My brief thoughts are as follows (apologies for any typos - in a rush):

THM

• I am concerned that THM may have ballooned up sales before the acquisition via cheap one-off lifetime memberships ("platinum memberships").
• Now, those membership options have been removed in the hands of an operator (Halo) focusing on eCommerce metrics like retention, churn, LTV, CAC etc., which is the right thing to do for a long-term subscription business, but reflects poorly on Halo's judgement upon acquisition (due diligence) (I.e. it is now all about recurring revenue, not one-off sales).
• The alternative explanation for THM's low sales is seasonality and probably also a combination of La Nina and macroeconomic factors (rising living costs, rising rates etc). THM's solutions are much less appealing during a wet/cold winter/spring than a dry/hot winter/spring
• It's possibly a combination of both of the above - we'll find out over the next 6 months whether they reach the $20m+ top line for THM p.a.
• It's lucky that Halo paid less than 4x EBITDA for THM, because if the earnings come in at half of what they "were", we've actually paid 8x.
• I'm not overly impressed with Rhian at this point. If the next 6 months don't deliver, I'll feel the numbers were artificially inflated in the 12 months leading into the acquisition and that Halo was perhaps a little misled, enabling an exit. Although we can only speculate.

Valuation & Where to From Here

• Circa $17m market cap now so it is virtually being priced as if it will not make a profit.
• Trading below NTA based on the last time I looked at tangible assets.
• Not all of those assets are recoverable in a fire sale though and wouldn't find their way back to shareholders.
• But that's not my thesis anyway; I suspect we will eventually see profits flow through at a greater scale due to operating leverage.
• I do wish they hadn't acquired THM though and just focused on achieving scale in the CM business complemented with Tonik sales
• What has played out here goes to show how important capital allocation is... I still remember the day of the acquisition and thinking it was a very odd left-field acquisition ...
• I believe that the board, particularly Peter James, has a vision for Halo as a diversified and vertically integrated brand owner and operator... So he's possibly the driver behind the acquisitions to deliver a greater percentage of branded sales.
• He's right in that F&B companies with brand power trade at much higher multiples, but THM was not the right fit for Halo in my opinion. I'm not a fan of THM.
• They can still make it (THM) work, I think they are bringing in the right talent to do that (new head of marketing). But it is not an easy business (THM).
• Remains a hold for me. And a buy once they hit the green light of actual profits.
• I do think they will get to profits eventually. They are doing better than most in this space. Rising rates and inflation have hit most consumer discretionary plays way harder than HLF (>40% of ASX-listed F&B plays are massively unprofitable). HLF is doing comparatively well.
• I think Jourdan Thompson is the right person for the CEO job and will bring Halo to NPAT profitability within the short-medium term.
• They need to deleverage as soon as possible; I don't like having debt involved and this is a risk.

And now we await another 3 months!

Ultimately, I think this decision (for Jourdan Thompson to be promoted to CEO) reflects acknowledgement from the HLF Board that i) the share price journey over the past few years has been abysmal and ii) that the level of engagement with shareholders (and subsequently investor sentiment) needs to change. It also reflects their respect for JT's operating & leadership ability.

I believe this is a turning point for Halo. As the new CEO, JT has a major opportunity to re-connect with shareholders, bring the company into NPAT profitability, reset relations with investment funds, and return to a A$100m+ market cap. Having spoken with him on multiple occasions (including the Strawman interview), I believe JT will be a strong new figurehead for Halo and increase the level of engagement with shareholders.

Danny's farewell post on LinkedIn (albeit he is moving to Head of Revenue - probably a better fit for him anyway due to his sales focus) was a little tone-deaf to the shareholders who enabled that "26x increase in revenue" and who are down significantly on paper.

He mentions revenue growth but not growth in shares on issue... as a CEO of a listed company, his performance should be anchored to the share price, or at the very least revenue per share, not revenue alone.

With that said, I believe that this company is now in the strongest position they have ever been in since listing.

Scaling a contract manufacturing business is extremely capital intensive and early shareholders have been the guinea pig of this. However, the business is now at scale with $80m run-rate revenue and is in a position to turn an NPAT profit, which I am expecting in FY23 and beyond.

With operating leverage now kicking in, NOW the focus of this company should turn to profitability and finally shareholders should be rewarded.

From here on in, there are no excuses. Going forward, with a new CEO, I want to see the share price as Jourdan Thompson's single most important measure of success (and he is totally aligned with this). Additionally, all Directors/senior management should have at least 2x their annual base in shares, ideally 5x, to enable this alignment.

