1FY24 and lead to additional sales beyond this period.
• Company is confident of growing orders in the illuminate division in FY24, which have been impacted by challenging economic conditions.
• Growth of recurring revenue from Aura Ai-X and Aura IQ platforms and how this is reported in the full year results. (Carried Over)

Strawman Meeting Notes:

• Building of commercial focus in the business as the technology is sound. Large changes over the first 6 months, turning the commercial group into a single entity under a single manager with four regional groups sitting below that.
• 65% change across the team mostly completed 
• Execution story, still more work to do in getting the technology to market and getting customers to understand the problems that can be solved.
• Against bespoke product development. Develop and sell your own product. Integrate good ideas when they come along.
• Building an online integration platform to ensure all products are compatible and can be integrated.
• Clear focus on the number of larger deals over $1m which need to be achieved by the sales team. More clients, more regions and more applications will help reduce the lumpiness in revenue
• Coming off a low revenue base Mal sees a clear avenue to meeting the mid term sales targets of $70m+
• Not comfortable with a single product in a single market as a basis of growth. Aura-AiX is the next step from Aura IQ into a wider range of applications. Aura IQ is still part of the AVA product range.
• Will continue to develop new unique IP and develop patents on technology.

It can be really hard to walk away from these CEO meetings without wanting to put everything into the company I have just heard being interviewed. It is so easy to get caught up in the hype. While Mal's obvious enthusiasm for technology (and even more so for his new role) came across very clearly it does make me wonder why none of this new found focus on Sales Orders / boots on the ground expansion hasn't been obvious in the past. Did he disagree that much on the focus on R&D and acquisition? - Or is he just wanting to make his stamp on it and turn the ship? Don't get me wrong as a shareholder I love what I heard and for all the obvious reasons want to see it happen - I am just extremely aware of not getting caught up in the hype. Was that just me or did anyone else feel that way?

Some notes from the 4th quarter update today

Looks like AVA will deliver revenue bang in the middle of guidance, somewhere between $28.4 and $28.7m (guidance in April was for $27.6m - $29.6m.)

That means the second half has delivered about $15m in revenue -- 10% up on the first half of FY23 and up 50% on FY22 H2 result.

Sales orders also growing OK -- excluding the GJD which was acquired last August, sales orders increased 13% for the last quarter and were 36% higher over the full year. (up 71% if you include GJD)

Breaking things down across the various segments:

The Detect segment (this is the area that does the fibre optic sensing tech) saw $5.1m in new order intake. For the year, the order intake was $20.7m (an increase of 55%) which was in part driven by the new Aura-AiX product. Still, order intake was $6.4m in Q3, so that's a drop quarter on quarter.

The Access Segment saw a 50% lift in new orders from Q3 to $1.1m, but was down 17% for the full year. Not great, but apparently things have been held up by attaining product certifications in various channels.

The Illuminate segment was very "meh", generating just $1.5m in new sales orders in the last quarter and $6.3m for the full year. The company blamed challenging conditions in the UK.

Sales orders tend to be pretty lumpy, as can be seen above, but I am encouraged to see the Detect segment -- by far the largest -- making some progress. There's been a real dearth of announcements, so it seems this is a story of a lot of small wins, rather than any single large contracts.

If AVA are to hit the lower end of their 3 year aspirational target ($70-100m), they'll need to do at least 35%pa top line growth from here. We need to see increased momentum on an organic basis if they have any hope of doing this. We're speaking with the new CEO tomorrow, so it'll be good to get some more detail. And the full year results will be out in another month, and I'm pretty keen to get a sense of what margins look like.

Disc: held.

First things first, the management team of AVA does hate releasing anything on ASX.

The new deal is to protect a 30km double decker conveyor syetem, probably a direct result from the first Aura IQ deal with the, as quote, global leading conveyor manufacturer.

As usual, we do not know how profitable this deal is. But still, a 30km conveyor system is way larger comparing to the previous one.

Another interesting thing is, although the location of the project is in Far East, the news was posted by AVA's sales director in Europe.

Maybe Robin took over the conditioning sales after Pietro left the company recently. Again, we don't know anything since the company is super quite when it comes to communication.

It's definetly a good sign seeing more Aura-IQ deals coming in. At one point I almost thought this tech was a total flop and I was probably wrong on this one. It may not be a huge sucess as everybody expected, but it does make a solid addition to the FFT product portfolio.

Also, I would be super pissed if this is actually part of the first Aura-IQ deal, which was only $300k.

Anyway, more and more questions should be asked on AGM. Let's see what the company has to say.

A post on LinkedIn from yesterday got my attention and lead me to this quick research about AVA's footprint in Ukraine. I found it quite interesting and could be a nice piece of info for the good folks on Strawman.

A distributor named Fortisec, founded in 2020, prepared a 17-page official brochure in Ukrainian with details of the following products:

• laser detectors
• explosion-proof active infrared barriers
• perimeter lighting solutions

This is quite interesting since we've never heard of anything about AVA in Ukraine. I do know they have people looking after Eastern European market and that's it.

This got me thinking, if GJD is heading to Ukraine during the war, what about FFT? So I digged deeper and found that FFT was actually one of the first partners of Fortisec, according to the official website, and the distributor involved GJD as one of its brands and signed a distribution agreement back in Dec. 29th 2022. That was about 6 months after AVA bought GJD so a good example of synergy right here.

I didn't stop there because I wanted to know more about what FFT has been doing in Ukraine. I couldn't find any contract or detain about specific clients, dut to the nature of the security business.

What I did find, is some figures from the website Import Genius.

https://www.importgenius.com/ukraine/suppliers/future-fibre-technologies-ltd

Since I don't want to pay $USD99 per month for the full acess, I made some some educated estimations using the limited information.

According to this website, Fortisec has been importing FFT products directly from Australian in the past 2 years. I found 33 shipments on the websites, and the value of each shipments varies from $10k to $50k in USD. Based on the descriptions of of products, it looks like FFT has been protecting some sites in Ukraine from theft and fire. They also imported instruments for measuring ionizing radiation, which I found quite odd. I have no idea FFT makes such type of products.

Since the records were not consistent and ended at Oct. 2022, I suspect the actual number of shipment being much bigger than 33. The inclusion of GJD product lines directly proves that AVA and Fortisec have continuous coorporation.

I know the company has been very quite when it comes to releasing nformation to the shareholders as a treat. The management of AVA only make material changing anouncements and they took it seriously. I'm not sure if it's a good thing because as a long term shareholder, I would love to know more details behind the numbers from trading update and answering my questions twice a year is just not enough. The footprint in Ukraine would've made a great news feed, even without mentioning names or locations of the site.

This kind of research shows that the company is continuously sending real products to real customers, solving real problems and making real cash while remaining absolutely silent. It helps me sleep well at night knowing that I'm not holding some nonsense like Brainchip.

This is more a note to myself.... but i thought i'd share the research on the sales / bd new hires:

I've started looking into Ava in the last week or so and I noted that there was mention in various communications, particularly in the Strawman presentation, that R&D investment is sufficent and that further emphasis on global business development was required.

Based on my research on LinkedIN / Sales navigator I see only 4 new Sales / BD headcount in this FY:

Sketch Mohan - National Account Manager - BQT - 2 months

David Macey - Federal Sales - FFT - 10 months

Andrew Holysz - National Sales Manager - FFT - 3 months

Mark Glasser - Regional sales Manager - BQT - 8 months

On the one hand, these new hires will not have a signifcant impact on COGS assocaited with the various 'good-news' reporting we've seen over the last 6 or so months, on the other, it will be interesting to learn how they continue to both penetrate better into existing markets and start to leverage the complementary elements of their various offerings as a differentiator as time goes on.

Disc: Not held

During Mal's presentation on H1 results, he mentioned that he's been working on improving the global sales capacity of AVA. Mal wanted to have a head of sales placed in each time zone, with himself coordinating everything in the heart of the world, Singapore. The clients will then have easy access to someone who can actually make the call and everything will be processed in an efficient way.

Here's some information I gathered from LinkedIn.

(MENA stands for Middle East & North Africa)

Clearly, Mal kept his promise and we now have a director/VP accessible to clients across all time zones. Significant personnel changes have happened in the past 6 months. Florent and Robert are from Rapiscan executive team, which was lead by Mal himself. Robin and Ali have been working at FFT/AVA for years. Robin used to cover Europe and North Africa and Ali was in charge of sales in Turkey (maybe he was the one behind the mysterious Istanbul Airport deal, which we still don't know the exact figure). Appearantly, Mal reassigned their responsibilities, which makes a lot more sens now, and promoted them. I'm sure there are way more changes and additions to the sales team that I couldn't find from public resources.

