Taking stock of the release of Stealth Group results over the past 72hrs I sat back and listed why I bought a slice of this company.

This was over two years and the underlying basis / reason was VALUE.

Stealth was trading cheap across all metrics including share price. I found the Free cash Flow yield (FCF) over the past 2years as the most interesting. At 28mill market capitalisation and with FCF 4.7m yield is 16.7%. This presents itself at 3-5x higher than other retailers.

Stealth Group wasn't performing or delivering results with ROE of 20% + two years ago. The results were more like mid single digits ROE but on the pathway to be profitable and grow its margins and customer base.

Without needing to do much right, consensus (which is always scary) saw more upside than downside. A value play indeed. These factors still present themself in 2024 even though we have good appreciation in market capitalisation and share price.

Stealth Group continues to craft its niche to be an alternative to the majors and in doing so there will be questionable acquisitions and moments in its trading results to but what was attractive over 2 years continues to hold true in 2024 in terms of of a value play.

WHY?

Time enables us to watch and assess the credibility and quality of the CEO and management group and although we have seen slips in the revenue forecasts what i ascertain is that this has been done with the profitability lens (see below in the Individual Business Highlights). This has and is more critical for stealth being in a low margin highly competitive market.

Comparing with other retailers for FY24 we have seen revenue fall for HVN (8.9%), ADH (4.3%) but NPAT fall significantly higher HVN (34.7%) ADH (17.8%). This has not been the case for Stealth infact we have seen rise in revnue but significantly higher rise in profitability and EPS.

Its fair to say that the environment is tough in retail.This is not only reflected in Stealth commentary but was also a feature in Wesfarmers results re Bunnings and Blackwoods last week . CEO Rob Scott and divisional lead for Bunnings were put under much pressure on the conference call last Thursday re Bunnings flat growth and outlook.

I find Mike's approach refreshing especially in delivering shareholder value (self interest plays a major role)

There were question marks over two years ago and there are question marks today which i look forward to the upcoming conference call on Thursday 5th September to have them answered.

What must be recognised is the improved business results over the past 2 years . This in turn has seen share price appreciation well over any index and most small cap stocks.

This does not gaurantee success going forward but as we all recognise past behaviour is a good predictor for the future.

Taking a detail look into Stealth Results i would rate 7/10.

The areas of watch :

• Force acquisition and outlook in terms of revenue and profitability
• Revenue growth especially organic 2025 - 2028
• 60mil plus in revenue flagged in new organic at AGM in 2023

Metric focused organisation - Highlight and strength and hard to fault . Keen to see the next two years in terms of these trends evolving especially in light of the Target 300m in revenue and 8% EBITDA margin call out by 2028.

Impressive is the 28.1 % growth in EBITDA in light of 19.4% revenue growth. Highlights focus on profitable customers.

Also important to call out the improvement made in inventory as a % of sales which has fallen from 16.1% to 13% or 19.25%.

Mike and the team clearly understand the importance adjusting as conditions change and improved inventory management.

Ability to pivot - In H2 when revenue fell away its clear Mike and team pulled back accordingly on costs reflected in personnel costs as a % of revenue falling from 18.2% in H1 to 17.4% in H2. This resulted in total expenses as a % of revenue falling from 24.5% in H1 to 24.1% in H2.

As sales with Force acquisition kick in this will be a key watch in terms of maintaining this downward trend for costs.

Clear in guidance - Mike and the leadership team haven't hesitated to put on the table the aspirations in seeking to gain share of the fragmented industry of industrial maintenance, repairs and operations and now with Force consumer technologies products and services. Albeit having to adjust as conditions alter Stealth North Star of 300million and 8% EBITDA by 2028 is set and clear.

Taking the outlook and guidance numbers provided above the range of the results may evolve to be

Rev - $159m

GP - $46m-55.65m

NPAT - $2.38m - 5.565m

EPS 2c- 4.78c

Div - 1.2c - 2.86c (60% payout ratio assumed).

Held

Ahead of the release of Stealth Group FY24 Results WES Blackwood division results are always interesting to monitor and use as a comparative.

Revenue up 1.5% to over 2billion for the FY and conditions remain tough heading into 2025.

New Zealand were down but Australia was up.

Earnings Before Tax rose by 9% to 109m.

Workwear sales flat on last year highlighting competition and conditions.

Taking the guidance provided by Mike Arnold in June 2024 will be looking for Stealth Results to reflect following range

From a valuation standpoint WES trading at 34 x 2024 earnings with 1.5% growth in Revenue and 3.6% growth in Earnings.

Without doubt a mature safe and consistent investment but current valuation doesn't offer appeal.