I personally wouldn't be surprised to see the Directors and Jourdan buying more (they were buying at ~6.7c in the SPP) following the next quarterly release (at the end of October) once they emerge from the blackout period. They are not currently allowed to buy on market.

Very pleasing to see Halo management receptive to shareholder feedback, dropping the 7.1A mandate at the AGM. In my eyes, this is confirmation that Halo is confident in the cash flow position and path to profitability... The next quarter will be telling.

Hello Strawpeople,

A reminder that we will have the opportunity to hear from Jourdan Thompson (HLF CEO) this coming Thursday at 12:30pm AEST. Please feel free to pose questions at the link below prior to the discussion!

Slido Q&A Link: https://app.sli.do/event/d1jqJ4RdVMKiN8j7isiZJc/live/questions

Looking forward to it.

Jourdan is the Chief Financial Officer of Halo Food Co. Prior to joining Halo Food Co in 2017, Jourdan spent over 15 years in investment banking, finance, insolvency and restructuring both in Australia and Europe. Working most recently as a director at Greenhill & Co’s Sydney office, he principally focused on strategic and advisory mandates for ASX200 clients. He began his career at KPMG in the Corporate Recovery and Restructuring team, prior to moving to the Corporate Finance team at Ernst & Young, and has also worked for ING Investment Bank in London. Jourdan is a qualified Chartered Accountant and holds a Bachelor of Commerce degree, majoring in Accounting and Finance, from the University of New South Wales.

I had the chance to get on the phone today with the CFO:

- The free cash flow adjustment of (-$4.7m) + $1m (one of acq costs) + $0.6m (WC adj) + $4.3m (debtor delay) = +$1.2m, was confirmed by JT, all of those adjustments are one off costs/impacts that should not recurr.

- TheLand China deal is not dead but has stalled. They received a small order recently (~$2m) but are tracking well under where it was hoped ($42m over 2 years). This is partly because of high milk prices and it is hoped that with prices trending down entering spring that contract could pick up again.

- THM seasonality: couldn't get exact splits out of him but it is tracking level YoY. (i.e. in line with FY21 of $21m). In other words, the June quarter is about 20% of a full year. They are hopeful THM will be growing YoY when their initiatives for Spring/Summer kick in.

- Rhian's departure was also a surprise for them but the rest of the THM team remains highly aligned and excited by the opportunity ahead. They will gradually shift the brand over time to have the community as the face of the brand, not Rhian.

- If all goes to plan, they remain positive THM will continue to be CF generative over a year. This will allow them to pay down the debt profile.

- Regarding AGM resolution 5 (7A mandate): they have absolutely zero intention to capital raise. JT was quite adamant about this. This (7A mandate) is what they attempt every year as do many other small caps. This gives me confidence personally that the business should certainly be CF+ across the coming quarters.

- Investor comms: JT has agreed to do a Strawman investor Q&A (this time we'll hold him to it!), check out the meetings page for more details and to submit questions.

One factor that has continued to impress me in this most recent update (and what initially drew me to Halo before the acquisition of THM!) is Halo's ongoing growth in contract manufacturing (capabilities acquired via Omniblend) recording $15.9m in CM sales for the quarter. I think 2 key factors have driven growth in Halo's contract manufacturing division:

1. [Industry Wide]: The decentralization of the food and beverage supply chain away from legacy brands with vertically integrated manufacturing towards new, innovative products that require a more nimble and innovative supply chain. This is driving industry-wide growth in contract manufacturing of around ~11% p.a.* (~3x the growth rate of the underlying F&B sector it serves)
2. [Firm Specific]: Competitive advantages based on differentiated capabilities, particularly those with high entry barriers and no practical substitutes. For example, Halo's state-of-the-art snacking and bar line and manufacturing plant in Prestons [Sydney], which now appears to be serving Coles's private label protein bars. As far as I am aware, this is the only facility in Australia with the capability for layered protein bars.

High-quality assets with differentiated capabilities should in time garner acquisition interest and valuation premiums, while lower-quality assets with more common capabilities will likely see limited traction in the market and diminished valuations. Given that Halo's contract manufacturing growth rate is well in excess of the industry growth rate for CM, I am running with the assumption that Halo is evidently stealing market share from other contract manufacturing firms. For me, this is great news because the key to unlocking returns (improved margins) in CM is scale.

* Source: Cascadia Capital

Solid (but not excellent) numbers in my opinion.

