Stealth just issued another slide deck, as part of a presentation to ShareCafe.

I'll highlight what i see as the new information in a minute, but boy, this really hasn't been a smooth process.. As others have noted, you have weird (nonsensical?) performance calculations & inaccurate charts, and less than 24 hours after your own investor briefing, you do another with a 3rd party that includes new information..!

Probably a reflection of a small team, and maybe it's a good thing they aren't engaging some IR firm to manage things (and exaggerate them). But still.. it's a bit amateurish!

Anyway, here's the latest presentation -- Stealth-Investor-Webinar-Presentation2.PDF

The key differences to yesterday's presentation i saw were:

1. The most important difference is Slide 18 which provides specific financial guidance for FY24, including expected year-on-year growth ranges for sales, gross profit, EBITDA, EPS, and capex. This forward-looking information may have been discussed verbally yesterday? But I don't believe so.
2. Slide 10 provides updated "Key Numbers" after the acquisition, such as the $159.0m pro forma FY24f revenue, 250 team members, and over 3,310 retail reseller stores. The first presentation had slightly different figures.

So if NPAT is 25% higher, that gives us a FY24 value of $1.125m (last year was $0.9m)

Of course, post acquisition there will be an extra 14.4m shares on issue, or let's call it ~115m in total. So that's an EPS of 0.98cps. Last year they did 0.91cps, so that's growth of 7.7%.

SGI is right that EPS growth will be 25% if you exclude the Force acquisition (about 3 weeks contribution and extra shares). Maybe it's too late on a Friday, but I'm struggling to work out what the EPS will be in FY25 based on what has been said.

Here's my thought process (someone please correct me if needed!):

• FY24 NPAT (ex-Force) = 0.9m x 1.25 = 1.125 million
• On a per share basis, accounting for dilution, that's 0.98c
• FY25 EPS including the accretive impact of Force (expected to be ~26%) = 0.98 * 1.26 = 1.23 cents (this is before any new revenue contribution)
• So that puts SGI on a forward PE (using FY25 forecast as FY24 is essentially over) of 22.5c (current market price) / 1.23c = ~18.3x
• 
  

I'm just not sure if i'm interpreting what they are saying correctly...? Still, that's a higher PE than I was expecting, but if I'm understanding things right that doesn't include any organic growth from the legacy business or the new one. And you'd like to think we get some of that!

As has been noted, Mike suggested $300m in revenue by FY28. Let's assume a EBITDA margin of 6% by then (it should be 5.7% this year, compared to 4.7% last year, and they have suggested previously 8% is reasonable at more scale). That'd be a FY28 EBITDA of $18m, which is almost 3x what they should do this year.

Let's thumb suck a net margin of 3% to get a FY28 NPAT of $9m, or 7.8cps

That's certainly a lot of growth, and even if you do use a forward PE of 18, that'd be more than justified if true. But it comes down to a lot of revenue growth (around 20%pa, and continued margin expansion).

It seems possible, but the expected sales growth for FY24 isnt huge (and why is there such a range given there's only 3 weeks left in the financial year)..

Anyway, too much thinking out loud for me. I need to ponder this a lot more..

Mike and the team have a good track record of acquisitions, but I was a bit surprised to see them move into the mobile and tablet accessories market. Seems like a bit of a departure from the current product set (although, that's quite diverse in itself)

Full details here, but some early thoughts from me are:

• 4x EBITDA multiple seems reasonable
• New shares represent ~14.5% of current shares on issue.
• Pro-rata H1 EBITDA for stealth (pre-acquisition) gives $5.6m in FY24 EBITDA. Force should add ~$2.6m (pre-synergy), which is a 47% lift (ie. it is certainly accretive, and tracks what Stealth says about the deal being 43% EPS accretive before synergies)
• The vendors will have a 12.5% ownership stake in Stealth post acquisition. Combined with the earn out bonus there should be some good alignment. ie. the vendors will have some incentive to stay engaged and ensure a successful integration.
• Not sure how high the hurdle is for the earn out payment -- Force is already exceed the threshold in the current year.
• Synergies are always talked up with acquisitions, but it does seem reasonable to assume there will be some degree of opportunity here given SGI's investment into logistics and warehousing.
• Debt wont be too onerous after the deal -- they'll have $11.2m in debt, and Stealth said they will use cash flows to help deleverage things in the coming years.

I'll try and tune into the investor call tomorrow. But overall this looks like a positive.

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.