Remember to sign up for our free SCL meet on 23rd March in the West Midlands. We have at least one company confirmed to present, some educational sessions and, of course, plenty of time to socialise.
Next week Mark will be doing an educational session at Mello Monday called “Why We Fall For Stock Market Charlatans” - make sure you check that out, too.
Tips & Share Buybacks
One of the only things that seems to move small cap shares in the current markets is tips. However, we have often been disparaging of tip buying on SCL. Last week saw Simon Thompson’s Bargain Shares for 2022 released in the Investors Chronicle. However, unless you are reacting immediately to such tips, certainly before the Market Makers have had a chance to read them and mark the price up, then such tips are usually better off sold into rather than bought. Tip buyers tend to be the least informed and most fickle market participants, hence the tendency for prices to revert to their pre-tip level in time. Chasing the price post-tip is rarely wise in the long term.
The other thing that tends to move small cap shares (or stop them from falling) is share buybacks. We saw that with Zytronic this week; where the announcement of a buyback on Thursday afternoon led to the shares rising 10% and reversing their losses from the rest of the week. At up to 15% of the market cap, this is a particularly large program. Presumably, the management became fed up with a profitable business being valued at cash + freehold property. Although the irony is that the subsequent price rise means that they can’t immediately buy back shares as they are limited to 105% of the mid-market price of the preceding 5 trading days.
Although companies are not allowed to explicitly support their share price, the presence of a consistent buyer can lead to confidence that shareholders can exit if they need to, and hence lead to greater price stability. For example, Capital Ltd. has been a volatile share in the past given that it operates in some risky jurisdictions. However, during the recent market sell-off, it has been relatively stable, perhaps because the buyback has mopped up the more flighty sellers.
So who is next for a buyback announcement? Well, during a recent presentation, Driver Group said that they are seriously considering it. And with a large cash balance and shares trading at multi-year lows they would be daft not to. The same goes for that other cash-rich company, ScS. You get the feeling that if the ScS management don’t buy back significant amounts of shares in the next year, then others will take action for them. While Driver Group is a minnow, ScS is big enough for Private Equity to be interested. Unless the management have a plan for that cash, we can perhaps expect a cheap takeover offer, followed by the extraction of all of it back into the bank account of the acquirer. If the acquirer was willing to gear the business to a similar level as competitor DFS, they could perhaps extract all of what they paid for the business! This would leave the management going from a comfortable cash-rich balance sheet to operating in a much more pressured environment with PE owners. Something they would presumably want to avoid.
Large Caps Live
So how about this for a long term chart – and one that I would suggest is forming a bottoming pattern:
Trading JGBs (Japanese Government Bonds) is known as the ‘widow-maker’ trade – as over decades people have tried to go against the Bank of Japan (BoJ). Essentially, the policy has been negative short term rates (minus 0.1% IIRC) and zero for the 10 year. There are a couple of different types of buying the BoJ has done over the years to maintain that ZIRP for the 10year. But the key point is that since about 2016 the 10 year has sat at 0%.
The below is the Nikkei vs the S&P:
Basically, the two have been in line. The following shows both indices in terms of % change from a year previous and it looks like the Nikkei has performed reasonably:
Now let’s look at the Yen vs the Dollar - another chart bottoming?
We have established that the JGB downtrend has been going on for a long time, has led to Japanese individuals searching for yield elsewhere in the world and hence perhaps helping to finance bubbles elsewhere in the world. Remember also that during this period Japanese Govt Debt has gone to 2.5x GDP (Wikipedia states 266% as of 2022 – see National debt of Japan - Wikipedia ) of which 45% is held by the BoJ.
On Friday the BoJ stated that from 14 Feb 2022 they would do UNLIMITED buying to hold the 10 year at 0.25% - see Announcement on the Conduct of Fixed-Rate Purchase Operations. The belief is that by managing the interest rates they can stimulate the economy or at least stop it from getting any worse. The issue I have with that is it has not really done a lot over the last decade. I would actually argue that managing interest rates in this way reduces the 'unfettered animal spirits' in the economy - by this I mean:
(1) choice 1 - zero % interest rates. What is the incentive for a bank to lend? And what is the incentive to borrow?
(2) choice 2 - let’s say 5% interest rates - retirees have some increase in their income each year so spending power increases
My point is that I think higher interest rates in themselves can be a catalyst for inflation and are better than zero rates.