Suggests that there may have been a leaky ship today with buying volume significantly up. Let's see if the buy side builds over the weekend / pre-market open on Monday. The THM numbers are largely* where they were reported to be pre-acquisition even though the market appeared to write the business off entirely; with the share price declining more than 55% post-acquisition. So in that context, I think this is a good result relative to expectations.

• The contract manufacturing business appears to be continuing to scale at $15.9m revenue for the quarter (run rate of ~$63.6m p.a.).
• There's no mention of EBITDA except for the fact that the brands division is now EBITDA positive, following a re-structure
• Overall adjusted net cash from operating activities is positive at +$0.6m (-$4.7m + $1m one-off professional service fees relating to the acquisition + $4.3m due payments the majority of which have now been collected). That's only marginally CF+ though, it is important that we see net CF continue to improve next quarter.
• (*) Revenue for THM is $4.2m. If you annualise that you get to ~$16.8m which is a significant shortfall from the $25m which was forecasted for FY22. This is because the Winter quarter is a seasonally low quarter. That explanation makes sense to me (and aligns with historical website visitor data), but is something to monitor going forward. It is important that we as shareholders see THM revenue increase in the next quarter as we enter the higher performing (warmer) months of the year and particularly the Q4-CY22 (Oct, Nov, Dec) quarter, which should be a bumper quarter for sales.

In the F&B sector, where you have ~50% of all of the ASX listed entities unprofitable (many burning significant amounts of cash) yet many at much higher valuations, this result to me reflects the asymmetric risk/reward opportunity with HLF. However, it is important that i) Halo continues to be net cash generative going forward, ii) pays down its debt and iii) can continue to profitably grow, with operating leverage. If that happens, the business has a bright future. Not out of the woods yet but this is hopefully enough for the market to regain confidence that the THM business is not a fad and is instead a genuine cash-flow generative business.

$20m market cap. $83m sales run rate. Marginally CF+ (if adjusted for late payments) — it will be very interesting to see what Mr Market makes of this, come Monday, relative to the expectations that are baked into the share price. As a very rough back-of-the-envelope calc, assuming a 10% EBITDA margin and 6x EBITDA multiple; I get a fair value revenue multiple of 0.6x.

I suspect management is hoping that they'll let the numbers do the talking. With a market cap of merely A$21m at 5.3c/share, there could be a serious re-rate on the cards if HLF reveals a cashflow positive result (and/or strong EBITDA) in the upcoming quarterly, which is due by the end of the week.

I'm taking a cautious approach, however. Results have generally been below expectations on the cash-burn front across the last 12 quarters. Although to be fair, Q3 FY22 (AKA Q4 CY21) was an absolute standout quarter producing a cashflow positive result for the first time.

Trailing twelve months (TTM) net operating cash burn is also improving from a trough of -$10.2m in Q2-CY20 to -$3.9m as of Q1-CY22. With the addition of The Healthy Mummy (THM) financials for the first time this upcoming quarter (Q2-CY22), we may see more than A$21m in revenue for Halo this quarter alone, which is more than the current market cap, indicating a price to sales ratio (PSR) of < 0.25.

Looking forward to the results.

The Healthy Mummy (THM) website visitor numbers are up 45% since March (272k in June v 188k in March 2022). Hopefully, the LTV/CAC ratio is holding up. I'm looking forward to seeing the THM financials at the end of this month. If THM is tracking above $20m p.a. at the top line and $5m p.a. EBITDA, we might see a combined Halo (HLF) quarterly revenue of ~$20m and slightly positive EBITDA. If that is the case, HLF will be trading on 0.25x rev ($20m revenue for the quarter versus a $20m market cap). Ideally, the quarter will also be CF+, although I'm cautious about that because there will be some one-off integration costs.

Generally tracking in the right direction here in my opinion. If Halo can shift into profitability this financial year (FY23, noting that they operate to a 31st March year end) with the contribution of the Healthy Mummy business, this is likely to be the catalyst for the share price moving forward. The progression of the free cash flow margin from FY19 to FY22 highlights that this business is now right on the cusp of breakeven. I'm significantly underwater here but continuing to hold. $20m MC.