We also have Sanjay Oberoi covering India, James Viscardi who is now the Executive VP of Global Security, promoted from the position of VP Americas in Jun-22, and Pietro Corsaro, joined AVA in Nov-22, focusing on boosting condition monitoring business (basically Aura-IQ) in Germany.

Those changes are in line with the company's strategy of boosting sales capacity first mentioned back in 2021 if I remembered correctly. At that time, the company was focusing on expanding the team in North America. In two years of time, the company now have propraetors placed around the world. Maybe we all underestimated the ambition of the company after all.

So let's just wait and see how the upgraded sales team perform in the next 12 months. In the most ideal dream-come-true kind of scenario, H1FY24 will be amazing with new orders flying in from every corner of the world taking more than 15% of the intrusion detection market with the most advanced systems. (The market share for FFT was 4% back in 2015 according to the prospectus).

In a much more realistic scenario, I'm expecting the FFT sales in H1FY24 to grow by 10-12%. Not quite enough to reach the $70M goal but very achievable.

Ava’s update has been covered by the community so these are just some notes for myself

The Good

• Sales orders for Q3 up to $8.3m. Growth is largely driven by the Detect business.
• Sales orders YTD up to $23.1m which is 46% organic growth of the Detect and Access divisions

The Not So Good

• Access sales orders continue to decrease / remain flat. So far the agreement announced with Dormakaba in Dec 2021 is failing to produce any impact.
• Illuminate / GJD was reported to have had revenues of $7.95m in FY21. Based off the recorded revenues so far it looks like it would have been short of that number for FY22 and for FY23.

What To Watch

• H2 revenue guidance of $14m to $16m which would be an improvement over the $13.6m in H1. At the upper end of guidance this is on track with the growth rate required for previous three year revenue projections.
• Management have flagged improved sales orders for Access division in Q4 and going forward
• No updates provided on the Anglo American install progress.
• Growth of recurring revenue from Aura Ai-X and Aura IQ platforms and how this is reported in the full year results

The FY2023 revenue guidance of $27.6M to $29.6M really got me thinking. The revenue for H1FY23 was $13.6M, which means the revenue for H2FY23 is expected to fall between $14M to $16M. So they are either expecting a terrible Q4 or only part of the $8.7M is contributing to the Q3 revenue.

Also, it looks like the company is trying to settle a contract worth $2M.

The order intake of FFT grew by 68% into $6.4M impressively. It would be nice if AVA could communicate with the shareholders a bit more during the process.

Again, no further Aura IQ contract mentioned. I'm not sure if it's because the company couldn't land any new deal or Aura IQ deals aren't ann worthy anymore in the eyes of management.

In general, this performance is not bad, especially for Q3, which is usually a sad quarter for the company. A bit dissapointing seeing the FY23 guidance though, not sure what's going on here. $27.6M is still far from the $70M benchmark set by the company. Based on the public information, reaching that benchmark within 3 years seems to be very challenging.

I know the liquidity of this stock is very low, but still, let's see if the market likes this update or not.

Btw, I think the chances of the management selling BQT and giving away another stupidly large, unfranked special dividend is getting higher and higher. The division kept sinking after signing the global distribution agreement with Doormakaba and the management doesn't seem to be very excited about this division.

I was thrilled to see the first Aura AI-X deal happened so soon. When I first heard of this new product, I was worried about going through this Aura IQ drama all over again.

A$2.2m is reasonable for such a contract. There is a good chance that the profit margin is a bit larger comparing to the energy facility contracts. I was hoping to see some recurring revenue from Aura Ai-X deals. Unfortunately we have to wait longer for that.

But still, this contract does give me more confidence and I will be less of a cynical shareholder when I hear phrases like "most advanced", "market leader", "high profit margin" from the management of AVA.

Positive results for AVA as outlined over the past 72hrs on the platform

Revenue lines and EBITDA margin expansion a real highlight as is the consistency of the growth across detect and access segments as well as positive first full half contribution by the illuminate segment.

Business momentum overall feels positive and view my holding in AVA to some degree as a defensive play in the current environment.

Two other areas caught my eye on the call and presentation

1. Focus on increased inventories which are up by 117% to $7,073million in the half compared to last year I see as both a defensive and proactive move to ensure if contracts are landed the ability to move promptly to bank the revenue will not be delayed due to inventory shortages.

• New CEO Mal Maginnes outlined the ability of AVA to not only grow revenues to $100million over the next 3-.5years but in doing drive EBITDA margins to over 25%. At the top end this equates to a lift in revenue of 200% but a operating cost increase of 100%. If executed will not doubt see strong upside to the MC. In the half just declared operating costs overall rose by 38% to $13,613m from $9,845m. The two biggest components of the operating costs in employee and raw materials rose 40% and 50% respectively.

Something to watch especially in driving to meet the aspirational results outlined of 25% plus EBITDA margins.

Disc. Top 5 positions held in RL and SM

….and yet shareholders sell and SP is down 6% on these results !

Makes little sense to me.

Pleased with the latest from AVA.

ASX announcement here

The number of new sales orders was 47% higher, thanks in large part to the acquisition of GJD. However removing this still shows a 15% jump in the sales intake for continuing operations.

Statutory revenue was up 50% to $13.6m (looks like about 16% higher without GJD). And EBITDA margins rose to 9% to $1.2m (the pcp was messy due to divestment of Services division and IMoD contract, but excluding these the EBITDA margin was 2.5% for continuing operations last year).

All segments delivered growth. And the business seems to be scaling well.

Operating cash flow was -$2.2m due mainly to changes in working capital (increased receivables and inventory due to increased orders and recently completed projects), and also added R&D. There's still a bit of padding on the balance sheet with net cash balance of $4.4m, after subtracting $2.7m in borrowings.

AVA reiterated that over the next 3 years they expect $70-100m in revenue at 25% EBITDA margins. Even at the lower end of that range, and assuming 20% EBITDA margins, that's $14m in EBITDA, or 6x higher than the current annualised level.

If they do that, you'd get a 10% average annual capital gain so long as AVA trades at a EBITDA multiple of 6x or above at that point. At the upper end of guidance, EBITDA comes in at $25m.

Anyway, aspirations are one thing, delivery is another. As of this point, shares are trading at roughly 26x annualised EBITDA.

But i see a business that is growing well, with improving operating margins (and stable gross margins), industry tailwinds, and that is likely to be self-funded (in the absence of an acquisition).

Held.

Here are a couple things I found interesting from this report.

The company is no longer debt free due to the GJD acquisition.

Although it hurts a bit to know the fact that AVA is no longer a debt free company, this is still a reasonable move.

When I first read about the GJD acquisition, I was amazed by how cheap the price was. For the first time, we can have a look at the balance sheet of GJD pre-acquisition and it explains a lot. If you had $1.6m in receivables but $19k in your bank acount, you kinda need someone to bail you out. The balance sheet shows a business with good product but just needs a bit more sophisticated management.

Without repeating what other straws have posted I remain bullish with AVA risk.

Key reasons :

• Multiple ways AVA can grow revenue to $100m over next 3-5yrs.
• Ability to grow revenues to $100m over net 3years with little cost increases.

Add the rock solid balance sheet and dividend payout ratio of min 35% of EBITDA remains a top 5 position in my RL and SM portfolio

EquityMates is all aboard the AVA express, courtesy of @Strawman himself. Summed up for the layest of laymen. Will we see an influx of fresh money? You heard it here first!

In all seriousness, I applaud the public conviction.

Decent result from AVA it seems.

Revenue from continuing operations expected to be up 50% to $13.6m (guidance was for $13-15m)

Sales order intake up 16% if you exclude orders from GJD acquired in August 22, but 47% if you include. Existing FibreOptic and access control businesses saw sales grow 15% and 21%, respectively. Good momentum into north American energy sector with more sales expected. New CEO says they expect continued growth and operating leverage in second half. Received "strategically" important orders for AuraIQ.

Next half we'll get a full 6 month contribution from GJD, but on a pro-rata basis AVA is on 2x sales.

Growth continuing, strong balance sheet, CF positive, undemanding valuation and doesn't seem to be facing any real headwinds. Valuation, undemanding.

Held.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02625965-3A611735?access_token=83ff96335c2d45a094df02a206a39ff4

AVA Risk Group - Trading Update

Doing my due diligence on AVA Risk and feel the need to illustrate this from their last investor presentation. Yep, it is old news from the end of August, but as it had not been explicitly mentioned I thought I should add it in.

They are only barely profitable when you factor out the IMoD contract - which makes any valuation based on their current P/E questionable.

Saying that I still chose to add them to my RL portfolio, but I will be keeping an eye on their profitability (with large contracts like IMoD factored out) going forward.

