The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Still invested here but seen my investment drop by 60%. Have to say I'm not a big fan of the final results. Still a huge amount of potential on the horizon - but it always seems to be just on the horizon.
Couple of Qs / points
- Why are sales so second half weighted?
- Strange TP didn't update their DCF price target given it's based on approx 6mil net cash and 5mil in free cash flow for FY 2021 (actual being 1.8 net cash and -8mil FCF based on cash used in ops and investing). This must affect FY 22 numbers and beyond
- 6.7 mil in receivables at year end is really high?
- To me, the high receivables suggests DVRG recognise the sale when there is a 'production order' and then receive cash on delivery. Why then is the 700,000k miss on sales target due to a manufacturing delay? (i.e. shouldn't the sale still be recognised in the period, just the receipt of cash would be delayed?)
- First payment of £500k on the loan due Oct 22. Do we think we'll be bringing in enough cash to service this, or will we be diluted?
I have to say, I do find it Galling re-watching Gerry's interview with proactive dated 31/3/21 where, from 24 mins onwards, Gerry give a cheeky laugh and suggests "I am confident we will be comfortable with more than 10million" [in sales this FY].
I remain invested thanks to the number of MW trials with governments across the world and the potential for STC club to go big but, as Katie replied to Gerry in the video above, 'lots of hinting in this interview I'm sure there will be big news coming our way.'
Yes Katie, always lots of hinting.
The valuation isn't actually the only positive - growing ARR in approx 5 months by 15% does not seem bad at all in the current, inflationary environment.
Looking at historical numbers growth is slower in H1 compared to H2. I make ARR growth over 6 month periods as follows:
Dec-19 $1,920,000.00 0%
Jun-20 $2,350,000.00 22%
Dec-20 $3,280,000.00 40%
Jun-21 $3,890,000.00 19%
Dec-21 $5,220,000.00 34%
May-22 $6,000,000.00 15%
It does show the growth rate is slowing, but that doesn't seem surprising to me given the macroeconomic situation.
Also some referenced below competitors (such as Red Points) having over 1000 customers vs Brandshield's approx 145. My understanding is Red Points covers the whole market (starter, professional, advanced and enterprise plans) vs BRSD targeting mainly blue chip companies, so ARR per customer should be higher for BRSD (I make it approx $41k per customer.)
All that being said, I'm equally disappointed by the fundraise, lack of info they gave vs Jan 22, and no reference to profitability / how long the cash will last.
I also didn't like the reference to 'budgetary restraints' given recent Jan raise (suggests they will continue operating under budgetary restraints...?) and "Further investment in BrandShield 3.0, which is now central in driving both existing customer retention and new business pipeline"
Further investment "now being central" reads as though, if they didn't invest further capital in 3.0, they would lose ground on competition. Makes sense, but sounds a bit desperate.
Only positive for me is that a SAAS company should probs be valued on 5 x ARR. Converted to GBP I make it we should be on approx 17p per share, so 50% upside from here.
Agreed. I know people always hype about companies being taken over but I'd think BRSD would be a great target for a cybersecurity company. The ability to defend and attack would be a really compelling offer.
My understanding is Brandshield is all about 'brand protection' not general cybersecurity (or the 'defence' side of things).
Brandshield's target audience is companies who manufacture and sell products but have fakes being sold around the world damaging their brand, taking away sales etc. (e.g. pharmaceutical companies who have knock-off drugs sold in their name, New Balance who have counterfeit shoes being sold across the globe...)
So Brandshield won't protect a company like Tesco from hackers, but they'll source / locate / remove any fraudulent companies, remove the threat of phishing attacks etc.
Unfortunately I think this company was just overvalued. 28mil mcap on under 2mil of revenue is steep, even without small caps and growth stocks being smashed!
However, now it is potentially undervalued. If they hit target ARR for FY22 they'll be on £5.75mil, so just about 2x, and their growth is immense.