The global and country website rank for The Healthy Mummy (THM) is slightly down for May 2022 v April 2022, but the overall traffic numbers are holding up well at 258K visits globally across mobile and desktop (see below). The Australian winter is traditionally the lowest point in the business cycle for The Healthy Mummy (people particularly want to get in shape during summer!) so I'm ok with this progress from the team. I'm looking forward to seeing how the June and July website visitor numbers turn out. Moreover, I'm most interested in seeing the THM financials (revenue, EBITDA and CF) in the next quarterly report (4c), which is due to be released at the end of July (for the 3 months ending 30th June 2022). At a $22m market cap, I can only assume that the market expects that the upcoming financial year (FY23) will present another loss. Personally, I believe the odds of a bottom-line profit for FY23 to be reasonable... therein lies the opportunity. THM is set to deliver somewhere between $5m and $6.5m AUD in normalised EBITDA for FY23 based on guidance. HLF will have some integration costs in this next quarter, but I'm not expecting D&A to be material for THM over the year. Thus, there is a reasonable chance that THM's EBITDA for FY23 will drop down to EBIT. Nothing is guaranteed here. But, I think this is a (very) asymmetric bet at a 6c share price. In an uncertain world and when investing, that's all you can ask. There's no such thing as a sure thing, but you want the odds in your favour. EBIT of just $4m AUD puts HLF on an EV/EBIT multiple of 8x at the current price.

Below is an extract of the 3-statement DCF model that I have put together for Halo Foods.

I'll update this again once the formal FY22 (31st March year end) results are released in the next few days.

I'd love to get perspectives/feedback on the assumptions I have used (in the HLF strawman forum) and we can tweak this to zero in on a fair value estimate.

On the following assumptions, with this DCF (FY23 to FY26 forecast period + terminal value), I arrive at a 22c fair value target:

• Revenue growth rate of 15% in FY24 slowing to 10% YoY in FY26
• COGS as a percentage of revenue drops to and remains at 70% (from 80%) following the THM acquisition (FY23 and beyond)
• SG&A as a percentage of revenue drops from 31% in FY20 and 26% in FY21 to 20% by FY26
• Marketing expense (as a percentage of revenue) increases from 1.6% in FY21 to 2.0% in FY26 (extra marketing associated with THM)
• WACC of 9.4% (beta of 1.96)
• Terminal growth rate of 1%

Although I am very cognisant that I have been wrong on the timing of this investment so far, 21c presents potential upside of 289%. I remain invested here with ASX:HLF.

A model is only as good as the assumptions underlying it. Please feel free to suggest alternatives (bear case / bull case assumptions) and I am happy to run it through the model to see what sort of targets are generated.

As highlighted by Strawman, what matters most for any stock is performance on a per-share basis. Below, I've presented the absolute numbers and also the per-share numbers for both the top line (revenue) and the bottom line (NPAT). For the FY22 result (12 months ending 31st March 2022), I've used 274m shares on issue (SOI) because The Healthy Mummy financials (~$25m revenue and ~$4m profit) are not included in the FY22 result. From FY23 onward, the THM financials will be included in the Halo result, and thus it makes sense to use 400m shares on issue from that point onward, as the additional shares were issued for the purpose of acquiring THM. Importantly, although this FY22 result was not yet NPAT positive, it has improved from a loss of $8.2m in FY21 to a loss of $3.9m in FY22. It's of course a business with low margins (that's contract manufacturing for you), which partly explains the extremely low valuation ($24m market cap). But, on these top-line and bottom-line figures, it is a valuation that I think has grossly underestimated the potential of this diversified health & wellness company. The share price drop today to 6c was another kick in the guts but I personally retain the view that this investment has the potential to be valued at $100m+ in the next few years. I might be completely wrong -- time will be the ultimate arbiter.

HLF CFO, Jourdan Thompson, has agreed, in principle, to find a time across May, once the Full-Year result is released, to come on Strawman and do a Q&A chat. Very much looking forward to that. More details to come.

I've had to blank out the names below, sorry, because I am not allowed to share the register publicly. But, my takeaway from this is that the T20 is in a reasonable position, with VC & Bergen the only major exits since the THM acquisition was announced (2 others also left the T20 since Dec but were also only recent additions to the register, so were more likely to be traders with stop losses). We've got a number of new additions to the T20, with the threshold to enter the T20 increasing (2.2m units as opposed to 1.4m units back in Dec last year). There will be a lot of churn here from holders/traders/legacy investors outside of the T20. It is always hard to turn a downtrend around. It takes time. Unfortunately, most retail investors who are only loosely following the story will simply be relieved to get back to breakeven and may sell when that happens, and thus the register will have to churn out many uncommitted investors on the way back up. Regardless, I really like the risk/reward balance at these levels in the context of $6.5m EBITDA for FY23 versus a market cap of $26m. Let's see where we get to 12 months from now.

