CEO increases his indirect/direct holdings from 28.75 to 29.76% with recent purchases on market of 1,160,619 and 839,381. Shares up today by 16%. The company also released an investor presentation. 

Sometimes I think about growth and wonder where it can come from. I think about our on business dev team and their search for the next big fish and see that is a perpetual struggle, depending on the market you play in grown can only come at the detriment of a competitor, but I digress.

But then you can rearrange yourself and change the business model. For example, from bricks and mortar to online, this can change at least one growth metric, profit. This could be good but will such as change be a permanent or a once off. And what if all the competitors follow this lead, we are back to paragraph one.

Well the recent results show it could be like the taco girl, why not both:

• $41.8M revenue, a 206% increase (FY20: $13.6M)

• $1.75M net profit after tax, a 73.6% increase (FY20: $1.0M)

• Net assets of $7.66M, turnaround from FY20 net liabilities of $3.9M

• Number 1 marketplace seller on Amazon Australia since July 2020

The company which is 30 years old has moved to be online only and has adopted eBay as a channel with $1M monthly sales through the platform. The change also eliminated the reseller model.

The year also saw two additions to the board. Allan Sparks and NED chairman and Guy Polak also as an NED. Polak was previously a consultant to the business meaning he hit the ground with aligned knowledge.

Sparks, a chartered accountant, says he joined as he feels the business is placed to take advantage of the strong growth in e-commerce. That and he also liked the team culture lead by Garrison Huang.

Overall, it sounds like they are trying to adapt to an extremely competitive space in the market. Will be one to watch and see if the execution can follow.  

A deeper dive is more telling. 

2020: Diluted EPS

1,009,522

191m Share Count / EPS 0.54c

2021: Diluted EPS

1,753,416 

245m Share Count / EPS 0.71c

However adjusting for tax benefits…

2021 (pre tax benefit)

1,753,416

(627,872)

1,125,544

245m Share Count / EPS 0.46c

{on a 2020 comparison of 191m shares eps was 0.61c}

Breaking the results down further we see…

2020

1,009,522

(676,097) other income

333,425

191m Share count / EPS 0.18c

So reviewing the numbers we can see that “other earning” in 676k (59.7k/2021) was made up of 608k debt forgiveness (I can under this takes place in the early stages of some micro caps). So after removing other income from 2020 and 2021 the earning per share comparison is 0.18c v 0.43c. 

Summary: I can understand in the early days these micro cap businesses may use personal loans (Director’s etc) to fund growth. However, the recent capital raise (40m @ 12.5c) in April should now see them with a sufficient cash buffer to phase this practice out (note this led to an increase in the share count by ~28%). 

The main questions for me then are what cost controls (like the current consolidation of 4 smaller warehouses into one large one (leasing of it from an entity controlled by the MD was audited by two independent companies) and opportunities to sell higher margin products (such as the recent move into gaming products) exist for them to generate sufficient cash to growth without, further dilution and at the same time increase their bottom line.

Consequently, I am happy to give this another 6-12m to play out. As such, with significant inventory now ready to sell, I want to see a greater % of gross profits dropping to that bottom line and the business beginning to stand on its own, with signs it can generate adequate free cash flow if I am going to consider this a long term play. 

FY Summary:

• $41.8M revenue, a 206% increase (FY20: $13.6M)
• $1.75M net profit after tax, a 73.6% increase (FY20: $1.0M)
• Net assets of $7.66M, turnaround from FY20 net liabilities of $3.9M
• Number 1 marketplace seller on Amazon Australia since July 2020
• Major growth on eBay Australia with $1M monthly sales achieved in June 2021

i need to dig deeper into the results but, the 5yr earnings per share continues to move in the right direction...

2017: (2.20c)

2018: (1.46c)

2019: (0.46c)

2020: 0.54c

2021: 0.71c

disclosure: I hold.

Harris Technology breaks another quarterly sale record

Highlights:

• Record breaking Q3 sales of $10.4M (unaudited) compared to same quarter last year at $3.4M – 206% year-on-year growth.
•  Total revenue to March 2021 has exceeded $30M (unaudited) comparing same period last year of $7.48M – 300% year-on-year growth.
•  Gaming product sales are contributing strongly to the growth of the business.

Disc; Have been on my watchlist since going into the gaming category