Crucial thing will be what their cash burn is and how long the £1.5mil recently raised will last. Hopefully long enough to see out the bear market...
Equally good points - the simplicity is a real benefit, and re: the positioning of stores, they must be picking up freeholds at a discount.
I think the growth got a bit head of itself re: the 400p valuation. I do think a 90mil market cap with 174 stores is more on the nose, so anything under from here is good value for me - especially with the healthy pipeline of franchisees.
Question is - in this market - when the heck do you take a considerable position! (Especially when some management 'own goals' aren't helping)
There are a few things I think this company has going for it:
- Convenience - you can order a high quality personalised cake and have it delivered in half an hour without breaking the bank
- Franchise model is capital light
- The stores are owner operated so staff are more incentivised / motivated / care
- Economies of scale: margins on e.g. the sponge will improve the more stores they open
- Room for growth: approx 60 stories in the pipeline
- Twin engines for growth: underlying store sales growth (currently over 10% per year) and opening of new stores
Couple of bad things:
- The founder owns so many shares they'll keep paying fat dividends which is a complete and utter waste*
- They've grown too fast for their systems (data leak last year, accounting errors, stock management - see trust pilot reviews for evidence re: not tracking shelf life of a cake and it becoming stale)
I make it that they earn approx 34k per store, per year. On 174 stores and a 15 pe they're pretty fair value (90ish million)
I'd like them to bring out a vegan range (something to scream about), cut the dividend and invest the capital in better systems which will facilitate quicker, less volatile growth.
*I really can't stand that the owner holds 25% of shares and pays a chunky dividend. If they didn't do this they could reinvest the cash to improve the business.
I think this is a decent company but got caught up in the COVID tech hype. It's top line doesn't grow fast enough to warrant a high PE ratio.
I'd love to see them deploy some of the 40 million to really get things moving. Until then, it's a steady, predictable company which would be great to pick up at a cheaper valuation (sub £1 for me.)
Yes totally agree what I suggested was optimistic and naive. I guess what I was actually trying to do was illustrate what revenue a 100,000 capacity might bring in, rather than suggest that the full capacity will only be used for replacing inboard diesel engines (I just used their lowest value Propel engine I spotted in an easy-to-find article.)
Is anyone aware how much they will sell their AFT motors for? I'm assuming the cost will vary depending on quantity purchased and individual agreements with companies (i.e. if it's JV or licensing deal, whether the company is owning the manufacturing process or if Saietta will offer their 'turnkey engineering service' which takes them from start of production to finish etc.)
I'm also curious what others think of Paul Hill's valuation?
"Well hypothetically, if it were to win a 5% share (2m units pa) by 2030, then this could represent $60m-$90m of EBITDA. Which if rated on a 15x multiple, might theoretically produce a $900m-$1.35bn valuation: or equivalent to £7-£11/share vs 255p."
I'm finding it hard to value the company thanks to limited knowledge on how the deals will be constructed. Grateful for other's thoughts (perhaps valuing a company in such a hot sector with so much potential opportunity is just inherently very hard to do?)
This company has been on my radar for a while but I didn't look straight into it given the price rise from IPO and my lack of knowledge re: automotive industry. Had another quick but closer look after listening to the VOX interview and , I agree with the previous posts, the potential here is incredible. Equally remarkable how flat the price has been for over a month. It's clearly not on people's radar / being traded (bodes well for the future price?)
I also really like how focused the CEO is on sustainable, risk-averse growth i.e. not just saying yes to the first company who wants to buy 30,000 units only for something to fail.
What also stuck out to me in the interview was the fact that the 100,000 manufacturing capacity seems to be for 'process definition' rather than sales for the mass market. The latter will be set up via a JV or licensing agreements, so the 100,000 is a bit of a headline red-herring in terms of scale.