There was lots of stuff over the weekend about how interest rates are going to remain low with high inflation so that we all face negative real rates - and comparisons to the 1950s / post-war period in eg the UK. I think this is total nonsense - the reason for inflation then was a redirection of the economy post the war and a shift from the pound as the reserve currency and massive building/construction plus a baby boom and a massive migration of populations from rural to cities and from abroad.
So though JGB and $/Yen have been widow makers - I think there will be a point that the tide will turn. I am not 100% sure that Japan will be the first country to be hit but I think that over the next few years there will be dramatic macro moves around the world. People forget that in the 1970s / 80s the rise of inflation led to the Latin American crisis.
Small Caps
Studio Retail (STU.L) - Appointment of Administrators
When we looked at Studio Retail a couple of weeks ago, following their profit warning, we said:
In light of both the working capital strain and the consumer finance funding, Studio looks a massively risky bet…
Despite this, we didn’t foresee it unravelling this quickly as this. This week, they appointed administrators:
The Board therefore now intends to file a notice of intention to appoint administrators to SRG and Studio Retail Limited, its wholly owned subsidiary, as soon as reasonably practicable.
The reason is that the banks refuse to extend the working capital loan they needed:
The Company requested a short-term loan of £25m from its lending banks to fund the surplus stockholding which it believed was sufficient to enable it to sell through the stock to customers. Following detailed discussions with our UK lenders, the Company has not been able to reach agreement with them to provide the additional funding Studio requires.
Commiserations to any holders, since this is now going to be a zero.
The gearing ratio was relatively benign excluding the consumer finance part. So perhaps it’s the consumer finance part that has bitten them hard. Given that recent rises in food and energy prices are likely to disproportionately affect Studio Retails customers, perhaps they are starting to see signs of larger defaults? Mark wonders if this is a canary for similar businesses that serve the same demographic. Although Leo hasn’t seen any deterioration in consumer demand in any of his research.
Mike Ashley’s Frasers Group own 28.89% here and were adding as recently as 3rd February so surely Studio must have approached Ashley for financing from Fraser’s or a rescue takeover before appointing administrators? Perhaps not, though, since comments attributed to Ashley in The Times suggest he was as much in the dark as anyone.
Fund managers, such as Schroders with 20%, appear to have been unwilling to put fresh equity in either. Unlike Frasers, these funds won’t be able to escape the total loss by buying the trading business from the administrators. Presumably, whoever does buy the trading business will do so without the current loan book, too.
MTI Wireless (MWE.L) - Trading Update
Despite being an Israeli company on AIM, Mark thinks MTI Wireless is a decent little company. They have an engineering niche in a couple of areas, most notably aerials and water management software. Although, a gross margin of only around 30% suggests they only have a modest competitive advantage, akin to something like Zytronic.
The problem with MTI Wireless is not so much the company itself but the valuation the market has put on them. When we looked at them following the Q3 results in November, the CEO said that they are targeting 7-10% revenue growth with teens EBITDA percentage growth. The revenue seems to grow at this rate over the last few years, and they weathered the COVID storm pretty well. However, a lack of operational gearing, partly due to that low gross margin, means that faster EBITDA growth never seems to appear.
Unfortunately, the same has happened this year, according to the trading update:
Unaudited 2021 Group revenues are expected to be in line with current market expectations at approximately US$43.2 million, an increase of 6% compared to the 2020 financial year. Unaudited Group gross profit is also expected to be in line with current market expectations at approximately US$13.5 million, which represents a 3% increase when compared to 2020.
6% revenue growth and 3% gross profit growth really doesn't deserve the 16x historical EV/EBITDA that MTI trades on. The good news is that the cash flow is better than expected:
Unaudited Group cash flow from operations for the 2021 financial year is expected to be significantly ahead of current market expectations at approximately US$6.5 million, representing an increase of 64% when compared to 2020. This results in an excellent unaudited 2021 year-end net cash balance of approximately US$12.5 million.
But they are missing profit expectations:
Significant foreign currency fluctuations during 2021, in particular, the strength of the Israeli Shekel versus the US Dollar led to higher staff costs across all of the Group's Israeli-based operational activities. Consequently, unaudited Group operating profit is expected to increase by approximately 9% compared to 2020, and fall marginally below current market expectations.
