Excellent week to come :)18 Oct 2020 20:28
After a period of consolidation around 1.25-1.3p (considerably higher than the approximately 1.05p price it was at the start of October), news is about to released later this week, and I believe the results will be excellent.
Thought process as follows:
H1 Revenue was £2,091m
H1 EBITDA was £85k = 4%
H1 Net Profit was £50k --- maiden profit
Cash totalled £300k
Liabs totalled £750k ish
H1 only took into account about 65% of the £400k contract announced on 23 Jan; only about 28% of the £120k contract announced on 3 Feb; and obviously didn’t include the £750k of contracts announced in May and July since then.
You can therefore work out that the revenue from these new contracts will be of approximately £1M. Assuming that only 50% of the £1.5m of 2019 H2 revenue is reoccurring, and assuming no new contracts are announced, you will then be looking at H2 Revenues reaching £1.75M. This is the very worst case scenario I can envisage.
Worst case scenario for the current FY is therefore about £3.85m in turnover & £155k in EBITDA.
Realistic scenario for the year is £5m in turnover & £200k in EBITDA.
Looking at the Cash Balance, it is artificially low in the H1 results, because almost the entirety of the £400k amount for the big Rail contract announced in Jan was yet to be paid. The true figure therefore should’ve matched the circa £750k in Liabilities.
Since then they’ve then had an over-subscribed placing @ 1.50p per share (~40% higher than where we are today), with huge buy-in from many IIs including Helium and Oberon Investments, which raised circa £1.25M.
Cash equivalents should therefore equal circa £2M. Far exceeding their liabilities.
The true Enterprise Value of the company is therefore the Market Cap (circa £5m) minus £1.25M = £3.75M.
Taking everything into account I believe we’re looking at a business trading on a P/E of roughly 20 and EV/EBITDA of 18.75 because the market is anticipating growth.
- It is clear REAT will deliver its maiden profit.
- This is trading at a 25-30% discount to the placing price the IIs bought in for.
- REAT is a great hedge against this second wave that’s already materialising.
- REAT is also protected from the effects of Brexit because it is completely UK-focused from what I can tell.
- REAT appears to be gaining momentum and being chosen by more prestigious clients than before, so we can expect more contracts. As already indicated by the company website news section.
Target price: 2.00p
DYOR
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