SGI will be trading at 15-20 earnings with significantly higher revenue growth in 2025 (approx 30%) due to Force Acquisition and organic growth and EPS growth into 10 -20% for FY 2025.

Being my largest position on SM and RL (outside Bitcoin) sharing some thoughts on Stealth Group upcoming H1 and for the full year.

Overall to keep the thesis in check looking for positive momentum in respect to

• Revenue, 10%+ growth
• Growth in gross profit from 29.3%,
• EBITDA expansion 5% or higher,
• NPAT over 1%
• Inventory held looking for this to further reduce to 13.0% or lower as a % of revenue
• From a cost of doing business (CODB) similarly looking for this remain or fall beneath 24.3% as a % of revenue
• Free Cash flow growth of 10% to 6.6million or higher
• Debt to be reduced from 7.2m paving the way for a
• Dividend to be paid in H2 , 20% of H2 FCF or 0.65c

What to watch :

• Acquisition, which may be needed to propel revenues to the 2025 target of 200m . If announced looking to be purchased for 2x EBITDA .

Operationally, will be keen to see the continued positive trend in

• daily transaction volume ,
• average sales per order
• average sales per employee
• private label sales growth to 2.5% or higher of total revenue
• update on the price reset process and check in re any loss of customer

Specifically these results would be strong pass for the H1

• Revenue 59m, 12% up on LY
• Gross Profit Margin 31% = 18.3m
• EBITDA 6% = 3.54m
• NPAT - 1.5% = 885k
• Debt to be reduced from 7.2m
• Confirming a dividend to be paid in H2

Similarly strong results for the full year 2024 would look as follows :

• Revenue 125m
• Gross Profit 32% = 40million
• EBITDA 6% = 7.5m
• NPAT 1.5% = 1.875m
• Dividend 30% of H2 FCF 990k or 0.98c per share
• Debt below 5 million
• Shares on Issue 103.5m

Any insight or thoughts would be appreciated

Stealth Global released FY 2023 results at 3pm today and although much was revealed on 14th August 2023 we got a chance to see some of the great work being done by the management team.

What i am finding most impressive is the disciplined approach to doing business Mike and the team are taking which have yielded great benefits over past 3 yrs and set the scene for years to come .

Let me share what i mean.

Revenue growth was 11.4% for the FY to $111 million with the split H1 47% c/w 53%.

This is a acceleration in revenue.

The growth achieved was impressive when you consider the business elected to exit 6.3m in revenue which was associated with unprofitable customers.

The importance this plays long term should not be understated as it allows efficiencies to be realised to drive long term goals to be reached.

This can be seen in the following measurements

• Sales per day increase to $450k in FY 23 c/w $390k in FY22 or 14.9%
• Gross Profit per day increase to $150k per day c/w $110k per day or 31.3%
• EBITDA increase to 5.3m (4.77%) c/w 4m in 2022 or 32.5% increase.

Very Impressive.

Looking into the inventory and expense management and the results are further impressive.

Inventory as a dollar figure increased 4.8% to $14,825,384 when revenue rose 11.4%.

Such results indicate that Stealth value the real estate in their supply chain and ensure stock is working for them and not sitting dormant holding up valuable capital and space. Ultimately this will extend the life of the warehouse facility ensuring products that are profitable come into and out of the business . Finally the operation itself is also a beneficiary of this in terms of processing orders more efficiently and dropping to the bottom line

So what do the numbers say.

• Sales per order rose 17.4%
• Sales per employee rose 19.6%
• GP per order rose 14.2% AND GP per employee rose 36.7%.
• Staff as a % of revenue thus fell to 17.7% from 19.1%
• H1 staff % was 18.3% , H2 staff % was 17.1%

Operationally Stealth efficiency is accelerating as the year concluded and there is clear evidence of the goals regarding 8% plus EBITDA are within reach over the next 2yrs.

Sometimes we take a narrow view of results but stepping back and see the past 3 years Mike and the Team have done amazing job to building shareholder value.

Inventory to sales % 16.1% 2022 to 13.3% 2023.

Remain Bullish and current valuation simply confirms this , Trading at 2.45x to EBITDA and 2.32x Free cash flow.

Stealth Aug 23-confirms-record-financial-performance-in-FY23.pdf

SGI Annual-Report-to-shareholders.pdf

Disc; Top 5 Holding in RL and SM

Dr Pete thanks once again. Brialliant insight depth of analysis.

Hope i am reading the release correctly but H1 2023 had 3 less working days compared with 2022 (123v 126days) .

In terms of revenue this would see an additional $426k per day totalling $1.278million for the half. If these days are picked up in the second half at a 20.5% uplift as stated by Mike in Jan and Feb revenue update we may see an an additional $513.3k added per day or $1.54million additional for the second half.

