Half Yearly Report and Accounts (VMT report on a CY basis)

Commentary: Recently I have been weighing up my options regarding my investment in VMT. Despite believing it to be undervalued at recent prices, I have restrained from increasing my holding for one reason: I am not particularly happy with management. I was not a fan of last year's ridiculous incentive scheme, nor have I enjoyed the lack of communication to shareholders and their bad habit of putting their foot in it when they do. Infact, according to this announcement, they don't expect the Indian two-wheel EV market size to reach USD$750m until 20251, and I don't really want to wait 18,230 years for that...

My conviction as a shareholder has remained where it begun, with the numbers. And boy do the numbers continue to impress me. The growth is still happening, once again exceeding my expectations. Unit sales continue to increase and the order book is once again heavier than it was at the start of the period being reported. There is no reason to belive the recently announced MOU will not come to fruition, and we all know what the future market size of EV will be, there's no need to preach that.

My conundrum now lies in the question of am I happy to hold a business that is performing well while simultaneously lacking confidence in the management team? Previously I have considered a thesis broken when I no longer trusted management, but in those cases the trust was lost because management overpromised and underdelivered, which is not the case here. I've had great success investing in businesses with excellent management. Likewise, I've prevented losses and protected capital by selling when the trust in management was lost. Perhaps I am anchoring myself to these past decisions? Or perhaps this is a case of perfection being the enemy of good.

Six months is not a long enough time frame to have answered the question above in any actionable way, so for now I will continue to hold. The backbone of my thesis remains in the continued growth of the B2B dealings in Europe, followed by keen interest in the expansion of B2C sales in new international markets such as Asia and South America. I would like to say that the success of H1 means my trust in management is restored, but I may as well be saying "If my grandmother had wheels, she would have been a bike."

Financial Overview for 1H21:

• Total revenue of $39 million, up 50% on 1H20
• Net profit after tax (NPAT) of $4.0 million, up 119% on 1H20
• Earnings before interest, tax, depreciation and amortisation (EBITDA) of $5.4 million, up 100% on 1H20
• Strong positive cash flows from operating activities of $1.7 million
• Strong cash position of $16.7 million as at 30 June 2021, up 11% from $15 million as at 31 December 2020, with no bank debt as at 30 June 2021
• Net tangible assets of $39 million at 30 June 2021, up 20% on 31 December 2020

Operational Overview for 1H21:

• Total unit sales of 13,723 units delivered for 1H21, including 13,139 units into international markets, up 31% on 1H20.
• Significant increased interest from business customers including food delivery, parcel delivery and ride-sharing companies for Vmoto’s products with samples and orders delivered in 1H21 and further orders to be delivered in 2H21. Ongoing discussions with these business customers extending their business to include electric two-wheel vehicles and incorporate some of their products into Vmoto's electric two-wheel vehicle and distribution network, which has the potential to substantially enhance the Company's product offerings and business reach around the world.
• 13 international distributorships established via ongoing expansion of Vmoto’s international distribution network. Vmoto now has a total of 53 international distributors.
• Vmoto and its international distributors have participated in a number of international marketing events and opened a number of dedicated stores, which have proven commercially beneficial and provided a large number of business development leads and sales.
• Vmoto signed a sponsorship and marketing agreement to supply scooters and exhibit its brands at the world class electric motorcycle racing event, FIM ENEL MotoE World Cup (“MotoE”) during the 2021-2023 seasons.
• Vmoto successfully held its first “2021 Vmoto Soco ProDay” event at Misano World Circuit in 1H21, which featured several world-famous professional motorcycle racers.

Disclosure: I hold.

Vmoto's 2Q21 Market Update

Highlights:

• 7,854 units in total sold in 2Q21, up 23% on 2Q20 and up 152% on 2Q19
• International sales of 7,503 units for 2Q21, up 26% on 2Q20 and up 143% on 2Q19
• Positive operational cash flows for 2Q21
• Strong cash position of A$16.5 million, with no bank debt as at 30 June 2021
• Firm international orders of 9,636 units at 30 June 2021 (after Greenmo Group order completed in 2Q21), providing a solid runway for FY21 sales
• New international distributors appointed, and ongoing discussions and samples shared with a significant number of potential new B2C and B2B customers in new markets
• Vmoto signed a sponsorship and marketing agreement to supply scooters and exhibit its brands at the world class electric motorcycle racing event, FIM ENEL MotoE World Cup (“MotoE”) during the 2021-2023 seasons

Continued growth, cash flow positive, large bank balance with no debt. Once again starting a quarter with more orders in the book than pcp sales. 

Disclosure: I hold.

FY20 Profit Guidance

• Net profit after tax expected to be between $3.2 million and $3.4 million for FY2020, a significant improvement on FY19 NPAT of $1.3 million

It's been an interesting few months for Vmoto. Tensions in China, errors in reports, poorly received incentive plans; all contributing forces that have resulted in the market driving the share price down.

The fundamentals never changed though, and today's announcement appears to have been the reassurance that investors were waiting for.

Disclosre: I hold.

Vmoto secures $9.6 million after strong demand in placement

https://www.asx.com.au/asxpdf/20200813/pdf/44lgfsgj7ntj5s.pdf

As above, VMT have raised $9.6 million through a capital raising to institutional investors at a share price of $0.45, a 7.4% discount to the volume weighted average over the ten days prior to the trading halt. No SPP for us 'unsophisticated' schmucks unfortuntately. Can't say I'm happy about the dilution, and I would have much preffered if the price was at a premium, but ultimately I see the demand by institutions as a positive in the long run. As far as I'm aware, prior to this there was no institutional investment into VMT.

