Consensus community valuation
Today Matthew held a preso via sharewise and offered some further titbits around FY25 which have helped me firm up FY25 expectations and provide some lead into FY26.
Key financial points were:
- FY25 R&D spend of $2.055m (FY24 was $2.686m)
- With cost reductions in FY24 being fully realised in FY25, coupled with lower R&D spend and revenue growth, leads to FY25 EBITDA guide of $301k.
- FY26 R&D spend to taper to $1.8m which at the target of 20% of expenses implies a total cost base of $9.07m.
Key business initiatives in FY/CY25 were:
- From Jan 2025: Upgrading everyone to SaaS & More aggressive upselling of hothealth and referral net messaging
- From July 25: Push B2C products to get value out of customers customers & Add channel partners to ramp sales
Below are updated charts from my prior inflection post update based on new info today and extending to include a potential scenario for FY26 which I think gives scope to see the company do $1m+ in EBITDA post R&D spend (assuming revenue of $10m+ is possible). This implies an EV/EBITDA of ~6.5x which I think is too low for a sustainably growing tech company with the quality of ARR that it has.
Sharewise do eventually put out replays of the webinar so keep an eye out for it.
This is where I see opportunity in micro tech names such as GLH as the market caps/EVs continue to lag the large/Mid-cap names that are back in vogue as well as underlying fundamentals of specific micro names.
With GLH, the inflection back into profitability as the company continues to execute client implementations and ARR growth (guiding $7m for FY25) hits the revenue line at the same time costs continue to be managed + plus peak R&D spend rolling over to create operating leverage at the bottom line.
With operating metrics improving significantly and the market cap at historical lows, seems like the asymmetry of returns is to the upside. More so post the con note which increases the liquidity on the balance sheet (noting $250k of the $1m was picked up by insiders).
I know the below is very speccy but seems directionally right as long as the fundamentals play out.
Quarterly is out with news of positive operating cashflow.
Although the figures look amazing, it has taken more than a few years for the MD to get to this point as seen below
From market index.
Guessing why the market did not really react to the news.
Either way, I guess it is worth digging in and keeping an open mind - if you can get past the question to the MD of what has been achieved in the last decade??
Plus GLH does have a tiny market cap right now.
I've been kind of vacillating about whether Global Health's recent update was a good one or not. On balance, I've talked myself into believing it was, but it kind of needed to be - and they're not out of the woods yet with Q4 being critical if they are to stay on the narrow goat track that avoids a costly credit raise.
The good news is what appears to be the second highest revenue quarter in the company's recent history. However, they didn't exactly crow about it and that's probably because the highest revenue quarter was Q3 FY23. As a result there wasn't a lot of pcp comparisons, unless they were comparing YTD performance. Free cash flow was frustratingly close to turning positive, but the fact it wasn't meant their dwindling cash balance looks ever more meagre.
The Company's commentary focused on how a government-mandated move to use a single Prescription Delivery Service meant customer-funded delivery and the ongoing SaaS-ing of their products was delayed. DHS has mandated the use of a PDS operated by Fred IT, whose largest shareholder is Telstra. In a way that is also kind of a positive as if they can grow revenues as strongly as they have while having to use resources in an area that doesn't generate revenue, it bodes well once they can get back to the areas that add value.
Stuff I don't like so much:
- they've stopped reporting on ARR the last couple of quarters. It's not such an in-favor metric these days but anything that helps break down the split between services and software revenue would be helpful.
- they haven't been trumpeting major new deals of late. The move around 18 months ago to go from a direct sales model to a greater focus on reseller arrangements, has certainly saved on expenses but risks new growth. If that risk is realised it would take time to take effect as long lead time deals are actioned. Are they about to feel the impact of that and does the commentary that "the focus post-June will be on generating new revenue" suggest they are seeing this in the pipeline?
- borderline chart crime:
The reality is that this is purely a risk versus reward play for me - I suppose they all are but the risk and reward are both heightened in this case. Despite the structural tailwinds this has some hairs on it and that is reflected in the price the market has put on it. But at an Enterprise Value of $6 million, there is a lot of upside if they cross over into sustainable FCF.
A lot rides on this quarter. Q4 is generally a strong quarter for them and the gap between Q3 receipts and revenue suggests that may be repeated once again. However, it really needs to be as Q1 tends not to be with the timing of major licensing invoices skewed to other quarters. Hope is a valid strategy, right?
[Held]
Ditto an ASX release.
https://www.theage.com.au/business/companies/no-brainer-woolies-muscles-into-telehealth-20230320-p5ctno.html
Book ya GLH powered telehealth appointment here.
https://www.healthylife.com.au/telehealth/telehealth-appointment
