Results RNS19 Jul 2022 11:55
Just reflecting on the results RNS. Nothing in the update which is anything other than positive news, but we do need to take care not to get too carried away i think. Keep in mind that the year end 2021 accounts showed a loss before tax of 5.1m after gross margins of 43%. Can’t see how break even can possibly be achieved this year given those numbers. The half year report will give an update on margins, overhead costs and losses, but in very rough terms, if we assumed that they manage to improve gross margins a little to 44% from 43% and overheads increased by say 6% (which is probably optimistic given inflation) then admin costs would increase by circa 776k this year. If we add this to the pre-tax loss of 5142k = 5918k loss. Then take off the non cash depreciation and amortisation costs (I haven’t got too forensic) = cash loss from trading of circa 4918k before capital requirements. At a 44% gross margin this needs nearly 11.2m of additional income v the 19.7m in 2021 to break even. So break even not going to be achieved this year and the inflationary environment adds to the risk , which is the Premier Miton argument I guess. Also, the last account suggested that current capacity will support turnover up to 30m, which is break even based on my quick assessment. So I think that there is a very high likelihood that they will need more cash at some stage (the RNS confirms that they think they have enough funding for ‘current plans’). Now if they get to circa 30m turnover with strong growth momentum and near break even, it will be a lot more valuable than it is today, so I don’t mean to sound gloomy, just adding some ‘reality check’. Harwood will have their own perspective and assessment, which will recognise that if they take it private and provide funding to help accelerate growth plans then they should be able to ipo a much more valuable business. This will continue to need patience from PIs