Disc: Held

$300k to install Aura IQ in combination with a fire detection system at a iron ore terminal in Brazil. Due to occur first half of calendar 2023.

Client is a joint venture between Anglo American and Prumo Logistica.

Again, not overly material, but good to see some orders coming through and that the sales pipeline remains strong.

AVA risk group just announcing another contract for aura IQ in Brazil

ASX Announcement

This isn't overly material in it's own right (in dollar terms), although new deals are always welcome.

Where it's noteworthy is that this is the third implementation for this facility, and is replacing another system. That is, the customer gave it a go, found it superior and is extending its use -- all after only a few months since the first system was installed.

And, as the statement says, more sales are expected down the track.

We know from speaking with Ian Olson from Pointerra that the energy sector is very cooperative in the US (they don't directly compete and there is a large sharing of ideas and solutions). I can imagine this will become an important reference site for AVA in the US utility sector.

Disc. Held.

AVA delivering on their promise of fibre optic expansion.

I first came across AVA through strawman, and really only got properly interested after the recent company meeting a month or so ago. My interest and valuation revolves around this slide and the associated commentary from management about their buisness units. They think they can increase revenue by 2-300% while only increasing the costbase by 50-70% over the next 3 years, if they can do that then they should be worth a lot more in the future than they are now. But the question is how much more!

So far for FY23, they have upgraded guidance for H1 for revenue to be between $13-15M and have said that Q2 was better than Q1 and H2 is expected to be better than H1. So I am running a high and low scenario for FY23 - Low: $30M revenue and High $40M (probably a stretch but possible). Projecting further out I just guess $60M for FY24 and $80 for FY25 to be a bit conservative, but these are really just ballparks for now.

I am assumming a Gross margin of 65% (historically ranges between 65-75%) and their cost base to increase from $10-12M currently to $18M in FY24 and $24M in FY25. Closer to a 100% than the guided 50-70% increase to be conservative.

I have struggled to find what proportion of their EBITDA falls though to NPAT. From the 2022 annual report they have:

-$2.5M of debt and I am assumming 5% interest- so repayments come in at $125K/yr, largely immaterial to the calculation

-$17.5M unutilised tax losses are available for use. Based on them making $10-15M EBITDA then the tax bill will be around $3-4M, so will take a few years to use up the previous tax losses. They also have some foriegn tax credits ($10M) but I have ignored these for now.

-Depreciation and amortisation in 2021 and 2022 for the continuing operations was $1.8 and $1.7M respectively. I am assumming these will be similiar in FY23 and will scale at a similiar rate but will revisit this when the next report is released.

So from my best estimates in FY23 the ITDA should add up to be around $5M, based on what I think EBITDA will be means that to get from EBITDA to NPAT is between 50-70% conversion rate give or take, so I will just work with 60% for all years.

The numbers look pretty reasonable for 2023 and value really depedns on whether they hit the low or high side of revenue numbers. Going forward I don't have high confidence in these numbers but I think the ballpark they re in is about right and if they keep delivering in there day to day buisness units and also get a few more of the 90% margin licence deals to come in like they have spoken about then the 2025 numbers don't seem to crazy.

Maintaining costs and scaling revenue what a combo!

I would appreciate people tearing this apart and telling me why some of my assumptions or what I have done is garbage

AVA Trading update out.

AVA Q1-FY2023-Trading-Update.PDF

Appears Ok.

Disc Hold IRL & SM

Hey guys, I recently discoverd Strawman. I think it would be worth it to bring my other post on Hotcopper regarding to Aura IQ here to have a discussion. Please let me know what you guys think.

As we know, the development of Aura IQ is partialy funded by ACARP. Therefore, Mining 3 is obligated to submit reports regularly to ACARP and you can actually purchase those reports.

Based on those Mining 3 reports I found, the development of Aura IQ has four phases so far. The first three ones are:

Phase 1: Feasibility demonstration

Phase 2: Demonstrate proof of concept on site

Phase 3: Improve the classifier of the system.

After the first three phases, Mining 3 received many feedbacks from the industry. The industry really wanted Aura IQ to be a near-real-time system and made it very clear that this feature would add significant commercial value to the system. So the main focus of Phase 4 was to optimize the system and enable it to run continuously.

Phase 4 was planned to take a year, starting from Dec. 2019. From the management's perspective, they would have a system that satisfied all the industry's commercial need by the end of 2020. That's probably why they were extremely confident of having their first Aura IQ deal in 2021.

Then the COVID hit. The lock down delayed the testing and made certain parts hard to be accessed, which slowed down phase 4 by 4 months. After that, the lead scientist stepped down and paused the project for 3 months until they found a replacement. Eventually, Mining 3 concluded phase 4 in Jul. 2021.

According to the same report, phase 4 was quite a sucess and the feedback from the industry, as I quote, "positive and informative" and they've been conducting further development to handle customers' unique features. The fire detection system integration is probably on of those unique features.

Another thing I found interesting was Strata Worldwide anounced their partnership with AVA about the same time when they were running field test for phase 4. I think it is a strong indicator of the sucess of phase 4.

My conclusion is, after the completion of phase 4 in mid 2021, Aura IQ became a completed product that was finaly ready to be deployed to the market. in the past 12 months, the company was probably being busy modifying the product according to all the specific requests from each client. It's very hard to estimate when the clients will be absolutly satisfied but my guess is a good deal from the mining industry should be around the corner.

I do have some concern about the IP ownership. It looks like all the core AI algorithm related patents are owned by Mining 3 because they mentioned at the end of the report that they planned to use the same algorithm on other applications. FFT is more like a sensor suppliers to get raw data. I don't know the details of the agreement between FFT and Mining 3 but it does look like FFT could be replced with other sensors. Even if Aura IQ did become a huge sucess, we should still keep our eyes open.

Looks like Rob Broomfield is retiring.

I'm not sure of his exact age, but he started his degree in 1978 so i'm guessing he'd be around 65. He's staying on for a further 3 months, will be doing consulting for a further 12m and the Chairman had a lot of nice things to say about Rob in the announcement -- so it all seems very amicable. He also said he remains a "committed shareholder"

Given they already had a replacement lined up, I'm assuming the board knew this was coming.

Rob will be replaced by Mal Maginnis, formerly the president of Rapiscan Systems, an airport security firm which did close to A$1b in revenues in FY22. Mal has 35 years experience in the security sector.

It seems the team at AVA have some history with Mal, having known him for some time. I've also heard from a broker that Mal was the person who recommended the recently appointed global head of sales Jim Viscardi -- whom he worked with at Rapiscan. So the chemistry between sales and Chief Executive is well established

The remuneration package seem appropriate for the role and size of the company. $330k pa fixed (Singapore dollars, which is about $360k AUD). Plus he gets 1,000,000 shares vesting annually in 3 tranches over 3 years -- about $185k at today's share price.

He'll get another 500,000 shares per year for 3 years, if the share price is 20%, 40%, and 60% higher from his start date.

ASX announcement here

Let's see if he can kick some goals.

Really enjoyed the meeting with Rob. I find him a well-considered person and enjoyed hearing the insights into the progress of the company.

I think with the AURA IQ product, if it works like it's promoted to work, then the sales will come from word of mouth. The professionals at the mine, like the engineers, need annual CPD and they usually go to an annual conference somewhere to get it. The conference organisers usually ask the delegates for papers to present and, sooner or later, someone will present how AURA IQ has increased productivity at their mine. I think that will be the catalyst for a flood of enquiries. A successful proof of concept trial is key, but it sounds like they've almost cleared that hurdle.

I also see massive potential coming from the databank of information they have to mine and train their systems.

Happy to keep my toe in the water with AVA both IRL and SM.

A few notes from the management call:

• The support agreements have potential to be a significant contributor to earnings. The company has a near term target of 250 systems, each of which they expect $20k per year from. ie they are hopeful of initially building this to $5m in revenue and expect it to be very high margin (i took it as north of 90%). Most of the support is essentially systems upgrades which can be delivered remotely, and don't require any changes to hardware.
• Rob acknowledged the disappointing pace of progress with AuraIQ, and said it was essentially a function of the how fast the Proof-of-value trials were within existing mine sites (ie. he seemed to suggest this was outside of their control). That being said, future sales will point to reference sites and won't need to go through a POV trial. Rob said he expected a "significant uptake in FY23" for AuraIQ and also reiterated the target of $50m-plus in annual revenue from this system.
• There remains huge scope for this type of product across 'smart cities' and Rob emphasises that these weren't pie in the sky aspirations, but rather things they have already demonstrated and even had existing customers for. The group's domain expertise in this area was unparalleled, according to Rob.
• In terms of licensing sales, existing clients (both in India and Brazil) were keen to do more of these, but the company wanted to see them successfully implement existing sites first. They said they "wouldn't get out of bed" for any licensing deals that weren't in the "millions of dollars".
• Cost base, as it stood at the end of FY22, and including GJD, was "representative" of what it would look like going forward.
• The company expects operating margins to improve significantly as it scales. The CFO suggested "double digits" compared to 4% at present.
• The company was very optimistic about GJD as an acquisition. It provides material distribution capacity for BQT products in Europe and GJD's existing product set was very complimentary to FFT. Importantly, they expected minimal integration effort/cost.
• AVA is not focused a lot on other acquisitions, but where it made sense there could be 1 or 2 strategic purchases in the coming years.