It appears the money rasied will be used with the intention of accelerating growth in both new and existing markets. Between this and the $7.3 million in cash they had as of 30/06/2020, they should have somewhere in the realm of $16.9 million in the bank.

A few snippets from the announcement below.

"Proceeds from the Placement will be used to accelerate potential opportunities in the growing B2C and B2B electric two-wheel vehicle markets internationally, both in new and existing geographies of operation, to implement further international marketing initiatives and to further consolidate its position as a leading, global electric two-wheel vehicle company."

"Vmoto’s Managing Director, Mr Charles Chen, said: “Recent operational and commercial successes during the current global pandemic highlight that the Company has reached an inflection point in its growth. As a result, it was approached by several strategic funds and took decisive action to further strengthen its balance sheet, ensuring it is in as strong a position as possible to capitalise on this success and accelerate its growth going forward."

Market Update

https://www.asx.com.au/asxpdf/20200803/pdf/44l3w7r13k9z80.pdf 

A great update today! The main highlights not covered in previous announcements are listed below.

• Cash flow of ~$1.5 million delivered for 2Q20

• $7.3 million in cash as of 30 June 2020

• Record sales with 6,389 units sold, up 55% on 1Q20 and up 105% on 2Q19

• Firm international orders for 6,353 units as of 30 June 2020

6.4k units sold up from 4k in the previous quarter is exactly the kind of growth I want to see. 

So, VMT has been on a run in the past week, up 54.6% since I posted my original Straw regarding it last week.

Key highlights since then have been the AGM and Investor Presentation, which included results on the operational & financial growth over the past financial year.

• Total sales of 19,971 units, up 84%.

• Revenue of $45.7 million, up 133%.

• EBITDA of $2.9 million, significant growth up from $18k.

• Net profit after tax of $1.3 million, up 249%.

VMT has also been mentioned twice on 'The Call from ausbiz' in the past week. It was first discussed by Michael Wayne of Medallion Financial Group and Strawman's own Andrew Page. Michael noted the attractive numbers and driving growth, albeit off a low base, and its recent turn from a loss-making company to one that is profitable. He noted it was worth researching, but not yet a buy.

The issue was raised about it potentially being a Chinese company, listed on the ASX for better access to capital and to gain credibility. From my own research, VMT was founded in Perth by Patrick Davin in the early 2000's. The connection to China began in 2008 when Charles Chen convinced VMT to set up a factory in his hometown of Nanjing. Chen has been the CEO since 2011. He credits the success of VMT to the European design matched with Chinese manufacturing, enabling them to capture a large share of the European market while keeping manufacturing cheap.

Andrew discussed the idea that VMT had recently passed the inflection point where it had built a strong existing base capable of supporting a much higher level of sales. As sales take-off, a lot of those sales would drop straight to the bottom line, meaning earnings would grow rapidly, without needing the same growth in revenue. He mentioned that the current high P/E could present VMT as being overvalued and expensive, but it would drop quickly if they can continue to grow at high double-digit numbers. This point has been mentioned directly by VMT's CEO, stating the company is past its investment phase and is now concentrating on profit growth over the need to increase its production capabilities.

VMT was then brought up by Henry Jennings (MarcusToday) while discussing Rectifier Technologies. He did not go into much detail, however mentioned that after a rocky start they have now began performing well and are a company he likes. To add my own words to this point, it seems a case of VMT being too early to game, but the experience and their catalogue of already developed products will help them capitalise on the current EV market boom.

Disclosure: I hold VMT.

Ps. Feel free to correct me on anything you said Andrew!

 

VMT is a recent addition to my Strawman portfolio. I belive it offers great potential for growth and was oversold duing the first wave of COVID-19.

The highlight of today's update was the delivery of 8,453 units YTD to 31/05/2020. 7,770 of these were sold in international markets, representing an increase of 42% on the pcp in 2019 and 107% on the pcp in 2018. The announcement also included the positive news that manufacturing, logistics & delivery of products was fully operational after the easement of COVID-19 restrictions in VMT’s key international markets. They have expanded international distribution into Japan, Costa Rica, Panama and Thailad, announcing new exclusive distributors and the sharing of samples with a significat number of new customers. A successful delivery of 2,000 of VMT’s ride-sharing products to Go Sharing in the Netherlands has been followed on with an order for an additional 1,200 units, set for delivery in Q1 of FY2021.

The previous market update on the 18/05/2020, stated they ended Q3 FY2020 with a strong cash position of $7.9 million, not including $3.95 million raised in a SPP post-quarter. This represented a $1.3 million increase since Q2 FY2020. They also stated they were cash-flow positive for the quarter. This quarter saw a total sale of 4,121 units. With today's update stating 8,453 units sold as of 31/05/2020, it is hard not to believe Q4 FY2020 will show further growth.

Everything above contributes to my belief in their potential for future growth. The recent months have also seen a number of governments introduce & strengthen initiatives for the purchase of two-wheel EVs in a bid to increase green mobility. It is also hard to ignore the massive boost in demand for both food and parcel home delivery services, along with ride-sharing services as we dive further into the ways of social-distancing. VMT will continue to grow momentum as it's B2C and ride-sharing products become more and more a part of a post-COVID-19 world. I will be continue to watch VMT closely and see no reason to not add a sizeable portion to my portfolio when I have the capital to do so.