Looking at the price of the cheaper, diesel replacing Propel motor, it's going on to the market at €5,900. Am I right in calculating that, if they only sold this motor via the 100,000 capacity, it would = revenue p/year of €590,000,000? Perhaps massively oversimplifying, but at a glance that's pretty staggering for a 200mil mcap company!?
It looks to me like the loss is mainly attributed to IPO costs (9 mil) and debt costs (4 mil) so almost break-even. They wiped the debt in the IPO so that cost will reduce - though I do find it slightly alarming that they had 77million on their balance sheet pre-restructuring.
Given inflationary / supply chain costs and lower digital mix I'm really impressed their margins have stayed flat. I think a sign of savvy management.
Paul Hill has recorded another interview with CEO + CFO. They're very confident and note a number of future tailwinds (expansion in more stores, return of more customers to stores, increase in product category, potential acquisitions...) They also note very strong H2 sales so far.
2 x sales seems pretty good value to me - what am I missing!?
Yes both good points.
I did further research on dupes. A quick google search puts the mind at ease re: legal issues. I checked out a YouTube video and comment threads from influencers who don't like it. Comments were stacked with people praising how it makes the industry more accessible - so looks there isn't too much brand damage either.
I agree re: collaborations. Would be interested to know margins but I presume it's a great tool in attracting new customers i.e. bring them in on a low margin product and then upsell high margin products.
Do you recommend any site for tracking brand awareness e.g. number of hashtag mentions across multiple platforms? I tried social searched .com but it's pretty ineffective. Curious to compare socials to the competition beyond clicking around aimlessly on the platforms (perhaps that's just the way.) Currently use similarweb for website stats.
I've been checking out e.l.f. beauty, an American listed competitor who seem to be extremely similar - double rev but triple the mcap. Going to look into them further to compare / see where we're heading.
I like how aggressively Rev have grown internationally through partnerships (i.e. logistics / operations roll out in major areas with THG ingenuity). However, like above, I'm not sure how much this will erode their margins. I presume it's to grow quickly despite limited capital. Any thoughts on this?
Been following this company and can't wait to have a proper look at their financials when they update the market in November. I actually hope for a bit more short-term pain to try and bag an even better entry price - but waiting is a dangerous game. Will see how people react to ASOS on 14th.
In the meantime, I was curious to see what people's views are on the whole 'dupe' thing? It seems nuts to be that a lot of the success of the company is owing to them copying (or 'duping') other's products (even going as far as to creating very similar packaging) and selling them cheaper.
From my research it seems as though companies aren't able to patent the formula of their product but can patent packaging design - so Rev run into issues if the latter is very similar but can get away with super similar products. There was an interesting BBC article from some months ago where CEO responded to said claims.
It seems like quite a dangerous game to play and could result in some share price volatility (i.e. big claim comes out from competitor re X or Y product.) I guess this tactic happens across many industries - competitors creating low cost equivalents e.g. shoes, mobile phones, laptops... And share price volatility doesn't directly correlate to risk (i.e. as long as it goes up perhaps it doesn't matter how it gets there)
Are you not going to apologise for yours, muggins? i.e. claiming helium have sold down due to seeing through Gerry's 'bluster', rather than just a percentage change due to the share issue...?
Great interview with Gerry on proactive. When he says the joint venture has moved to a 'different mechanism to satisfy all of China with a single entity... as with all of these types of deals there are valuation issues as to how we actually put a valuation model in place which satisfies both sides'
Can anyone hazard a guess as to what kind of deal we're talking?
The China JV due by 30 June........?
I'm confused - are we saying a company should RNS every time they have made a sale? Or every incremental bit of progress they make towards achieving a goal?
Sterghios A. Moschos
@DocMoschos
"Watch this space. Data is now imminent."
I had a response from the company - they're multi-year projects which are expected to run 2-5 years.
It's interesting how quickly the contract value grew between Feb & June (i.e. about 20%). I wonder when they will reach 'maximum capacity'