AVA reported revenue of $19m, in line with what they suggested at the last quarterly update. That's a 25% drop from last year, even when you exclude the now sold services division, but it's a 12% improvement when you take out the license fee revenue for the Indian Ministry of Defence (IMoD) and covid grants.

nb: We shouldn't easily dismiss the IMoD revenue from previous years, but this type of (extremely high margin) license revenue is always going to be lumpy. So stripping them off does offer some insight into 'core' operations, which pretty much seem to be chugging ahead nicely. Hopefully we see a few more significant license fee deals -- and in fact there's one due to start in Latin America this year -- but we shouldn't extrapolate too much from them.

It was also good to see the gross margin lift to 65%, especially in light of the current macro backdrop. This was a feature of more sales from the higher margin FFT segment. So overall, again focusing on core, continuing operations, gross profit was 14.1% higher.

Moving further down the income statement, added expenses saw EBITDA drop 10.4%, with the operating margin moving from 5% to 4%.

This was because R&D, sales and marketing, office and travel costs were all higher -- about 63% higher to almost $3m for the full year. That feels like a lot, but all told it's an extra $1.2m and this expense is to help penetrate into new markets and underpin future growth.

Indeed, revenue for North America, which is the stated priority region, saw revenue double for the year.

Operationally, the business is investing further in machine learning processes to help improve the efficacy of detection systems, and increase the attractiveness of long-term support contracts. Indeed, AVA has 52 support contracts signed -- up from just 4 last year. This will hopefully become a good source of recurring revenue and improve client retention by ensuring they are getting the most out of installed systems. In fact, they have 2,500 customers in their existing install base, so there should be a good deal of low hanging fruit here.

There wasn't much on the new Dormakaba agreement, other than there was "significant momentum" in performance as of the end of FY22.

Management did warn that although they had navigated global supply chain issues successfully, they expected the situation to remain challenging in FY23.

Although the company distributed $38.8m back to shareholders during the year (due to the sale of the services division), the balance sheet remains in excellent shape with $15.2m in cash and no debt.

All told, we have a business that looks to be at a decent inflection point. With the company now firmly in the commercialisation phase, and with some encouraging momentum, there's good potential to scale from here -- something that should multiply any top line growth. And, importantly, this is cash flow positive, with a strong balance sheet.

$66m market value (at time of writing) gives a 3.5x sales multiple, or EV/EBITDA of 64.

I'll dial into the results call and update on any insights.

disc: held here and in real life

AVA has announced that it has secured 2 new contracts to supply and install its Fibre Optic Intrusion Detection system within the US Energy sector. In total, these contracts are worth US$800k and will be fulfilled in the current quarter.

For context, these sales represent about 6% of total technology sales for FY22.

The first contract is for US$500k and is a rollout for a second site from an existing customer. When the first order was announced in June, it represented a record energy sector sales order.

The second is for US$300k, and is for a new customer.

Always good to see an existing client deepening their relationship -- it's a strong signal they are happy with the value prop.

Also encouraging to note that AVA reckons it has identified other critical assets in this space and are currently pursuing these. Here's hoping the expanded resourcing in North America continues to pay off.

AVA has acquired UK based GJD Manufacturing, a security equipment designer and manufacturer focusing on intruder detection systems.

The equity value of the deal is A$7.82m, of which 60% will be paid in cash ($4.7m using the current cash reserves of $15.2m), and 40% in AVA shares (11.8m shares worth $3.13m, or 26.5c per share, with shares being in escrow for 12-24 months).

in FY21, ending September 2021, GJD did A$7,95m in revenue and A$1.6m in EBITDA. So the purchase price was 4.9x EBITDA.

You can dig into the details here, but it looks like the idea here is mainly to gain access to GJD's distribution and customer network, with AVA able to compliment the existing product set with FFT and BQT products.

At a high level, it seems a reasonable multiple was paid, there's less than 5% dilution, and no discount to the market price for shares. It's hard to get a clean read on AVA's normalised EBITDA after the divestment, and while the business is still driving towards scale, but a simple pro-rata of the first half results would suggest there's a significant multiple arbitrage here, and so using equity to fund 40% of the deal seems like a prudent move. Especially to help align the incoming management team, and it helps keep the balance sheet in a very sound position.

The real question is just how much sales of AVA products are boosted through the improved access to the UK and European markets.

AVA has *finally* secured its fist Aura IQ contract with a "leading global manufacturer of conveyor systems" (this is the product that monitors conveyor belt systems -- see here)

The contract, however, is tiny, clocking in at $300k, although noteworthy in the sense it is commercially ready and something of a milestone.

CEO Rob Broomfield said "Additional contracts...are progressing through procurement processes and are expected over the remainder of calendar year 2022".

The company has previous said that this is a $50m pa opportunity (annual sales are presently around $20m).

Interesting to see this news being released the day after a 10% spike in the share price..

Full announcement here

I just watched their presentation on coffee microcaps and in the Q & A they said that the first commerical order for the Aura IQ fire integrated product is now in the final stages and they are hopfeul that it will be signed before the end of the financial year. They also said that they had a good pipeline of orders for Aura IQ that are at various stages. Nothing really knew was mentioned but commentary was fairly positive for the 4Q numbers.

AVA Group chairman, David Cronin, bought an additional $100k worth of shares today.

He now holds 33.3m shares, or 13% of the company.

Ava has won a $0.7m contract to supply its intrusion detection system to a major US energy facility (see here). It should be fulfilled this year, and I estimate it represents roughly 4-5% of pro-rata sales wins for FY22.

So, relatively, it's fairly material in size, and also noteworthy for being the largest win in the energy sector -- an area the company is targeting and has so far won $1.8m in sales year-to-date.

Excluding divested operations, the company remains on track to generate in excess of $21m in revenue this year with 66%-odd gross margin -- a roughly 20% lift from FY21 when ignoring the IMoD contract -- and is presently being valued at $46m by the market.

On the eve of the approval of the 0.03114c capital return and what i assume will be a quarterly business update i continue to top up at prices of 26-27cents.

Looking forward to see business updates and whether long awaited revenues are materialising.

Growth in revenue of 20%+ per annum will no doubt revalue AVA as the year unfolds and the fact its profitable goes well in these turbulent times.

Having endured the pull back in MP1 today the markets across the globe have no tolerance for subpar growth when prices of companies reflect growth targets of 20% plus.

AVA isn't valued in the same way and thus upside on positive news may occur as a result.

Ava last week released a trading update (see here)

Q3 FY22 sales orders were $2.8m, and on a year to date basis were $13m, which is 17% higher than a year ago (excluding Indian Ministry of Defence). Seems pretty good, but the 3rd quarter itself was underwhelming -- but by exactly how much is hard to say. For reference, they reported $3.2m in Q3 revenue last year...but revenue is not sales orders.

What I've found confusing is the switch between reported revenue and confirmed sales orders in different quarterly updates. I really can't stand it when companies lack any consistency in their reporting -- at least not without good reason, and clear explainers! Plus we have the divestment of the services division, and the Indian Ministry of Defence license fee to try and account for.

For example, in the recent first half, AVA had sales order intake of $10.2m (the addition of the latest quarter's $2.8m is what gives them the $13m YTD figure). But in the first half, revenue from the technology division (ex IMoD) was $9.1m. Similar, but not exactly the same.

In this 3rd quarter update, they only discuss order intake, and make no mention of revenue. And certainly nothing that gives us a clear Q3 FY22 vs Q3 FY21 comparison. Maybe I'm missing something (?) so let me know if anyone else has a clearer read!

Anyway, moving on...

AVA has a confirmed sales backlog of $5m, of which $2.6m is expected to be realised in the 4th quarter. So that's $15.6m in confirmed sales order for the full year. Plus whatever else they can win and book during the quarter.

Again, not sure how that compares on a like-for-like basis with last year, in terms of sales orders. In terms of actual reported revenue, AVA did $16.9m the Technology segment in FY21 if you strip out the IMoD.