I think the upcoming quarterly (Q4-FY22 // Q1-CY22) is going to be CF negative (ex-THM), but have my sights set on FY23 full-year results (incl. THM). I suspect this because HLF has indicated in the THM investor pres materials that the forecast for full-year FY22 revenue (ending 31st March 2022) will be $60.1m (ex-THM). Given HLF has achieved $46.9m in the 9 months of FY22 reported to date, this implies the Q4 result will be circa $13.2m in revenue (ex-THM). This compares to $17.5m in sales for the recent record Q3 (quarter ending 31st Dec 2021). Given the quarterly COGS has been averaging around 86% of sales, I'd expect $1.85m in gross profit for the quarter (ex-THM). This will be less than the SG&A costs (c.$2m for staff costs and c.$600k for admin & corporate costs). Further, admin costs for the THM acquisition will be in addition to this. So, I'm guessing we will see a cashflow negative result in the order of negative $0.75m for the business ex-THM (before acquisition costs: i.e the result will be worse after acquisition costs are incorporated). In terms of why the quarter is indicated to have lower sales than last, my best guess is that the Theland China contract is yet to see its second major order. That would account for around $2m AUD of the expected $4.3m AUD gap. Opening orders of USD1.5m were received and manufactured during Q3 FY22. However, the second Theland order was scheduled for late February (indicated here), and thus the bulk of this will fall outside of Q4. The new deal with WFresh Limited will also fall outside of the 4th quarter. As to the rest of the revenue gap ($2.3m), perhaps that is due to the loss of a contract (Walmart) or due to timing factors in orders. The CM business is somewhat lumpy.

Not long to go now.

For James Gong, no further substantial shareholder notices were released from March 2021 onward, when he ceased to be a substantial shareholder (sub 5%). Yet, as of the 10th of Dec 2021, I am aware that he is no longer in the Top 50, so I have assumed a somewhat linear decline of his holding between those two data points.

As of the 22nd of March 2022, I have VC at 4,785,306 units remaining based on a T20 report. The other data points below for VC are based upon substantial shareholder notices prior to VC moving under the 5% threshold and based upon T20 reports post VC's fall under the 5% threshold. (Note: for those wondering, the increase in shares held by VC & JG in March 2021 was due to the grant of performance rights, not on-market buying).

Cumulatively, over the past 12 months, over 36m HLF shares have been sold by these ex-management team members that were removed from their positions by the board of the company, following the reverse takeover of Omniblend. There may be many valid reasons for this selling, such as diversification, but when emotions and ego are involved, it is difficult to act rationally.

36m is a very meaningful amount and although it is not the only reason behind the share price decline over that period, it is certainly a major contributor to it. Psychologically, knowledge of an overhang reduces buying demand and accentuates selling pressure from other holdings. But, the shares sold have largely gone into the hands of individuals, like me, who see value in the company at this price ($28m MC at 7c).

We are coming to an end of an era, and possibly, a new chapter for the share price. If I had to guess, I'd imagine a stabilisation around 7c levels, followed by a rise back to 10c (the placement price) across the next couple of months. Beyond that, the share price of HLF will increasingly be driven by the earnings profile of the business, in which they indicate $6.5m in EBITDA for FY23.

Those who have been following along with the HLF T20 will know that VC had ~13.7m units prior to the THM acquisition and now has ~7.7m units remaining (as of the start of this week). Let's estimate another 3m units from VC was sold this week (there were two major dumps of 1.5m shares each, including one today), which takes her holding to ~4.7m units remaining. That goes part of the way to explaining the deep decline in the share price since the acquisition.

Anyone buying in now ideally should be doing so with a long term mindset, ideally of at least a 12 month+ time horizon because it will take some time for the register to reset. For those that do, I personally think your chance of doubling or tripling your money from these levels over that time period is reasonable, as per the below. Of course, that's purely my own view and not financial advice; do your own research, seek a financial advisor etc. etc.

Following on from the news that the Chairman bought a few days ago, HLF CEO, Danny Rotman, has picked up 230,000 units at an average price of 8.6c per share ($19,780), as of yesterday, which brings his total to 3,136,977 full paid ordinary shares.

454,550 HLF shares were acquired yesterday at an average price of 8.7c on-market by Non-Executive Chairman Peter James, for a total consideration of c. $40k AUD. Peter James will also be taking up his full SPP allocation (another $30k AUD) (as will all of the eligible Directors). Intriguingly, the timing of this also happens to coincide with the removal of the VC & JG overhang (former management).

