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Early thoughts on today's trading update.
Revenue >£22m. This is an important statement.
Revenue for 2H 2023 was £9.7m. So 2H 24 at £11.6m is 20% higher. The issue with a 2H comparison is that we cannot see when in Q3 UKG stopped so this is more impressive than it appears. 1H 24 revenues stood at £10.4m, so 2H 24 revenues are up 12%. It appears we have steady growth embedding at around 5% a quarter. If we continue on this basis revenues for FY 25 will likely be in the region of £26.8m. The £22m is a minimum of, so we have to wait for the results to see how much higher this projection will go.
Subscriptions to £2.9m (28% growth). This is a fantastic result. We need more information on the length of these subscriptions and forward projections but this is now 15% of revenues and growing.
Financial position. Cash at £1.1m is up £1m in the 2H. Debt down by £1m. This is a £2m swing. Suggesting the balance sheet will be improving significantly each period.
Profit - So no doubt there will be a significant profit. Inventory levels dropping have added to the cash flow but should also add to the profit as less new inventories have been purchased. Last year there were references to under deployed resources, I don't see that as an issue at present, what is good about that is revenue growth using this capacity falling straight to the bottom line. I predict a profit in excess of £1.2m-£1.5m for the 2H. So £1.1m to £1.4m for the FY 24 (taking into account £0.1 loss in 1H 24. But FY 25 is looking like £3m+ and thus a PE of 3 on a business growing at 20%+ a year.
STRONG BUY
Dab808, thanks for the update.
However, the reductions in inventory, and thus conversion to both cash and profits will probably be a one off, unless they still have excess inventory in which case it will be a 2 year one off (if you get me !). The underlying cash and profits increases will be a lot lower.
Again, the TU gave no indication of 2025 activity and new sales/contracts going forward. Lots of nebulous puff comments. I have written to them before about this, but they seem intent on running it as a private business.
It's the most frustrating thing fft100. Other than pitching up at Proactive and a few other investors briefing session we are not great at self promotion. Who's out there today promoting our story to investors? This is not the results but today's announcement firmly underlines we've emerged like a phoenix and are ready to soar to new heights. I get that Marie-Claire has been burned by the past but a US business attitude would have us at 200p a share today! Marie-Claire said her plan is to be more forwards looking but wouldn't give me a timescale in January. I will press her harder when we next catch up. Have faith. The numbers are now starting to do the talking.
14th May 2024 7:00 am RNS Full year trading update
" ... Financial Position
The Group's cash at 30 April 2024 was £1.1 million (30 April 2023 cash: £0.6 million). This increase was due to an improvement in operating cashflows driven by higher revenues and increased margin percentage, particularly in the second half of the year.
FY24 cashflows were also helped by an easing of inventory levels following the building up of positions over the last couple of years to mitigate against the supply chain challenges which have now eased.
The Group currently has capacity within its UK and US invoice financing facilities to provide further working capital headroom as the Group continues to grow. Banking net debt at 30 April 2024 was £2.0 million (30 April 2023: £3.0 million). ..."
https://www.lse.co.uk/rns/NWT/full-year-trading-update-4e9ai7eo5n4a8ts.html
fft100 Posts: 33 Price: 102.50 No Opinion
RE: Strong update 14 May 2024 11:22
"Dab808, thanks for the update.
However, the reductions in inventory, and thus conversion to both cash and profits will probably be a one off, unless they still have excess inventory in which case it will be a 2 year one off (if you get me !). The underlying cash and profits increases will be a lot lower. ..."
Fft,
An easing of inventory levels should be largely profits-neutral, other things being equal: i.e. simply a change from one type of current asset (inventory), to another type or types (i.e. cash etc.)
It's an understandable misperception, as cash generation is associated with profits, but no, this shouldn't have any great impact on the profitability, I wouldn't have thought.
Though there could potentially be some lesser impact on profitability, depending upon the speed of inventory turnover, & prices paid.
Cash is different, and inventory reduction has helped the cash position, as the company has stated: but it makes it plain that this was quite a subsidiary factor in the cash increase, so not the major factor that you are suggesting.
And to the extent that it's a 'one-off' it's still a useful contribution; and as cash-generation tends to lag profits in a growth business, and profits are increasing, cash-generation should continue to increase.
14th May 2024 7:00 am RNS Full year trading update
" ... Improved profitability and cash flow generation in FY24 ..."
https://www.lse.co.uk/rns/NWT/full-year-trading-update-4e9ai7eo5n4a8ts.html
So an increase in full-year profit for NWT's year ending 30.4.24, compared to its previous year.
This would equate to latest H2 earnings of over £404K.:-
Half-year ending 31.10.22: post-tax profit (earnings) £458K.
Half-year ending 30.4.23: post-tax loss (earnings) £105K. = post-tax profit (earnings) £353K. for full-year
Half-year ending 31.10.23: post-tax loss (earnings) £51K.
Full-year ending 30.4.23: post-tax profit (earnings) over £353K.
= For half-year ending 30.4.24: post-tax profit (earnings) over £404K.
But the probability is that the FY increase in earnings will be significant-substantial, for NWT to confidently report it just two weeks after its year end, and considering the cash-generation etc.
Indeed Dab is predicting a H2 profit of over £1M.
So NWT's earnings blip due to the loss of the UKG business is well and truly over.
And remember that this loss was due to a benign reason (UKG taking the business in-house), and is unlikely to be repeated, because:-
• It stemmed from a $22 billion merger of Kronos and Ultimate Software in 2020.
• For a historical reason, Kronos was a software company that unusually made its own hardware device.
Both of those things (i.e. a $22 Billion merger, and a software company making its own hardware device) are pretty unusual.
And although this still resulted in lost NWT business, not any that reflected upon the quality and value of its offering.
NWT's FY revenue growth looks healthy, albeit not huge. But the half-on-half increase is far more impressive, and on an annualised compounded level equates to annual revenue growth of over 25% p.a. Which combined with improving margins, creates the basis for quite exceptional profit growth.
While NWT's HCM ARR year-on-year increase of 28%, to £2.9M. for April 2024, is particularly exciting.
28% p.a. growth compounded equates to a more than doubling in three years.
And at VERY high profit margins, as outlined in my following 23.7.23 post:-
Hedgehog100 Posts: 3,536 Price: 52.50 Strong Buy
Potential Gross HCM ARR Profit of £7.14M. p.a. in year ending 30.4.26 23 Jul 2023 13:00
" ... i would take that to mean a gross margin of c. 80% - 90%, as nwt is best-in-class ..."
https://www.lse.co.uk/ShareChat.html?ShareTicker=NWT&share=Newmark-Security&thread=08512472-6769-4E3F-B620-64F8F62CDA34
So I fully agree with you Dab that for NWT's current FY, ending 30.4.25, earnings of £3M.+ looks very plausible.
Which would represent a quite phenomenal escalation of earnings, and with plenty more likely to come.
So a P/E of 3? More likely a P/E of 30, which could see NWT moving to the c. £100M. market cap. & c. £10/share level.
And this could be happening just sixteen months from now, when NWT's current FY results are reported.
Though you would obviously anticipate dramatic moves up earlier too.
Good write up Hedgehog. We've not been wrong to date and I totally agree that the next 18 months will be a multi-bagging opportunity. Unfortunately we've had such a small cap that we've been considered niche, to mulibag to the higher end valuation, we needer some momentum in the underlying numbers and the shareprice. We're on the cusp, we need hard numbers to push higher, but it will come. I have every confidence we can tell our story to new investors and the numbers will do the talking. Good luck.