Again, it is their lack of gross margin here that means that increased staff costs are eating into any profit growth. The combined effect means that at the current 63p share price they are on an 11.6x EV/EBITDA rating for the year just gone. They are expecting further growth in 2022:
Our orderbook and pipeline of opportunities are currently meeting our internal plans for 2022 and since the start of 2022 the US Dollar has strengthened against the Shekel and is currently above our internal budget rate. We consider that we are well placed to continue to grow in 2022.
However, an 11.6x rating means that they really need to be growing revenue at least double digits over the medium term, and so far they have shown little sign of delivering on this. After all, an Israeli company that is listed on AIM, with low gross margins and low growth would normally trade at a big discount to the market not the premium that it currently enjoys. History suggests they will be available to buy at a big discount to the market again in the future, and investors would be wise to wait for that rather than jumping in while the company enjoys a historically high rating and a historically low growth rate.
MySale Group (MYSL.L) - Trading Update
Revenue and EBITDA (both down) are just the entrees here, this is the meat of the statement:
During H1 FY22, in line with the Company's strategy, management took the decision to invest in additional own-buy inventory. However, the subdued demand, driven by the speed of the spread of the Omicron variant in Australia, and delays in stock deliveries prior to Christmas meant that inventory built up to a higher level than expected. As such, the inventory balance at 31 December 2021 was A$6.1m (A$2.6m H1 FY21), and the Group's cash balance was A$3.8m (A$15.8m H1 FY21). The Group remains debt free.
The recent trend in trading continued throughout January and February to date. While the Board continues to monitor the Company's position, it is considering a number of strategic financing options available to manage its working capital, including reducing the A$6.1m inventory balance of which over 65% is fully paid.
Compare and contrast with the recent Studio Retail trading statement:
The industrywide (and acknowledged) supply-chain challenges in calendar 2021 have not only caused higher shipping costs for Studio, but have also led to late-arriving unsold stock of continuity ranges, which will be sold throughout calendar 2022. This has led to a higher level of inventory than normal at this time of the year…
We are exploring a range of options to meet the resultant working capital funding requirement, including discussing the current level of our working capital facilities with our long-standing UK lenders.
Studio collapsed into administration 14 days later.
MySale have withdrawn outlook guidance:
In light of recent trends in trading, the Board is taking a cautious approach to its full year outlook and will provide further detail in due course.
We see that MySale lost its CEO with immediate effect and without replacement "for personal reasons" at the end of December, about the time the issues reported today would have been becoming apparent. Two weeks later a NED resigned. While they link this to the decision not to pursue a secondary listing down under, he had been NED for longer after that decision than before it.
Today they also lose Zeus as a joint broker. Zeus was behind the original IPO and does have an Australian office, although the London number was given as a contact. They retain their Nomad, Singer Capital Management, at least for now. Singer was behind the 2019 fundraise following the failure of their business model and a strategic review. At the time they said:
This transition will involve the continued sell down of nearly all of the Group's 'ownbuy' stock, removing the requirement for this working capital to be tied up in inventory;
So it appears that their original business plan of shifting seasonal left-overs from the Northern hemisphere for sale in the Southern one failed, then their new plan of being an Australian / New Zealand (ANZ) pure marketplace failed, then their decision to return to buying stock to sell in ANZ failed. Stockopedia indicates negative assets, let alone tangible assets.
This has come back from the dead once:
But with the price down another 40% on Tuesday, the market says it won't come back again.
This kind of situation is not for us given the high amount of detailed work to understand if there is any value here at all plus the high probability that all that work would be wasted. Also, the advertised spread is 2.04 - 3.00p so potentially only buyable if you have direct access to the order book. The original float price was at 226p in 2014 amongst a lot of hype. The price fell immediately and then tanked 6 months later on a profit warning. In light of the float price today’s quote is rather embarrassing, but we see no reason why it won’t keep falling.
LoopUp (LOOP.L) - Trading Statement
Remember this is the cloud communication software business that was struggling to get any traction until COVID came along. It then had a brief respite generating 10.8p EPS in 2020, before 2021 collapsed back down to normal and analysts forecasts rapidly went from 10.5p EPS to zero.
In this week’s trading statement, even this reduced forecast appears to have been missed:
The Group expects both revenue and EBITDA for year ended 31 December 2021 to be broadly in line with market expectations with outturns at approximately £19.5 million (FY2020: £50.2 million) and £0.9million (FY2020: £15.3 million) respectively.