So i'm finding it hard to get a read on the nitty gritty here. Any help would be appreciated!

The BQT segment did show a good lift in sales orders in Q3, but this should be expected as their partners bulk up inventory. FFT, on the other hand, showed a big decline -- something they explained by a seasonal slowdown and timing of orders, with the 4th quarter expected to return to the first half run rate. Still, this was the weakest quarter for FFT we've seen for some time, roughly 1/3 lower than the previous corresponding quarter (but that's just guessing by squinting at the provided chart -- no actual figures provided!).

Zooming out, Ava reiterated guidance for $31.3-33.3m in FY22 Revenue. BUT, some of the FY revenue is from the now divested services division. Revenue related to the remaining technology segment is expected to come in at $20.2-22.2m, and that compares to $24.7m in FY21 (a 14% drop at the midpoint). HOWEVER, no revenue is expected from the IMoD license this financial year, so if we normalise for that, and treat FY21 revenue as $16.9m, we have a like-for-like revenue growth of 25%.

That being said, management did insert a pretty big disclaimer, saying "forecast revenue is contingent on the fulfilment of orders expected to be received during Q4 and that supply chains remain unimpeded."

So, yeah. A lot of if's and but's there, and it's all pretty muddy to my mind. I definitely think there's a lot of improvement that could be made in terms of shareholder communication. (Or maybe i'm just not smart enough to tease it all apart better)

Still, if I'm right (and i may be way off base here), we have a business whose core operations are experiencing very solid growth, which have a very decent runway, and with the potential for some other big kicks -- such as another license deal similar to the IMoD (which is essentially 100% margin), the dormakaba agreement, and the long touted AuraIQ product..

Indeed, the company said it was confident of receiving their first order for Aura IQ "in the near term" -- but as others have noted, this has been promised before... Supposedly there were some delays as the company looked to integrate this system with existing fire control fibre, and this work has been finalised and the approach validated at the end of the quarter. Ava says that "based on the successful integration, purchasing approvals within the global mining company have recommenced and are expected to be completed within Q4.

We will see!

Based on what Rob told us at during the Strawman meeting, we can expect the cost base to remain unchanged, and that we'll get something like a 66% margin on core technology segment operations. So if we see continued growth, the current 3%-odd EBITDA margins have the potential to expand considerably. And, unlike a lot of growth companies, the business is cash flow positive with a strong balance sheet.

You're looking at a business currently on a forward price to sales of 2.6x -- which is a pretty crude yard stick. But my valuation of 30c still feels about right given what i think are reasonable assumptions.

As I'm currently unable to view the ex capital return date would someone be kind enough to tell me the last day we can purchase to be eligible for the return?

Thanks kindly

I hope you found the discussion with Ava's CEO Rob Broomfield useful (recording here if you missed it).

Some key takeaways for me:

• The services business was very successful, but continuing to grow it would have required a lot of capital investment. Rob said that selling the business for a good price and focusing on the tech operations (which have better economics and growth potential) made more sense. With much of the money being returned to shareholders, I think that demonstrates a tight focus on return on equity, shareholder value creation (senior management and the board are large shareholders) and management's optimism for the potential of the remaining business. You don't sell a profitable, fast growing segment if you're pessimistic over the rest of the business.
• I think the focus on partnerships and licensing also shows great capital discipline. Leveraging these means a lower share of the end-customer spend, but it's very high margin (100% in terms of IP licensing) and means the business doesn't need to ramp up expenditure on sales, manufacturing etc and gives very fast access to new markets.
• Sales cycles can be long, but once a customer is onboarded they are very sticky and often have a lot of upsell potential in regard to other sites.
• The secret sauce of the FFT business is really the IP associated with extracting a reliable signal from the cable network. With machine learning and AI enhancements in recent years this advantage is being further entrenched, and the company enjoys the benefits of being a first mover in this space and having access to a lot of data for ongoing optimisation and training.
• The technology can be augmented onto existing fibre optic networks, making it more cost effective and significantly broadening the use case
• in regard to BQT, the Dormakaba agreement is set to substantially grow revenues -- and all at significant margin. EG they have 80 sales reps in the US alone. Previously this delivered less than 500k in annual sales, but over time should be significantly enhanced.
• The cost base should be fairly well contained, so I'd expect operating margins to be substantially higher at scale.
• Have a long-standing a capable core development team, but will outsource some work that is not IP sensitive.
• Covid did prove challenging in terms of running trials and access to customers, and also in access to components.

I might have missed a few other things, so please feel free to add any observations.

Full disclosure, i own AVA on SM and in real life and I plan on adding to my position. So I'm biased, and would really welcome any bear case arguments.

Overall, i think this is a business with an outstanding, long-standing and aligned management team, with a strong balance sheet, growing sales, capital light structure and attractive economics.

Sales will be lumpy though, and given covid, the IMOD contract and Services divestment, this full year probably wont be that exciting. But in the years ahead i see significant growth opportunity. I have a conservative valuation of 33c (20% above the current price), but there's more upside over the next 3-5 years if they execute well.

Finally an update from the ATO on AVA's proposal to return $39.2m back to shareholders.

Unfortunately, the ATO was only prepared to treat $7.567m of this as a capital return (a mechanism that would allow shareholders to defer any tax). That's equivalent to $0.03114 per share. They will seek shareholder approval for this at a special meeting on the 22nd April.

As such, AVA will distribute the rest of the money as a special dividend of 13c per share. Sadly, this will be unfranked (they simply don't have any franking credits to distribute given they have barely had to pay any tax due to the use of carried forward losses).

The record date for the dividend payment is 28th of February, which means anyone on the share register at that stage is eligible. Given the settlement period, that means you need to buy shares no later than the 26th to be eligible.

Obviously, a full capital return would have been the most tax effective method of returning excess money given AVA's situation, but there's little they can do if the ATO isn't going to play ball. Still, the fact they are returning this capital, and are not tempted to invest it on an acquisition or new capex shows a good bit of discipline to my mind.

This was a solid result from Ava (see here)

The group's technology division -- now the core focus after the divestment of the Services business -- received confirmed sales orders of $4.9m, a 63% improvement on the previous second quarter despite some covid related impacts. Year to date, Ava's tech division has generated $10.2m in the first 6 months of the year, a 42% improvement.

The FFT segment was the key driver of the improved result, with significant growth in the US market, up 150% year to date. Military installations and solar farms were called out as especially strong.

The company also has a confirmed order backlog (awaiting fulfilment) of $4.2m -- the majority of which is expected to be realised in FY22. Note that this excludes the Indian Ministry of Defence (IMOD) contract, which the company doesn't expect any material contribution from for the remainder of the year.

The new Dormakaba agreement came into effect at the start of 2022, and an initial order is expected before the end of January. I expect the blue part of the chart above to become more meaningful as this starts to ramp up.

The balance sheet remains insanely strong with $55m in cash and no debt, although $39.2m of this will be returned to shareholders (about 16c per share) as soon as they (hopefully) get a favourable ruling from the ATO. As a business delivering free cash flow, even after the return of capital, the balance sheet will be in very good shape.

The company also reaffirmed guidance of $20.2-21.2m in H1 revenue and EBITDA of $2.2-2.5m. This will include 3.5 months contribution from the divested Services segment. Still, removing this and accounting for the 16c cash return, you have a high margin, fast growing, profitable, well funded technology business, with an attractive market opportunity, that's probably on a Price to Sales of roughly 3x.

Will be good to get a "clean" set of results, but the business just seems good value to me.

The global agreement with Dormakaba announced today, was foreshadowed at the AGM and has been a stated strategic goal.

While there was already an agreement in place, it was limited to just a few countries and generated less than half a million per year. This new agreement opens up all the markets that Dormakaba operate in, including new ones in Europe and the US. (Dormakaba's website says they operate in 130 countries)

Details of the revenue share weren't disclosed, but obviously AVA is taking a cut to gross margins in order to leverage Dormakaba's distribution. In principle i think that's a smart move. As management have said, they expect operating expenses to remain steady, and will only need to fund extra working capital for production and inventory.

The alternative would have been a big ramp up in new offices and staff costs, higher risk and a longer timeframe.

Sales are expected to start as soon as next month.

Disc:held

AVA Risk Group ASX:AVA

• Focussing on their Technology division now following AVA Global Logistics divestment. Technology division made up of BQT solutions and Future Fibre Technologies (intrusion detection for high value/critical infrastructure).
• Divested AVA Global Logistics in August 21, process completed October - proceeds largely returned to shareholders at 16c/share, rest of it used for shares buyback.
• High insider ownership - board owns ~ 45m shares.
• No debt, $17m cash.

