Wednesday, 4 March 2015

Results Updates # 1

Reporting Season updates:


Revenues were up 18% on the prior period. Unit sales growth was 21% with US growth, SOM's largest segment, being a  highlight. Earnings and free cash flow continue to be depressed as management invest into the business. To that end production capacity in Manila was doubled in the period. EBITDA was $405k, earnings -$45k. Increased costs will largely be reflected in the first half with EBITDA in the second half expected to grow fourfold. Could not be considered cheap based on these metrics. The share price is factoring in significant growth in sales to continue, however this growth seems to be achievable given the size of the market, lack of penetration, growing preference of OA over CPAP and continued investment in the business. With the market cap now exceeding $150m it would not be surprising for a sell off to occur on any signs of growth deterioration. Weakening AUD will be a tailwind. Upcoming periods should see earnings capabilities of the company transpire after a long period of investment. Hold for now. Current return: 130%


Revenues rose 11% over the prior period, with earnings of $358k for the half year. Earnings continue to be low as cash is invested into growing the business. Most of these expenses appear to relate to increasing employee numbers and are recurring, however a portion are non recurring and therefore we should see an earnings uplift in future periods. One of the reasons for the investment in Cryosite was the strong cashflow generation of the company. Cash from operating activities was $1.1m for the half year with free cash flow of approximately $800k. This is due to CTE receiving mostly upfront payments on services that transpire over a period of 18+ years - hence the growing level of unearned revenue on the balance sheet. Paid nearly $3m back to shareholders in the form of dividends and capital return for the period (on a market cap of $18m). Still holding cash of $4.2m and growing. Continues to look attractive on EV and FCF, not so much when looking at the rather misleading PER. Current return: 23%

Hansen Technology

Revenues up 19%, NPAT up 22%, very strong FCF - $16m from operating activities, $3.5m capex. Strong balance sheet with large debt reduction - now over $3m net cash. Banner business has been integrated with the full contribution being reflected in the period. Good quality business with insider ownership, family run business, sticky customers, high switching costs, very capital light. AUD should be a tailwind although muted given large offshore costs.  Current Return: 87%


Solid result with half year NPAT of $1.5m and reinforcing guidance of $3m NPAT for the full year. Strong cashflow generation of $3m. UK business volumes and AUM both up. The off market buyback was taken up at the top of the range of $0.42. At this price, value accretion was't as significant for existing holders. Given the current price of $0.37 it would have been nice to see a greater on market buyback and a continuation of this buyback given cash levels (post buyback) are still in the range of $16m. Current market cap of $35.6m implies EV of $19.3m. Stripping out cash gives a PER of around 6.5 on FY15 guidance. Weaking AUD provides tailwind given earnings are fully exposed offshore. Share price is perhaps muted given the threat of an ASX delisting and there may be further opportunities to top up at a lower price if talk of this continues. Current Return: 1%

Updates on the Reject Shop and Capilano Honey to follow

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