Mixed results of CLG revenue up 59% to $219 and NPATA up 87% to $26m (includes acquisitions), but a number of orange flags

Pros:

• NPATA of $26m (now a $130m market cap, non cash amortisation of $14.7m from acqusitions)
• Debt: expecting a 125 BP decreasing in their debt in the coming 45 days, with the ability to refinancing over the coming year once rates fall
• Trading at 5x NPATA
• Management remain bullish on the long term growth and sees ample growth opportunities

Cons

• No guidance: they provided guidance last year, no guidance for the next financial year
• Cash flow: Cash flow was poor, especially in H2 which has been a trend for the business. Cash balance decrease $9.2m for the full year mainly due to a $9.5m payout of an acquisition, paid $7.9m in tax (only $2.6m on the P&L), increased working capital (inventories up $4m), CapEx was $10m which is expected to fall to $5-6m in 2025. a broader issue for the business which joe vaguely touched on was billing and receivables, receivables grew YoY to $36m from $26m in 2023 along with payables falling from $29m to $20m, Joe mentioned on the call that most of their partners/ customers are large companies (ie. HP, Coles, Dell, Woolworths), for the most part their customers are much larger businesses and i suspect they are getting much more preferable billing terms than CLG hence the large discrepancy between the cash flow and profit.
• Debt: still remains high at $83m ($40m in cash)
• Packaging: Packaging division provided another poor result, australian revenue which is mostly packaging was down 9% along with EBITDA at 6%. they mentioned seeing profitable growth going forward but Joe was very vague on the call regarding any explanation.

In summary, still incredibly cheap from a NPATA perspective, but incredibly expensive from an cash flow perspective. Hoping for some reversal in cash flow for 2025 and improved performance within the packaging division. Not much need to go right here at the current price, some very modest growth and paying down of debt. I think the share price is struggling with expectations of investors, i don't see too much growth within the business and i wonder if a recent IPO, and obvious tailwinds trends have hyped up expectations for a quite boring business.

Close the Loop has a bit of a messy history just due to a number of acquisitions that muddy the financials. 

Essentially they have 2 business segments packaging and resource recovery, both segments recover pre-used goods and repurpose them into usable products. The packaging segment deals with repurposing soft plastics and paper to make products such as food packaging, receipt paper, plastic regrinds, bulk packaging, and seafood packaging while the Resource recovery segment recovers perused items such as print cartridges, batteries, cosmetics and electronics and helps sort and repurpose them to reuse or to resell. Both segments can and do partner with clients to meet their specific recycling needs and given a low percentage of products that can be recycled actually are they are seeing strong demand as businesses become more conscious of the environment along with the fact it’s cheaper for them to reuse products. The business maintains very decent margins of 20%+ and 12%+ for EBITDA and NPAT respectively. 

They have some proprietary products such as Toner Plus which uses soft plastics as an asphalt additive and Rflex which is a repurposed plastic for manufacturers. They are seeing strong demand within the resource recovery space especially from their recent acquisition: ISP tek services which helps repurpose electronics for OEMs which they are rolling out throughout Europe and may actually be an AI beneficiary as they are seeing strong demand with what they call ITAD which is recycling of data centre servers. 

The 2 founders own 12% each, and while the business has made a number of acquisitions they have stated they are not a roll-up but wait for value-adding acquisition, and for a capital-intensive business with network effects, scale benefits and cross-selling abilities there are many synergies from acquisitions. The business has $56m in cash with $78m in debt, and reduced net debt by $12m in H1 and currently looking to just pay down debt and consolidate their acquisitions. 

Despite shipping delays in H1 within the packaging division which saw a revenue decline they upgraded guidance to $200m+ in rev and EBITDA of $44 to $46m for the full year, which should equally NPATA of ~$26m for the full year.  

CLG currently trades at a market cap of $159m equal to 6.1x full-year earnings. The business won’t revolutionise the world, but 6x earnings to too cheap IMO, and as they continue to repay their debt and grow earnings organically and potentially inorganically the value should be recognised.