Stealth copped a "please explain" from the ASX today, following the spike in share price after the presentation they gave for ShareCafe.

You can read their response here, but honestly this was an obvious and easily avoided mistake.

An investor presentation the day before results were out, in which unaudited numbers were disclosed is, frankly, bizarre.

They reckon this information was already out there, referencing guidance and progress made in November, but some guidance in November is hardly the same as pre-audit numbers after the period end.

It doesn't really change the thesis for me, but it's a mark against them.

I hope they learn from this and take better care in the future.

This presentation was marked as market sensitive, but I really can't see anything new here that you'd class as material and undisclosed.

One small point, this looks like a bit of a chart crime:

Maybe i'm missing something, but shouldn't that dark blue square should be only 23% larger in area than the light blue..?

Poor old SGI just can't catch a bid. Not the results were bad -- far from it!

On a statutory basis, revenue was 11.4% higher, (or over 17% if you just look at continuing customers). Revenue for continuing operations has averaged 29% per year over the last 3 years.

It's also lifted prices recently, which it expects to boost future profits, and has reiterated its non-discretionary nature as an 'all-weather' distributor.

As you go down the income statement, things get more interesting, with some real operating leverage starting to emerge.

• EBITDA was up 32.5%
• Pre-tax profit was up 85.7%
• and NPAT was up 50% (51.7% on a per share basis)

The cash balance improved significantly to 7.7m and net debt dropped almost 30% to $7.2m. Free cash flow was +$5.6m. So they seem well positioned to start dividends as promised.

The company has an Enterprise value of $19.7m, so it's on a EV/EBITDA of just 3.7x.

The PE is 13.2.

There's not a huge amount of detail in the ASX Release, but I'll try and line up another meeting with the CEO to see if we can get some more insights.

Disc. Held

3rd quarter sales hit $29.2m, up 12.6%. For the first 9 months of the year, sales are up 17.4%. Both are records for the company.

If they achieve the same result next quarter, or we just pro-rata the first 9 months, it puts Stealth at around $110m in FY23 sales for continuing operations.

36% of revenue comes from mining, resources and infrastructure, which the company is seeing "ongoing high demand".

Inflation still a challenge, but price increases is expected to contribute to an increase in profit.

The Skipper and United Tools acquisitions are still yet to realise "significant" cost synergies.

The company has previously said it expects margins to improve -- and this is a big part of the investment thesis -- but if you assume a net margin of just 1% in FY23, the forward PE is around 10. Not bad for a company enjoying double digit revenue growth.

See full ASX announcement here.

Disc. Held.

Here's a recording of the recent results meeting: https://vimeo.com/805827197

Key points:

• It's a very resilient market. Most of what they sell (95%) they class as non-discretionary.
• The addressable market estimate is now over $50b -- and very fragmented. I read that as a lot of acquisition opportunity, and an opportunity to build a scale advantage over other players.
• Strategy is clear and consistent, with a focus on ROI and capital management. There's a long way to go before the vision is fully realised, but I think you can say objectively that the company's growth and execution has been pretty decent to date.
• Higher fuel costs and other cost issues a factor, but have the ability to pass on higher costs. Price rises will help improve margins in the coming quarters. Gross margins were mostly maintained in the reported period
• Getting more invitation to tenders. Not just about cost competitiveness, but range and reach.
• $260m worth of spend across the group -- have set up a procurement division to better leverage this to negotiate for better terms.
• Closed unprofitable sites accounting for $2.4m in annual sales. Only interested in sites that make financial sense, and will be focused on further rationalisation if needed. This should improve margins across the group, even though it will have a revenue impact. It's the right thing to do.
• Brands will likely be consolidated under one banner.
• Proprietary products expected to grow to 15% of total (also leads to better margins)
• Technology expected to help improve efficiency -- overall, very focused on costs and margins.
• Inaugural dividend proposed for FY24 (maybe 30% of FCF).
• Acquisitions remain a core part of the growth strategy, but next 6 months will remain focused on bedding down recent purchases. Have walked away from lots of opportunities. Must make financial sense.

Thesis remains on track.

Held.

@DrPete123

Yeah I found Mike to be very straightforward, and with a clear vision for the business.

On top of what you have mentioned, I liked:

• How they have walked away from several acquisitions. For a company with a clear focus on consolidation, that takes a hell of a lot of discipline.
• How they are prudent in terms of their use of capital. Choosing debt over equity is smart, in my opinion, given the current market price. He was extremely aware of the risk of dilution. Also, given the multiples paid, the payback period on some of these acquisitions will be very short.
• Mike seemed to have a clear focus on employees, recognising their value and investing time and effort into incorporating acquired staff into the culture.
• Buying growth is one thing, delivering organic growth post acquisition is another. They seem to be doing really well on this front.
• The 'plug-and-play' nature of ERP systems and logistics assets should allow them to bed down acquisitions relatively quickly, and unlock a good deal of synergies.

I'd also reiterate that this seems very asymmetric in terms of possible outcomes. On a 2% underlying net margin, Stealth is on a PE of something like 6 (give or take). This is a business on a $100m revenue run rate trading at $12m...For a business that's looking to grow at 25%, is profitable and delivering positive operating cash flows, that just seems extremely undemanding.

Ok, maybe their growth doesn't turn out what they expect it to be. Maybe margins don't grow as hoped. Maybe the market will never ascribe a high multiple -- but the margin of safety is huge.

On the negative side of things, I wish companies would forget about trying to engage IR people (no offense to those in this space). I understand how it's frustrating when the market doesn't see the value, and i can appreciate wanting to spread the story far and wide, but i just wish they'd let the fundamentals tell the story. SenSen and others have also mentioned their efforts on this front. To his credit, Mike did say his focus was on just getting on with executing the strategy. Anyway, it's not a big deal, just a small gripe of mine.

I added more to my Strawman portfolio today, and would like to add more in real life when i get some spare cash.