News was out today that Halo Foods (HLF) is acquiring The Healthy Mummy (THM). Here's my attempt to make sense of this:

• Combined revenue of ~$84 million and normalised EBITDA of ~$5.7 million (pre-synergies)
• Implied acquisition multiple of approximately 4.1x EV / FY21 upfront EBITDA and 3.4x EV / FY23F blended EBITDA (assuming top earnout threshold is met) [that's not bad considering recent acquisitions/investments in the space, such as 'The Man Shake' by Pacific Equity Partners for 12x EBITDA]
• I don't think this is a short term fad. I think the weight loss programs are likely to become more popular with time
• The strategy here is to extract operational efficiencies and scale benefits
• THM’s mission is to help millions of mothers around the world who want to lose weight after having children
• THM has a high margin subscription digital product offering, which is feeding product sales. Appears that the subscription (to the 28-day challenge delivered by the Healthy Mummy App: 86k subscribers) provides around 40% of their revenue and their products (mostly smoothie powders, nutrition and skincare) provide the remaining 60% of their revenue
• This online subscription offering (which has a fairly strong Trustpilot rating & App store rating) could provide substantial cross-sell opportunities for Halo brands (such as Tonik)
• THM appears to have a partnership with Priceline (physical stores and online) which supply their products
• THM can bring their manufacturing of core products in house via Halo's facilities (Melbourne & Sydney) – estimated $4-5m of contract manufacturing to be brought in-house
• THM has higher-margin, proprietary brand sales to lift Halo's existing sales mix and profitability. Proprietary products currently comprise about 10% of HLF's revenue but this should rise to something like 40% post-acquisition. This should lift the gross margin of the business, which is currently around 20% for HLF contract manufacturing (v 60%+ for THM).
• Across the F&B sector, brands with higher margins are often rewarded with higher valuations (i.e. A2M/Tassal/Select Harvest v Inghams/Bega/FarmPrideFoods); thus I don't mind this strategy at all
• The acquisition and associated costs will primarily be funded through a combination of equity ($6m) and debt ($13m).

Post-acquisition, what we should see is a strong deleveraging profile underpinned by synergies and organic growth initiatives. For a combined business that is doing $84m rev and normalised EBITDA of $5.7m, I think this business deserves to be valued on a minimum of 1x rev or circa 15x EBITDA for a market cap of around $85m AUD. SOI will rise from 274m to 384m units. That's a short term target of 22c (85/384).

An acquisition is often only suitable under certain conditions, one of those being that the acquisition is earnings accretive: having looked over the financial profile of the business, this is indeed very much earnings accretive. I hope that means the market will get behind this.

I like the numbers but I'm not a huge fan of the product (but I guess I'm not in the THM target market either!). The main risks are that THM fails to reach its financial goals, that it distracts from managements focus or that there is an excessive reliance on key personnel. There will likely be an initial knee jerk reaction on Wednesday when this news is formally out and the trading halt is lifted and then there will be the more measured share price reaction in the weeks thereafter.

Word on the grapevine is that the placement closed early, oversubscribed.

Onwards and upwards.

I'll take up the SPP.

I've always been more of a fundamental investor, not a technical trader. But, the truth is that chart patterns are not random, they are the footprints left by smart money.

There are those doing the hard work, running the analysis, pounding the pavement and speaking to management before they dare to take a position and these are the people making the footprints. Then there are those observing those footprints (technical traders) by looking at price action.

Regardless of whether you choose to use technical analysis or fundamental analysis in your investing decisions, it pays to know what the market is thinking. It pays to look for these footprints.

Below, we have a MA Exp Ribbon chart and what I believe is a pothole setup: we've had a long downtrend, from 2019 through to June 2021. At this point, the bears want to see the stock continue to drop, but bottom fishers like me see deep value.

At this point, buying demand keeps the stock from dropping much further. A stalemate emerges with neither the bulls nor the bears winning so the stock just lines sideways (June 2021 to Jan 2022).

Just before moving higher, there is a final piece of capitulation selling (the pothole: it was at 10.5c) and the setup is then complete, allowing the stock to climb and climb and climb.

Moving average ribbons are a series of moving averages (MA) of different lengths that are plotted on the same chart to create a ribbon-like indicator.

Traders can determine the strength of a trend by looking at the distance between the moving averages, as well as identify key areas of support or resistance by looking at the price in relation to the ribbon. The ribbons can also be used to signal potential trend changes when the price moves through the ribbons, or the ribbons cross each other.

In this case, after an extended period of sideways movement (consolidation), HLF appears to be breaking out from the pothole setup. When the price is above the MA ribbon, and the MAs are angled upwards, it helps confirm a rising price. This indicates an impending breakout.