Q1 FY22 update:

• FFT: Revenue 30% down vs FY21 quarterly average. Order uptake 43% higher vs Q421
• BQT: Affected by lockdowns.
• Expecting H1FY22 rev between $8.7-9.3m. VS H1FY21 $35m - Strawman has already posted on why the big drop.

Watching for any updates closely:

• Strong sales pipeline, growing backlog and increasing customer demand
• Generation of meaningful revenue from the partial conversion of the $50m sales pipeline (3-year value) for the Aura-IQ systems which are being commercialised via the “Proof of Value” program
• Expansion of sales capacity and revenues in the USA commenced with new America’s VP onboard
• Leveraging a go-to-market strategy with Dorma Kaba to deliver material sales in the US
• Increase in post-COVID-19 sales to Assa Abloy in Europe under our existing signed contract
• Further IMOD style licensing transactions • Further sales for powerline monitoring solutions via the Group’s low cost, high profit, industry partner model
• Increase in contracts from the large install base of thousands of systems to expand annual maintenance and remoting servicing solutions and grow annual recurring revenues.

Disclosure: Not a holder at the moment, technically looks like it may struggle to hold the $0.425 support level, so I am watching for an entry closer to $0.365.

It wasn't a great quarter for Ava, with revenue for the first 3 months of FY22 down 7.7% on the 'normalised' first quarter of last year (removing impacts of large contracts, FX and covid impacts) to $15m.

That's down ~12% from the statutory Q1 result from last year, which came in at $17m (73% higher than Q1 FY20).

Group EBITDA, including the now divested services division, was just $2m, compared with $7.7m last year. That's in part due to the gross margin dropping from 49% to 38% as a result of Indian Ministry of Defence (IMOD) license fees, and weaker margins in the services business.

Looking ahead, the company gave first half guidance for $20.1m-$21.2m in revenue and $2.2m-$2.5m in EBITDA, that's compared with $35m in revenue and $12m in EBITDA for the previous corresponding period.

It's a BIG drop, but there's a bit of nuance needed here.

The current quarter will only include 18 days worth of contribution of the services division -- a segment that delivered ~$10m in revenue for Q2 last year. So on a like-for-like basis, completely stripping out the services division for the first half of last year and the current year, the first half revenue guidance represents first half sales in the remaining technology segment of $7.6m, down from $16.6m last year.

That's still a big drop, but the first quarter included zero licensing fees from the IMOD (last year it generate $7.8m in total for the group). Big deals like this and the Australian Department of Defence will naturally lead to some lumpiness.

The good news is that the order intake for the core Future Fibre Tech (FFT) business was up 53% on last year and up 8% on a strong 4th quarter of FY21. The order backlog was also up ~50%. Again stripping out the IMOD contract, FFT quarterly revenue just reported was up 40% from a year ago, and 23% above last year's quarterly average.

The BQT segment was impacted with site closures due to covid, but here the outlook is also encouraging -- especially with their licensing agreements. This model gives them less revenue per sale, but is much more scalable and yields 100% margins, and allows them to leverage of partner networks.

Overall, i can't see any structural issues with the business and in fact see AVA as well positioned to capture further growth. They have a strong position in a large and growing global market, with long-standing, top tier blue-chip clients, a highly scalable business model, with an expanding use case, aligned management a rock solid balance sheet.

All that being said, we need to see some good sales momentum build in the coming year.

AVA Completes Divestment of Services Division

Sale price of US$46.4 million (A$62.6 million) with anticipated net cash proceeds of US$31.1 million (A$41.9 million) after closing adjustments, and payment of management incentives and FY2021 accrued bonuses

Net cash investment return to Ava Risk Group of circa 587%

Ava Risk Group now comprises of leading security sensing solution provider Future Fibre Technologies, and high security access control and electronic locking provider BQT Solutions

As announced on 30 August 2021, following the completion of the Transaction Ava Risk Group is expected to hold $40.2 million in excess capital. The Board’s intention is to use the excess capital to undertake the following capital
management strategies:

1. Capital Return to Shareholders: $39.7 million (circa 16 cents per share); and

2. On-Market Buy Back: $1.0 million, which has commenced (refer to ASX announcements
for updates)

file:///C:/Users/Canad/AppData/Local/Temp/02437551.pdf

In addition to GavCo's straw on AVA FY2021 results, the following here compares the final results to the trading update provided on 5 July 2021.

- Revenue of $65m, above the 5 July 2021 forecast of $64.8m, and above the $60-64m guidance provided on 12 May 2021.

- EBITDA of $16m, above the 5 July 2021 forecast of $14.8-15.8m, and above the $13-15m guidance provided on 12 May 2021.

- Net cash of $17.3m and no debt, above the 5 July 2021 forecast of $17m and no debt. 

AVA Risk Group reported FY2021 results:

• Revenue increased by 41% to $65.0m
• EBITDA improved by 116% to $16.0m ($8.3 million from FTT and BQT technology)
• NPAT improved by 178% to $13.7m
• Net operating cash flow increased by 195% to $17.6m
• Cash as at 30 June 2021 of $17.3m with no debt  and divestment of Ava Global Logistics for ~A$42.4m in Oct 2021

Following up on Ricks post below regarding AVA Risk Group divesting its services division.

The services division is why the company is valued with low multiples in the market.

They seem to be on the right track to creating a more lean and tech-centric business.

Although, the services division generates a huge chunk of revenue for AVA; 18m but this only translates to a 3.8m EBITDA. We expect revenue to decrease in the upcoming year which would make the company look unatractive at first glance.

PE for 1H21 is ~6.8x (includes service division)

Estimated PE for FY21 would be ~12-14x (excluding service division)

Current market cap 104M

For FY2021, 17.2m in cash plus upcoming sale of services division of 42.4m after adjustments.

Disclosure: held

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

Coffee Micropcaps Presentation

Hang around for the Q & A - interesting colour regarding the pipeline. 

AVA Services main competitors are, or should I say were, Brinks and G4S. Brinks acquired G4S for $860 million. G4S had adj. EBITDA of $115 M, which tranlates to a valuation multiple of 7.5 times.

AVA Services are on track for EBITDA of at least $8M in 2021, and would be worth more than $60 million going by the valuation multiple Brinks paid.

Getsmart outlined the numbers.  But some of my observations are:

1) Revenue was not broken out for technology and services business.  I suspect the technology revenue fell, and the services business grew over the quarter, given the change in gross margins outlined below. They stopped breaking this number out in Quarterly reports back in Q2.   Bit of a red flag for me. 

2) Gross margins fell to 43%, meaning the services busness is performing strongly in comparison to the technology business. 

3) AVA said:  "The Company progressed commercial negotiations and expects to enter new contracts to deploy Aura IQ to multiple sites during Q4 FY2021."  This is the litmus test for management, and the future prospects for the business.  AVA will be a sell for me if there are no contract announcements by June 30........

DISC - I HOLD

$1.8+ million Multi-Site Rail Contract Award

Ava Risk Group Limited (ASX: AVA) (“Ava Group” or “Company”) is pleased to announce that its world leading Aura Ai sensing solution has been selected to be deployed for a multi-site program to upgrade security at certain major rail facilities in South America:

•  Security upgrade program with total award value of more than US$1.40 million (A$1.84 million).
•  Multiple Aura Ai-2 systems will be fully integrated with the customer’s existing video management software and CCTV system.
•  First purchase order received exceeding US$0.47million (A$0.61 million).
•  Initial deployment at first sites in early Q4 FY2021 with the balance of sites expected for deployment before the end of Q4 FY2021.

Disc; I hold....

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02357253-3A564166?access_token=83ff96335c2d45a094df02a206a39ff4

I have sold my small holding in AVA. My half-year reporting review provided me with some questions that presented new risks that I don't completely understand or are not aligned with my thesis. There is some serious upside and downside potential for Ava Risk Group but I can't say which is more likely at this point. I only like to hold if I have high conviction and I don't at this point so I am selling on that basis.

Risks/problems causing negative views:

• Basic mistakes:

  • Yet another announcement that needs amending because of a mistake. Makes me wonder if management has it all together? Do they miss the finer details? Are they taking other shareholders seriously? I counted 5 errors since 28 July 2020. All since the old CEO left.

  • Emails to investor email account bounces. Online form to contact the company doesn't work.