At the Half-Year they generated £1.2m of EBITDA so this means that H2 was an EBITDA loss as well as an IFRS one. Even more worryingly, they still have net debt despite a placing only 5 months ago:
The Group ended the year with gross cash of £5.5 million (FY2020: £12.1 million) and net debt of £2.5 million (FY2020: £0.7 million), following the successful placing and retail offer for approximately £8.85 million in September 2021.
Perhaps a reason why they lost their CFO before the end of the year and don't have a replacement yet. Their previous business model looks like a busted flush, hence their shift towards cloud telephony:
In Q3 2020, the Group announced the launch of its Cloud Telephony solution, integrated into Microsoft Teams via 'Direct Routing' peering with Microsoft, which enables users to make phone calls to external phone numbers and receive phone calls to their own work phone numbers, all seamlessly via their Teams enabled devices.
Most multinational businesses will already have something similar though. We are concerned that this is now a commodity business with high selling costs and potentially high attrition to the competition which can be swapped in with minimal disruption. They say they are winning business here, however:
The Group expects FY2021's strong performance in Cloud Telephony new wins to improve further to at least an additional 50 during FY2022, and the integration of SyncRTC (acquired in October 2021) is progressing well.
But FY22 revenues are actually going to be down:
Due to the longer lag from bookings to revenue in Cloud Telephony, combined with continued expected pressure on its Remote Meetings business, the Group expects FY2022 revenue to be in the £15-16 million range.
Leading to the inevitable cost-cutting:
The Group is managing its operations carefully during this strategic transition to preserve cash and maintain EBITDA profitability in FY2022, at a higher expected margin than FY2021.
"EBITDA profitability" means another loss, of course. At the Half-Year, £1.2m of EBITDA turned into a £2.4m adjusted operating loss. Depreciation & Amortisation are, of course, non-cash. But the company spent £3.2m on PP&E and Development Expenditure in H1. So this is burning through cash at an alarming rate. Without severe cost-cutting, which itself can generate upfront severance costs, then £5.5m of cash doesn't seem enough to see them through 2022, even if they manage to generate a small EBITDA profit.
This means they may struggle to get their accounts signed off on a going-concern basis. We can't imagine the banks are keen to go out on a limb in the current environment, as Studio Retail has shown. Which leaves another equity raise on the cards. Coming less than six months after the previous raise is at best embarrassing, and at worst fatal if they don't manage to get it away.
SmartSpace Software (SMRT.L) - Trading Update
Leo previously showed graphs showing that SmartSpace’s key SwipedOn product was only growing sites in a linear fashion (i.e. adding x sites each month rather than growing x% per month), which made it hard to justify the high rating here. More recently growth slowed further and with today's update there is no need to roll out this graph again because:
SwipedOn locations increased to 7,076 as at 31 January 2022 (FY21: 6,741)
So just 5% over an entire year. Growth has pretty much completely stalled. Furthermore, although this could be explained by an uneven distribution of revenue through the year, prima facie the numbers of users appear to be static / falling: because Year-end Monthly Average Revenue per User (APRU) has grown ahead of year-end Annualised Recurring Revenue (ARR).
So why is location growth so slow?
as SwipedOn continues to target higher value, multi-location customers
Targeting multi-location customers obviously does not adversely affect the number of locations. So if that was an attempt to explain away the lack of growth then it is again spurious. However, they have always focused on ARPU rather than the number of customers, location or user growth. The CEO makes much of the success of dotdigital in growing APRU where he was Non-Executive Chairman for many years. However, there was also strong growth in customers there and proponents of Smartspace have previously emphasised the "land and expand" / two-dimensional growth both gaining new customers and increasing revenue from existing ones at once.
Monthly average revenue per user ("ARPU") increased by 58% year on year to $154 (£75) at year end (FY21: $97 (£48) restated to the prevailing exchange rate at 31 January 2022)
58% is excellent growth. But "higher value" targeting is potentially bad news. If they had targeted customers of equal value to the existing ones then this ARPU growth amongst existing customers would actually be higher than the 58% quoted, and might be expected to continue to some extent, or at least subsequently apply to newly won customers as they upsell. But that 5% growth rate in locations given Leo’s estimate of 15% churn (FY 20 7.5%, FY 21 11.8% at a customer level), together with the claim of "higher value" implies that there is a significant replacement of low-value customers with higher values within that 58%. It is even less clear whether this kind of growth is sustainable.