Disclosure its my 3rd largest position in my Australian portfolio and topped up at 0.12c today which i am surprised we are still seeing.

Is what we are seeing in terms of stagnant share price movement to the upside reflective of the size of Stealth in terms of market capitalisation and razor thin margins at play?

What strikes me about Stealth which isn't being recognised is the strength in execution by Mike and the team. This is a playbook which has been replicated over the coarse of time and if executed well rewarded shareholders well.

No better seen as the information below

Stealth released results and much to like as DrPete123 shared and credit to Mike and the team a they continue on the path of growing the business but doing so with higher margins to ensure shareholders can yield the benefits of their investment

No better illustrated in the information below with revenue rising by 18% but underlying EBITDA rising by 41% or 2x the rate.

This saw EBITDA margins rising to 4.6% and well on the path to the 8% target by 2025.

Debt and balance sheet continues to be the call out risk but it seems to be well in check with plans to continue to drive down the 10mill owing each quarter thus reducing the gearing ratio. In H1 2021 this gearing ratio was 41.6% and have now been reduced to 39.5%.

Looking forward Stealth remain committed to revenue of 200m plus by 2025 and EBITDA margins of 8% plus.

Jan and Feb 2023 have started well with revenues up 20% plus and as previously commented over 95% of what SGI sells should be viewed as non discretionary especially in the mining, resources and infrastructure markets where 36% of SGI revenue is derived

One interesting is the desire to pay an inaugural dividend in 2024 which will be 30-40% of FCF.

Conference call tomorrow 1st March 1230pm AEST. see link below

Stealth 1H Result Webinar Link:

https://attendee.gotowebinar.com/register/1896754744304124250

Disc Held SM and RL . Top 5 position in portfolio

Sitting back and dissecting Stealth Group recent announcements relating to the first four months a key feature coming through is the consistency of the message by management and favourable risk reward scenario.

The AGM saw Mike Arnold provide some clear bullish signals for the business in which how they are wining and will be able to continue to win.

I would summarise these as follows

Objective over the next 12-18months will be to simplify the business after three acquisitions in FY 22 to be more efficient via reducing costs , duplication, optimising supply chain. This will see 2.2mill added in NPAT for FY23.

Optimise store footprints to drive sales and improved margins

From a supplier front moving into volume based pricing and rebates with major suppliers (can only happen at scale)

Continue to win organically via tenders

Cross selling across divisions

The B2B nature of the revenue (83.8%)is also a benefit as business will continue to spend especially int he tight labour market we have. Revenue is also broad from a sector perspective across resource , construction, trade and transport .

What felt as the kicker is the inflationary "tailwind" at play which Mike referred to in which yields and margins will be able to expand.

A 100 basis points expansion from 4.9% to 5.9% equates to EBITDA increase to 7.1mil in FY 23 from 4.9mil in FY22 or 45%

If this were to be 200 basis points to 6.9% EBITDA would expand to 8.3mil

Disc held on SM and Real Life = Top 10 holding in portfolio

Stealth released results following the close of trading today and were very solid with a couple of areas to watch .

Rev up 101.8m or 46.1% for the year

Online sales continued to expand to 2.4m or approx 9% in FY21

B2B sales = 83.8% of sales with a focus on the industrial sector as the driver of most sales.

Second half revenue was 55m v 47m in first half.

Comments about the future by Mike Arnold were " full benefits of the acquisitions, synergies and large contract wins to be materialised in the next 24months"

Excluding Acquisitions organic revenue up 21%

Gross profit margins expanded to 30.2% . This expansion has continued over each year from 18.5% in 2018

Underlying EBITDA 6.7m up 131% on FY 21 of 2.9m. Currently trading at 2.1x EBITDA

NPAT 2.4m v 400k in FY21

This result includes a 1.4mill investment in store refurbishment in Kalgoolie .

Cashflow was 2.2m .

Two areas to watch

Balance sheet . Debt is 10.2m and cash available is 7.5m. Not a huge concern as this was mentioned repeatedly through the report as an area of focus and history says this have been well managed

Inventories rose to 14.1m from 9.2 or over 50% . Comments on this reason were due to the acquisition of Skipper Transport Parts. Existing inventories rose 1m . Will watch this over the coming year.

Remain bullish and happy to keep adding if SP holds or falls from 13.5c.

SGI valuation = 5x EBITDA = 33.5m 0r 32c

Coming from a held position todays' announcement feels bullish in terms of what the Fy22 results will yeild .

I will be expecting NPAT to continue the 2% margin of the first half and optimistically see this expand providing a NPAT figure of 2 - 2.5mill for the full year.

Mike Arnold disciplined approached to capital management is where i gain the confidence and will go a long way to getting the stock rerated.