• New details I wasn't aware of or fully accounted for:

  • Chairman's company receives payment from AVA (stated as arms length, could be a benefit but I don't like the look).
  • Potential sell off of services division. Management gets up to 32.7% of the value above $5.3 mil USD. Management has extended this agreement even though it was due to end Feb 2021. I wasn't aware of the risk here when purchasing. If the services division is sold for a inadequate valuation the rest of the business is highly overvalued (if no new IMOD style contracts come through). Management potentially takes a massive slice of the pie... Why extend this deal past 1 Feb 2021. How is it in the interest of ordinary shareholders unless they can get a price around 80% of current market cap? I wanted the services division as part of the company, its revenues are increasing nicely and this section of the business is strongly profitable.
  • IMOD is looking like a potential one off boost to profitability.

Valuation - the guessing game:

Selling of the services division at a 10x EBITDA multiple (figure based on what I've seen thrown around as reasonable):

EBITDA multiple of 10x for services (1HFY21 services EBITDA x 2 x multiple) = $3.8 x 2 x 10 = $76 mil.

Take away potential management profits @ 32.7% over USD$5.3mil($6.8AUD) =  $53 mil valuation of services division to share holders

Cash at bank = $13.4 million

Market valuation of Technology = 135-13.4-53= $68.6 million

Here is the problem for me, taking out IMOD I think this is very expensive and hoping for the best with Aura IQ. If another IMOD comes along this is super cheap....

What would I miss by selling?

• Aura IQ is a raging success. There is time before the effects come through. By then my question marks around the services division will be answered.
• They don't sell the services division or they get a great price for it.

Conclusion

Given the current market turbulence and my lack of conviction I have sold out. However, this is not a sell and forget. As things pan out I will be more than happy to jump back in as my concerns are answered. I just can't tell if this is a massive winner or loser at this time and price...

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

Half Yearly Report

AVA released their half yearly report this morning

Highlights:

Revenue up 72% to $35M
Licence fees from IMOD project make up $7.7M of above
Profit up 1,071% to $11M
Special dividend of 2cents/share payable March 10th
Strong balance sheet with $13.4M cash

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02347126-3A562418?access_token=83ff96335c2d45a094df02a206a39ff4

 Correction statement to February 2021 Investor presentation

Ava Risk Group Limited (ASX: AVA) (“Ava Group” or “Company”) wishes to advise of a typographically error on Slide 13 of the investor presentation released to market yesterday. The 3rd bullet point which read “Total contract value estimated at US$11.9M+ (A$16.7M+)” should have read “Total contract value estimated at US$11.9M+ (A$15.6M+)”. The error was due to use of a prior, rather than current USD/AUD exchange rate. Management apologies for the error.

INVESTOR PRESENTATION INCLUDES PRELIMINARY H1 FY2021 

HIGHLIGHTS:

STRONG REVENUE GROWTH

• FY2020 revenues $46.1M, increased by 46% over PCP

• 1H FY2021* revenues $35M, increased by 70% over PCP

HIGHLY SCALABLE MODEL

• Multiple new customer wins in both Services and Technology Divisions

• Significant conversion of repeat customers upgrading products on multiple sites

• FY2020 generated $6.0M net operating cashflow, 1H FY2021* generated $8.2M

STRONG COMPETITIVE ADVANTAGE'

• Highly defensible competitive position, breadth of product range, performance and blue-chip customer base

• Experienced leadership team, with broad global industry knowledge and deep market sector understanding

GLOBAL EXPANSION OPPORTUNITIES

• Expanding technology and services sales efforts into several new attractive markets globally

• Highly competent global sales force with significant pipeline of known technology projects, and increasing addressable customer spend for provision of valuable logistics services

• Thousands of products installed in more than 70 countries

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02336851-3A560484?access_token=83ff96335c2d45a094df02a206a39ff4

DISC: I hold in strawman and TRW

Ava Risk group has reported net operating cash flows of $4.4m for Q2 -- up $0.7m from the proceeding quarter and up $4.6m from the same time last year.

$2.6m was from the Indian Ministry of Defense (IMOD) and the same amount is exected in the current quater. After this, most of the contract value will have been paid but the business should remain cash flow positive.

AVA has $13.4m cash at the bank. 

14-Jan-2021:  As @Rapstar has mentioned here in both the AVA General Forum and in his "Services Division" Straw for AVA today, AVA is held by DMX Capital Partners, a division of DMX Asset Management.  Their monthly newsletters are free to access from here:  https://www.dmxam.com.au/monthly_archive.html

I do see that in their September 2020 newsletter that they've said:

Management meetings

We are pleased to share below a summary of our notes and insights taken from meetings with management of several of our disclosed portfolio positions. We share these insights to showcase four of our holdings where we feel our discussions with management have highlighted some interesting aspects to the business, that are perhaps not well understood by the market.

------------------------------------------------------------------------------------------------------------------------

AVA Risk Group (ASX:AVA)

Meeting with David Cronin (Chairman) and Rob Broomfield (CEO)

As previously noted, FY20 was a big year for AVA, as it delivered an impressive turn-around. In speaking with management, we were keen to focus on FY21 and whether that momentum could be sustained. Key insights are discussed below.

• AVA’s logistics business (“Services”) recorded $3m sales in July 2020, with EBITDA in excess of 15% (compared to FY20 EBITDA of ~9%). Management confirmed they expect revenues to remain strong for the remainder of FY21, as it benefits from the full year contribution of client wins during COVID-19 (in 4Q20). AVA also expect Services to maintain its EBITDA margin of ~15% for the balance of the year. With the Services business due to be sold in the next 12 months, Management are looking to target an EBITDA sale multiple of 9x to 12x, given the capital light nature of the business. AVA are happy to take a commercial approach in relation to the timing of the sale in order to maximise the sales price.
• Technology revenues for FY21 are tracking ahead of the same period in FY20, while management continue to expect at least $11m from its Indian Ministry of Defence (IMOD) contract this year (at close to 100% margin).
• A key feature of the FY20 result was the margin expansion resulting from both revenue growth and reduced operating expenses. AVA expect to maintain FY21 OPEX at similar levels to FY20.
• Management are particularly excited about the progress they are making with their powerful fiber optic technology. We believe this is a key part of the AVA thesis that is under appreciated by the market. AVA are positive about the commercialisation of AuraIQ (using fiber optic cables for conveyer belt monitoring) where one potential deal is currently progressing its way through a customer’s CAPEX approval process. In addition to AuraIQ, AVA has been applying its fiber technology capabilities incrementally into other non-security applications such as condition monitoring for roads, rail lines and power cables. Potential distribution partnerships are being worked on for some of these use cases that are in early stage validation. One such example is monitoring the impact of wave motion on power cables in the Hudson River in New York.
• Management expect publicity around a similar focused company, chaired by technology entrepreneur Bevan Slattery, to drive further interest in what AVA is doing with its fiber technology.

In summary, we took a lot of confidence from our meeting with AVA. Its Services division has significant momentum, and when sold, we think has the potential to generate sales proceeds to AVA of $50m to $60m (before Management profit share is accounted for). Its technology business will grow in FY21 underpinned by the IMOD contract. AVA’s fiber technology offering perhaps hasthe most upside, and its potential least appreciated by the market, but we acknowledge it will take some time for this potential to play out.

--- end of excerpt ---  [to read the notes/insights from DMX's other 3 company management meetings (with PTB, EGH & UCW), click here.]

While I can't find any reference in there (or in any of their newsletters) to AVA extending their own management performance plan termination date to June 30, 2021 (from Feb 1, 2021), I'll take @Rapstar's word for it; it sounds right.  I do note that they (DMX) stated: "With the Services business due to be sold in the next 12 months, Management are looking to target an EBITDA sale multiple of 9x to 12x, given the capital light nature of the business. AVA are happy to take a commercial approach in relation to the timing of the sale in order to maximise the sales price."

Onwards and upwards then.

During the past 12 months, DMX have mentioned AVA in their February, May, July, August, September and October newsletters - all can be accessed from here. 

Their December newsletter had not been uploaded to that webpage when I typed up this straw, but I expect it will be shortly, once they publish it.

[I hold AVA shares.]

Services Division performing strongly and on track for EBITDA of $8.4M for FY2021.  Given management are hoping fro a sale price of 9-12x of EBITDA, a sale price of $75 - 100 M is hoped for.   Management will pocket 33%, so shareholders can expect $50-70 M in captial returned........18- 26 cents per share. 

Management are hoping for sale by June 30, 2021, as per DMX September monthly report. 

Relentless selling

If anyone wants to find out why AVA is trending down, one of the subs is selling heavily

They are a little known company in Dubai called "Alkasab United Company"

I couldnt' really find much about this company though.

I hold but the selling by the substantial holder is getting me a bit worried. I did top up recently around 0.53.

