Not for me - too expensive for a consulting company.

I was excited to look at this when I first heard about it in July.

This is a 'roll-up' strategy buying smaller operators with the goal of buying at a lower multiple than what TNT gets on the ASX.

They offer IT security consulting services.

What I really like is that there is a really strong tailwind in their market with people hard to get and high prices on offer.

What I don't like is that they are a consulting company and they don't make a profit. They also have a huge amount of goodwill and intangibles on their balance sheet (at June20). In fact if you take those out their liabilities are higher than their assets!

Why don't I like it that they don't make a profit? My experience of IT consulting was that the rule of thumb was that the charge out rate of the consultant was made made up of 1/3 was paid in wages, 1/3 in costs and 1/3 in profit. Now their P&L for FY 20 shows $13M of employee expense of $20M in revenue. That's 2/3 so there are a lot of people not contributing to the bottom line.

What troubles me here is that this isn't a SaaS business where the costs are relatively fixed for each widget sold. In a consulting business the costs are variable and there only way to increase profit for a fixed head count is to increase prices or increase utilisation. So there is no SaaS inflection point for this business where all the new sales go to the bottom line.

A good point is the last 4C showed increase in revenue with a small reduction in exployee expense.

This might be ok with a reasonable valuation, but the market cap @ $0.40 is $400M. Their Q1 4C showed a cash profit of $0.4M on $15M revenue. They need a profit after tax of $10M to have a P/E of 40.

It's nice that the management is predicting a run-rate of $150M/year by end of FY21. It's off-putting that they don't project the profit.