Or perhaps by "higher value" they mean greater numbers of users rather than greater revenue per user? But comparing ARPU, ARR and location growth, it appears that the average number of users per location has fallen. In any case, the issue here is that while growth in customers (or locations) could reasonably be extrapolated and the total addressable market used as a guide to when it will tail off, their ARPU growth can neither be extrapolated nor is it known whether it might suddenly hit a brick wall. And APRU growth is all they have. That said, the growth in terminal monthly ARPU they quote does pretty much guarantee growth in annual ARR in the short term.
However, this is not their only product.
Space Connect
· ARR up 291% to £0.61m in the year to 31 January 2022 (FY21: £0.16m) driven through the continued strong progress from its reseller channels
· At 31 January 2022 Space Connect had 69 customers, an increase of 28 new customers from 31 July 2021
Clearly, these numbers are minuscule, but they are at least consistent with future significant success. Their partner for this product is optimistic:
Sales of Evoko Naso in line with current conservative forecasts, in light of a more gradual return to the office, as a result of the ongoing challenges of Covid-19. Evoko remains optimistic regarding the future sales trajectory of Naso moving through 2022
They have one more string to the bow:
As a result of work from home directives, Anders & Kern (A+K) revenue to 31 January 2022 decreased to £1.73m (FY21: £2.28m)
Clearly, there is potential for significant recovery here, given that FY 21 was also adversely affected. But can they survive long enough for success to come through?
· Adjusted LBITDA expected to be not more than £2.5m (FY21: £2.1m) slightly ahead of market expectations
· The Group had gross cash of £2.76m as at 31 January 2022, ahead of market expectations (31 July 2021: £3.37m)
Not if they continue at the same rate for another year. But they won't, as the forward recurring revenue is known to be 64% ahead.
Continued strong momentum of Annual Recurring Revenue ("ARR") up 64% year on year to £4.9m as at 31 January 2022 (FY21 :£3.0m restated to the prevailing exchange rate at 31 January 2022)
So potentially, £1.9m extra might drop through straight into EBITDA next year, and probably more (was 20% in the year just gone) from growth in the year. So it looks like they should be able to last the year assuming no significant investment is required.
Doing some quick maths, current forecasts of £6.75m revenue for next year look a bit light given the terminal ARR and potential recovery from A+K. Leo’s model is pointing more towards £7.7m revenue FY to 31st Jan 2023. And profitability in FY 2024 looks possible. But we see absolutely no reason to believe that recent growth is sustainable. It still all comes down to the lack of growth in customers, locations or even users.
The gross margin was 70% at H1 and growing. If we assume 80% for FY 2023 and we have £6.2m gross profit. Price to gross profit is about 4. So this could be cheap if you believe in the product. But the current market cap appears to be a big gamble on SmartSpace being a winner in a pretty crowded space.
RA International (RAI.L) - Trading Update
There's a saying in the markets: good news travels fast and bad news takes its time. It probably reflects human nature to put off the things we don't like doing in the hope that they will go away. They rarely do.
Such is the case with RA International. We expected a trading statement in Mid-December as per previous years. Instead, we get it in mid-February. This may reflect uncertainties over what can be booked in the current year. This is a complex business with multiple contracts across many countries. And with the founder-management still holding around 80% of the equity, they are always going to care more about ensuring the business on the ground is dealt with rather than market communications. Still, you can't help feeling if it was good news they would have got it out sooner. This is the headline:
…revenue for the year to December 2021 of approximately USD 54m and an Underlying EBITDA of approximately USD 7m.
House broker Canaccord was forecasting $52.2m sales and EBITDA of $10.2m. Hence their subsequent comments:
While revenue is in line with management expectations, reduced revenue in comparison with the prior year impacted gross margin. Gross margin in the period was also impacted by the general inefficiencies of operating under COVID-19, including travel restrictions, quarantine requirements and supply chain delays. G&A costs increased by USD 2m in the year, reflecting the full year impact of investment undertaken in 2020 to support anticipated growth.
This is a fairly common occurrence in companies - they hire for growth and then if it doesn't materialise it can severely impact profitability. In light of this, RA International have escaped quite lightly. This is due to their much higher margins than the average contract outsourcer, which is, of course, due to their ability to operate in the harshest of environments. Unfortunately, these jurisdictions are amongst the most affected by covid, particularly with regard to travel restrictions. As the CEO says:
This has been a frustrating period, with client and COVID-19 related operating constraints continuing to cause inefficiencies and exceptional delays in executing projects, in tender issues, awards and in project mobilisations. This has impacted our profitability for the last six months of 2021 and also stalled our order book momentum.