30-Oct-2020:  IMOD Project Update

Indian MOD Data Network Protection Project Update

Ava Risk Group Limited (ASX: AVA) (Ava Group or Company) today provides the following market update and clarifications with respect to the large-scale supply of FFT’s SecureLink technology to protect data communications cables for the Indian Ministry of Defence (IMOD):

• Large scale supply of FFT’s SecureLink technology to protect more than 40,000kms of data communications cables for the Indian Ministry of Defence
• FFT licenced technology to in-country manufacturing partner SFO Technologies Private Limited (SFO)
• Total contract value estimated at US$11.9M+
• SFO’s Bank Guarantee to Ava for US$2.1m (A$3.0m), to cover the 120 days payment terms remains in place.
• Contract establishes FFT technology in growing cyber security market
• Fulfilment and licencing model providing low working capital, low risk and high margin GTM approach

FY2020 Recap:

• US$3.2 (A$4.8) million in revenue recognised
• US$0.1 (A$0.2) million in tax credits recognised
• US$1.0 (A$1.5) million in cash received

Q1 FY2021 (unaudited):

• US$2.4 (A$3.6) million in revenue recognised
• US$0.3 (A$0.4) million in tax credits recognised
• US$1.0 (A$1.3) million in cash received

Updated Forecast:

• Contract balance of circa US$5.9 (A$8.2) million (revenue and tax credits)
• Q2 FY2021 revenue expected to be A$3.3 – A$3.8 million
• US$1.8 (A$2.6) million in cash due to be received within Q2 FY2021
• Additional revenue from subsequent seven-year spares and maintenance contract with an estimated value of a further US$3.4M (A$4.8M)

Historical A$ amounts are based on actual USD/AUD exchange rates achieved. Forecast $A amounts are based on the current USD/AUD exchange rate at time of release. Actual final A$ amounts achieved may differ depending on exchange rates achieved at the time.

[I hold AVA shares.]

29-Oct-2020:  Annual General Meeting Presentation

That document is unfortunately NOT formatted to suit the ASX's new "FOR PERSONAL USE ONLY" always-on-top watermark (the left margin isn't wide enough) so the text is obscured.  To make matters worse, if you use AVA's own website (https://www.theavagroup.com/investors/) to download the document, they just use the ASX's URL, so you get the same damn problem because it's the same document.  AVA need to start using wider left margins or else have a library of their docs BEFORE the ASX damages them that people can access from their website.  Many other companies do this.  It's not hard.  Anyway, good report/presentation.  I liked it.  The market liked it.  AVA rose +13% to close at 65.5 cps ($0.655), which is where they also closed on Monday (3 days ago).  On that day (Monday 26-Oct-2020) they also set an intra-day 4-year high of $0.735 (during the day).

I hold AVA shares.  I also hold ZNO shares and they also rose +13% today (on their positive test results report), however ZNO are still in a strong 3-month downtrend, whereas AVA are most certainly in a very strong 3-month uptrend. 

I was bullish on AVA but they've certainly surprised me with how fast and far they've run in such a short time.  I bought them less than 7 weeks ago (on 15-Sep-2020) for 32 cps (cents per share) and they're already up +104%, i.e. their share price has more than doubled in a month and a half. 

I bought them in stages on my Strawman.com scorecard, as they kept rising, so paid higher prices, so I'm "only" up +81% on AVA here on Strawman.com, but in the real world, where brokerage costs exist, I tend to make fewer and larger trades, and I have just made the one purchase of AVA - back in mid-September.  My only regret is that I didn't buy more!

Smashing result announced.  Key takeaways:

1) Revenue up 73% on pcp.

2) EBITDA of $7.7 Millon, up 522% on pcp. 

3) CASH UP 50% FROM JUNE 30 2020, to $11.6 M.  

Services Division - Revenue of $8.1 Million, down from $7.7 M in Q4 2020.   However, gross margin expanded to 33% , with expansion plans for Asia flagged.  Bad news fo rthe Strawman classic - Incentive scheme extended to June 30 2021, so a sale of the Services division will not occur during the Classic :(.   Noting the the busness is likely to sell for around 8x EBITDA, he servies division is worth about $51 million at the current EBITDA rate.  

Technology division is generating high margins courtersy of the IMOD contract.  Maangment flagging a healthy pipeline of opportunities.   Something to watch closely as the IMOD contact phases out in Q4.  

CEO, Rob Broomfield will be presenting today at a Reach Markets event - register here. 

The promo says:  "This week we will hear from: Rob Broomfield, CEO at Ava Risk Group Ltd (ASX: AVA), a fast-growing Australian RegTech firm, with an exciting recent win in the banking and mining sector."

I am keen to see Rob present - I think it may be his first presentation as CEO. 

AVA Risk released an investore presentation.  In it there was a FY2021 guidance,  Strangely, the announcment was not marked as market sensitive.  Perhaps there is an earlier announcement, but I am yet to find it.  Here are the key takeaways:

1) Forecast Q1 2021 revenue:  +$15.5m - up 58% on pcp. 

2) Positive cashflow for Q1 2021, and an improvement on the $0.9 M reported on pcp.   It will likely translate into $3-4 millon in positive cashflow for the quarter. 

3) Repeated the IMOD $11.7M revenue forecast to be booked in FY2021 - remember, this is 100% gross margin licencing fees. 

4) AURA IQ pipeline is reproted to be +$49M, with another 6 proof of values deployments underway.  Forecast recurring revenues for this new product in FY2021.  

5) $14.6 M backlog as at June 30, 2020.  It was just $6.0 millon a year ago.  

AVA Risk are on track otearn +$60M in revenue this FY, and around 15-20% profit margins.  IT still looks remarkably cheap at this price.  

DISC - I HOLD ( a lot)

Key takeaways:

1) $4 M positive cashflow for the quarter ! 

2) Company again highlights it has 100% margin revenue of $10 million forecast for FY2021 (no one seems to be listening!)

3) Services division reported strong growth in Q4 - previously reported. 

4) Technology divison reported winning a defence contract (no value provided)  and advised there are several "Proof of Value" trials for its Aura IQ conveyor health monitoring solution. 

5) Gross margins were above 50%, despite the services division GMs running at 25%.   

Very profitable 2nd half of the year, resulting in $5.7 M free cashflow generated for the full year, or 2.3 cents per share.   

If AVA can execute on sales of its Aura IQ product, it looks very cheap at the current share price.  

AVA Risk report their Services Division report seperately, as they are seeking to sell this non-core division ove rhte next 6 months.   They reported the following performance:

1) $9.7 M revenue for the quarter, achieving $25.1 M in revenue fo rthe full years, representing 57% growth in revenue.  

2) Threefold increase in clients over the year.  

3) Gross margins increased to 25% from 21% over the year.  

4) EBITDA of $2.3 M for the year.   

5) Merger of largest and 2nd largest competitors creating opportunity to expand market share.  

The group is on track to achieve $40 M in revenue this FY, and to double EBITDA to around $5 million.   This would value the business at around $20 Million at a 4x EBITDA multiple.   Given AVA has a market cap of around $40M, the sale of this business could unlock a lot of value, given the core technology business is high margin, high growth business, with $23 million in revenue.  

Highlights:

1) Q4 revenue beat by 17%. 

2) FY2020 estimated to be $45M, $2M above previous guidance. 

3) FY2020 EBITDA forecast to be $6.8M (noting the ITDA will be around $2.4M). Meaning profit after tax of $4.4M.  

4) Big news:  Scott Basham, CEO has resigned.  Rob Broomfield, COO of the technology divison will take over.  

5) Technology Division is experiencing order delays due to COVID-19, with staff WFH on reduced hours & pay, but some improvement over June.  

Great result, but losing Scott, after turning the ship around, is a loss.  

If AVA can continue to grow revenue, and execute, they are very cheap at these prices, however, there si some uncertainty as a result of Scott's departure.   

•Strong management team surpassing expectations in a short time

•Management has 5.8% stake with significant increased insider buying recently

•Provide a number of different products, servicing multiple markets and customers in multiple countries

•Possess a strong moat/competitive advantage with their patented products and tech

•Strong balance sheet and fundamentals – gross margins of 19% (services division) and 79% (tech divisions), trading at 1.1x annual revenue and 2.6x gross profit with an EV of $34,858,000.

•Zero debt

•Profitable

•High-quality B2B customers - recent contracts with Australian DoD and Indian Ministry of Defence and other current customers including NATO, US Dept of Homeland Security, Lockheed Martin

•Strong tailwinds with cyber terrorism on the rise and the U.S. implementing strict cyber security measures, rolling out as early as next year, for anyone along the supply chain dealing with defense contracts

Having so quickly reached positive cash flow and profitability under new management, Ava Group appears to be hitting an inflection point. High growth potential and undervalued.

Disclaimer: I hold a small position in AVA