We are also very close to a golden cross. Plotted below is the SMA20 (red line), SMA50 (black line) and SMA200 (green line) on a daily chart. We can see the share price is holding just under the SMA200 level and the SMA20 (red) has turned up and crossed above the SMA50 (black).

A golden cross is the move of the SMA50 (black) above the SMA200 (green). That is probably the single best charting method to confirm/claim that a new uptrend is now in place. From a fundamental analysis perspective, the best indicator is probably the shift into EBITDA positive territory and that has already happened.

What I am interested in here is that the overall TA picture is confirmed with FA action (clearance of the overhang from James Gong and Vivienne Cheung and a record quarter on all metrics, which highlighted the crossover into profitability and the effect of high operating leverage kicking in).

I've been quietly building a position across the past 6 months anticipating this breakout and a rerate back to a fair valuation. My average is circa 15c currently (15c equates to a MC of A$40M) (Note: The IPO in 2018 was at a $30M valuation and at that point they were only doing A$2M revenue p.a. versus A$17.5M in the most recent quarter alone!).

I believe the share price should run quickly back to 22.5c (purple line) as a starting point on fundamentals, now that the overhang is cleared and the pivot point in profitability has been hit. With 274M SOI, 22.5c is a market cap of A$61M. That's a conservative 12x multiple of estimated FY23 EBITDA of A$5M (the ASX F&B sector trades on 15-20x EBITDA on average) and 0.87x Q3-FY22 run-rate revenue (A$17.5M x 4 = A$70M).

Additional catalysts include an update on the A$54M 2-year Theland China deal (most likely Feb) and another quarter of profitability & rising EBITDA in the 4th and final quarter of FY22 (HLF operate to a March 31st financial year-end) (end of April).

A fair short term target might be a A$100M market cap (36c) following another quarter or two of rising revenue, EBITDA & CF. I'll be looking to take some profit off the table at that point.

I've never been more pleased to see a "ceasing to be a substantial holder" notice in my life.

The damage that JG & VC did to the share price of this company was extraordinary, selling out of spite, due to the reverse takeover of their original business (Omniblend & Keytone Dairy).

Now comes the exciting part: a rerate of the share price back to normality in line with revenue & earnings growth (intrinsic value). I'm pretty sure I won't be the only one buying tomorrow.

Stellar Q3 FY22 quarter, congratulations to the management team.

The net cash flow from operating activities of $2.6M is outstanding. But CF varies quarter to quarter based on the timing of receipts and working capital needs, and so I was even more pleased to see group EBITDA continue to climb to $503k, up from $216k in the previous quarter (Q2 FY22) and up from a loss of -$265k in the prior corresponding period (Q3 FY21).

The sales pipeline is very robust too moving into Q4-FY22, with some great updates in the quarterly: "a number of clients have indicated increased volumes and additional SKUs over the coming 12 months, with forecasts to be provided in due course."

EBITDA is currently running at an annual run-rate of c.A$2M and growing at 134% per quarter. Even on today's progress alone (and not factoring in the incredible growth trajectory, with operating leverage kicking in), HLF is currently worth $30M at a 15x EBITDA multiple. That's the current market cap.

When you start to project forward a couple of quarters, one can envisage HLF hitting quarterly EBITDA of $1-2M this calendar year, equating to annualised EBITDA of $4-8M. That would provide a fair valuation of between $60M to $120M in the short term (on a 15x EBITDA multiple), compared to a market cap of just $30M today.

The investment thesis is starting to play out: I believe this is a multi-bagger in the making.

Hi Chagsy,

Halo is at the far right of the chart, with a 188% top-line CAGR across FY18 to FY21. A fair multiple (valuation) is not being applied to Halo for a couple of reasons, but it is primarily a result of the share overhang, which is almost resolved.

Interestingly, when one examines the 50 or so entities comprising the ASX F&B sector, a tale of two halves is revealed: profitable stocks (mature value, mid-growth, and high-growth) versus the unprofitable players (high growth, concept stocks and under-performers). Halo Foods is on the cusp of this transition into the profitable end of town where valuations tend towards 1-2x revenue at mid-quality and 2-4x revenue at high quality. 

I believe that Halo Foods may have a ticket to parties in the blue-end of town soon.

T.E.P.