The lack of contract announcements during the period was already evident, with only one announced in H2, and none so far this year. The order book has consequently reduced from $129m at the HY to c$100m today. While that is still almost 2x current revenue, they will need to win or extend contracts to even keep the current level of business. At least the high-margin IFM contracts tend to be longer term, and readily extended.
We have no great insight into when various African countries will reduce travel restrictions/port congestion etc. or when Cabo Delgado will be safe again, however, we think the following strategy adaptation is worthy of note:
As a management team we are not going to react passively waiting for these headwinds to abate. We have reflected on our strong track record supporting blue-chip customers in the Humanitarian and Government sectors relative to the emerging opportunity we have in the Commercial sector. Over the last two years or so, through the pandemic and other events, we have seen particular risks and delays with new business activity in the Commercial sector. As a result, going forward, we will be more selective in the projects we look to undertake in this sector, and it will be less of a focus of our business development activities.
So they are going back to their core focus of Humanitarian and Government. Perhaps this reflects the reality that Government and Humanitarian projects are much more likely to get high-level support to overcome travels restrictions than simple commercial ops. Equally, governments tend to have much more grace for delays or costs caused by their own restrictions - just look at all the covid furlough, grants etc. paid out in the UK, for example - whereas commercial companies are more likely to say "it was your risk, you take the costs".
Working with governments is also risky, and we would normally take strong exception to statements like this:
Overall, we expect Government clients to become an increasingly important part of our business over time, decreasing the risk profile of our clients
…but under these specific circumstances, and based on their recent experience, we can see the logic.
The other factor that can't be ignored is that, in some cases, RA International are asking staff to put their lives at risk for the company's operations. This is a lot easier to get people to agree to if they have the implicit backing of local or the US government should things go wrong, or are supporting humanitarian work rather than simply for commercial gain. This line is also a sign that they are perhaps focussing more on profits and less on revenue numbers:
We will align our resources with these high quality clients alongside our continued focus on securing high quality IFM contracts.
Which is what you want them to be doing in the current market environment. Although house broker, Canaccord say they have been guided that imminent contracts are likely to be more lower-margin construction than IFM in the short term.
One of the biggest disappointments for me was the following:
The Group closed the year with cash on the balance sheet of USD 9m, resulting in a modest net debt position of USD 1m. This reflects an additional USD 4m tranche of debt raised under the Medium-Term Note programme and elevated levels of Mozambique-related inventory which have not yet unwound due to delays in commencing alternative projects.
They have gone from net cash of $3.6m at the HY to net debt of $1m. While it is certainly possible that contracts won but only just beginning are requiring working capital build, it is disappointing to see working capital outflow in a period without significant contract wins. And contract wins may now be limited by working capital requirements.
It can be tempting to take the view that EBITDA is down around 30% from forecasts and therefore a 30% drop in the share price today is about right. However, that ignores that the share price had already dropped about 25% this year as the lack of contract awards became more obvious.
At the current price, the company now trades at a discount to Tangible Book Value - as of the half-year balance sheet. But being EBITDA positive this should be at least flat for the FY. You can argue that the asset quality isn't great - being now largely equipment in various African countries - and asset quality has got worse as cash has gone into PP&E and working capital. But normally a company trading below TBV will have a lot of unproductive assets. However, RA is still generating a 13% EBITDA margin in a really bad year.
The challenge is that Canaccord now say:
The group is no longer providing earnings guidance; we have made estimates based onknown current project activity and expected continuation of these inefficiencies in thenear term.
Brokers do tend to kitchen sink in these cases, and we doubt they will raise money at the current levels hence no need to sugar-coat it. It reminds us a little of the UP Global Sourcing forecasts at (what we now know to be) the beginning of covid. In retrospect, they were crazy low - really worst case stuff. When UPGS beat the forecasts repeatedly the price actually went above where it previously traded.
In any case, an EPS loss forecast for FY22 is not great. Management had previously said they were confident in delivering the forecasts for FY22. So going from $19.9m EBITDA to $5.1 is a big climbdown:
Mark’s investment thesis for RA was always rather simplistic, that he thinks they will be a much larger business in 5 years time and that the market cap will reflect that. Clearly, that rationale has taken a bit of a battering in the short term. The management appear to have very little visibility over short term performance post-covid, and we have even less. So while there is potential value here, and scope to beat slashed forecasts in the near term, this is only one for those with the longest of investment horizons.
That's it for this week. Have a great weekend!