With the share price at 10c and MC at 10mill Stealth is trading on a NPAT multiple of approx 5x .

More broadly it's nice to be able to comment positively about the prospects of a company on its performance .

Feels like a long time when we were last doing this .......

Andrew appreciate today's interview with Mike Arnold . Questioning was very on point .

One thing is clear is the consistent and clear message Mike provides and importance the integrity is for him . The focus on the people continues to shine through so it was great to see Mike saw it as a risk especially when looking to acquire more businesses in the next three years.

In putting a question on the current valuation ie 12cents per share or 12mill MC , i wonder whether this relates to the concern in the past on where the revenue is being generated ie, WA and Qld and via mining / engineering / projects and the potential for that to dry up at some point ?

Recent acquisitions will greatly assist in spreading the revenue splits to the NSW and Vic geographies which when combined with some positive PR could see the market re rate accordingly . Time will tell.

The prospect of 200m in sales by 2025 with 8% EBITDA and 5-6% Net Profit margins puts STEALTH into a clear BUY for me and will continue to accumulate at prices of 11-13c.

In looking at WES it trades at 11x EBITDA and TPW trades at 40x ......

Thanks DrPete123.

Will watch with interest to see how this unfolds over the coming weeks.

Late this afternoon a sell order of over 1.2m shares of SGI was placed @ .12c. The seller withdrew offer at the close putting the share price Buy / Sell split at .115c / .14c and total volumes on market $738k B and $251k S

Interested to know any insights into whom is behind this move?

This is a low liquidity stock with traded stock over 1m shares only occurring 3 times over the past 15months .

Not sure if we are seeing shift in shareholder base but something i would be keen to get others views on and also ask Mike Arnold the question next week in the meeting .

Specifically a Narelle Edmunds has taken a 10% plus stake in SGI over the past 18months buying at price points of .12c to .16c.

Any insights would be appreciated.

Disc: Held in RL and SM

DrPete123 and fellow Straws just completed listening to yesterdays conference call with Mike Arnold and i through an aspect which if extrapolated across the operations speaks volumes of the leadership and organisation.

Mike reference the delaying of the conference call by 24hrs was due to the passing of a long standing employee whom battled cancer.

There wouldn't be many organisations whom would do this.

Most importantly it speaks volumes of what Mike Arnold and the leadership group at Stealth value.

From first hand experience such acts of care are exactly what delivery strong bonds, support and great teams whom ultimately deliver great results for shareholders long term.

Mike did speak to the importance of reward and retention of personnel especially in light of consolidating three acquisitions in the past year, especially in WA when competition for talent is fierce.

As a investor it provides me increased confidence in the strategy and leadership at Stealth when such activity is valued.

In respect to the financials i am similarly bullish as DrPete123 but wanted to share the comment that not only is one target to have EBITDA margin of 8% by 2025 but Mike sighted the fragmented market in which Stealth operate whereby competitors operate at 12-14% EBITDA margins.

DrPete123 thanks for shining the light on this opportunity and I will be adding to my position in the coming week.

Stealth Half year result released after the close .

Revenue $46.5 m for the half up 53%

Gross Profit 29.8% up 210 basis points on LY

Underlying EBITDA 1.73m up 243% on last year first half

Ecommerce sales rose from virtually zero to 2.2mil

Cash balance 5.19m / Debt now 9.67mil (a watch)

Current trading Jan and Feb is growing 30% on LY with GP up 24% on LY

Only call out which may not resolve itself is the supply chain delays which cost 3.4mil in sales and 910k in profit which would have put them on track to deliver their guidance of 5.7m -6.3m for FY 22.

If this drops in the second half and sales continue 100m in sales and EBITDA guidance of 5.7mil + should be achieved.

Trading at 2- 2.5x EBITDA is simply hard to believe .

TPW trade at approx 70x ebitda, WES trade at 10x ebitda .

If we assume a EBITDA multiple of 10x and EBITDA 5.7mil = Enterprise value 57mill = SP $57cents

Loving the journey Stealth is taking me in terms of valuing businesses comparative to where the market is positioned.

Thanks again DrPete123 for your insight and passion .

Looks like the weighing machine is coming through .

Today's acquisition feels positive predominantly because it provides east coast presence which will help in many ways when seeking to scale.

With revenue growth of 15% ahead and profitability in play re could see a serious re rating on this stock as numbers are released.

Bill

DrPete123 , look forward to the rerating at some point of time in the coming year or i can see a player like WES coming in and purchasing it as part of the Blackwoods business .

This is too cheap on so many metrics .

Hi Pete commenced a small position over the past 2 weeks in Stealth .

Interested to watch this thesis evolve .

Upside outweighs the downside risk .