Overview of HLF's financials:

• I estimate that $5m+ annual EBITDA is achievable at the group level (including HeadCo costs) for FY23 (the 12 months ending March 31st 2023), once recently secured contracts have had a full year of operation, and recent cost-out benefits have run through a full year.
• I estimate that FY22 (12 months ended March 31st 2022) will highlight the turning/crossover point for EBITDA (circa $0m in EBITDA)
• The gross profit margin has stabilised at circa 20%
• Top line growth remains strong and should be on track for 30%+ YoY (consolidated group sales for the month of September 2021 realised a record high of $5.7m for the one month alone)
• James Gong is now well outside of the Top 20, he is no longer contributing to the share overhang. VC still holds a sizeable parcel but appears to not have sold into the recent announcements (a change in substantial shareholder notice would have been required otherwise).

The table below shows how EBITDA, EBIT and Net Income margins have progressed across the past 3 years. If business performance continues to improve, I can't reasonably see the share price being any lower than it is already today at a sub $40m market cap.

There's still resistance on the sell side, but for each new deal that comes our way we progressively build a base and attempt to push higher. Eventually, this pressure will break the door and we will be moving higher. Seems to be plenty of support building around 11c to 14c levels over the past few weeks.

Worth keeping an eye on the A/D indicator.

Let me start by saying that attempting to time a stock bottom is notoriously dangerous. Indeed, I've been burnt a few times attempting it in the past. However, it can also be an extremely rewarding way to make profits in the share market, particularly for those with a keen eye for value. The key question here is, "Has the time come to enter Halo Foods Co. (ASX:HLF)?"

As of Nov 2021, following i) a re-brand (name change from KTD), ii) the gradual exit of disgruntled Founders and Ex-Management (James Gong & Vivienne Cheung) and iii) off the back of two significant deals recently announced by Halo Foods Group (including a massive $54m AUD deal over 2 years with Theland New Cloud Digimart in China), I think that the current state of play (a long drawn out downtrend) might be in the early stages of showing a state of reversal...

From a TA perspective, we have now witnessed a triple bottom of the share price at 11c in June, August and Nov, respectively of this year. Secondly, we are finally seeing the Accumulation/Distribution indicator show some signs of recovery. Since 2018, the A/D indicator has fallen dramatically as major holders dumped stock into a retail investor crowd. However, since June 2021, we have finally seen the A/D indicator level out and start rising, suggesting that the stock is now in a period of accumulation around current levels.

For KTD/HLF, the downtrend since 2018 was disastrous; a combination of an overpriced IPO, failed acquisitions and a lack of trust in KTD/HLF's previous management. But, what causes a reversal of a long term downtrend? Quite simply, it occurs when excess selling pressure stops. This unique moment in which the forces of supply and demand find equilibrium and reverse often occurs at two key junctions.

Firstly, the company in question needs to have improving underlying business performance. With strong top-line growth and a move into EBITDA profitability for both the AUS and NZ business (confirmed at the recent AGM), I think we can objectively state that business performance has improved. I'm quite impressed by the ongoing growth of the business towards the major milestone of $100m in annual revenue and the improvement (albeit slower than we would like) towards group profitability.

Secondly, the turning point often occurs when share prices fall to a level in which clear value can be seen from investors, in the context of the risk/reward on offer. With 274M shares on issue, at a share price of 14 cents, HLF trades at a market cap of $38m. For a company that recorded revenue of $51m in FY21 (financial year ending March 31st) [net profit of -$8m], up from $23m in FY20 [net profit of -$7.5m], and that is on track for run-rate revenue between $80m-$100m and annual EBITDA profitability, I would suspect that investors now believe $38m is a very reasonable price to pay for this business... 11c corresponded to a valuation of merely $30m... it is not a surprise to me that buyers stepped in at this level...

Indeed, the current valuation is particularly intriguing when the sector trades on 15-20x EV/EBITDA and circa 1.0 - 2.5x revenue, suggesting that HLF's upside could be in the order of multi-bags if profitability is achieved and sentiment shifts. From here, I want to see the final remnants of the share overhang (VC) cleared, I want to see ongoing top-line growth and a gradual shift towards group profitability. F&B/FMCG is most often a volume game because of low margins in the sector and HLF's CEO has made it clear that top-line growth remains a core focus and is not stopping anytime soon. I'm on board with this strategy. HLF could also be an acquisition target now that it is at scale for an acquirer to strip away overheads and build a profit.

If ongoing growth is coupled with some news of EBITDA profitability across the next couple of quarters, there is more than a fair chance that Aussie insto funds will find this a very interesting play. Risks of course remain, but I personally picked up more shares at 14 cents yesterday. I think there is a fair chance HLF will break the shackles of its past, soon turn the corner into a share price uptrend and trade back above 20-25c again soon. A market cap valuation of $100m, once at group EBITDA of $5m would be fair in my books.

I think Halo's time is coming.