1
A much better 4C this Q, OCF +'ve. Something funny with the lumpiness of sales and expenses looking at the results for the 6 months.
Recent Posts
2
An interesting business I found while looking through 4Cs, Chrysos Corp Ltd is a company that manufactures and sells gold assy equipment using a Photon Assay technique which was developed by the CSIRO and they continue to have a 20% interest in the business. It listed in 2021.
Chrysos Corporation Limited engages in the development and supply of mining technology. The company offers PhotonAssay, a technology for analysis of gold, silver, copper, and other elements. Chrysos Corporation Limited was incorporated in 2016 and is headquartered in Adelaide, Australia.
Its not profitable or cash flow positive at this stage as its putting cash to work to grow the business. The results so far suggest that it will quickly become profitable and once the growth plateaus there should be significant FCF based on the unit economics and the business model.
Its basically OCF neutral at the moment once you back out the large SBC.
Chrysos Corporation Limited engages in the development and supply of mining technology. The company offers PhotonAssay, a technology for analysis of gold, silver, copper, and other elements. Chrysos Corporation Limited was incorporated in 2016 and is headquartered in Adelaide, Australia.
Its not profitable or cash flow positive at this stage as its putting cash to work to grow the business. The results so far suggest that it will quickly become profitable and once the growth plateaus there should be significant FCF based on the unit economics and the business model.
Its basically OCF neutral at the moment once you back out the large SBC.
3
Topped up with a small amount of divvies cash at 15c, not sure why, but the price has slumped since the pleasing results announcement. 11/4/24
4
Maybe coincidence, but KYP released a trading update today and didnt call it a "flash update"! (although did refer to it as one within the update.)
Good news was the increase in SaaS revenue to 36% of sales, up from 31% for H1. Less good was very little total revenue growth on PCP, just 0.05%. Not sure how the transition to SaaS impacts revenues in the short term.
The static growth in revenue over the last 12 months is a real concern, my thesis is growth in FCF of around 5% this year, hard to see them doing that on flat revenue unless the magic is in the move to SaaS, increasing margins. Will need to watch results closely. Low conviction at this point.
Good news was the increase in SaaS revenue to 36% of sales, up from 31% for H1. Less good was very little total revenue growth on PCP, just 0.05%. Not sure how the transition to SaaS impacts revenues in the short term.
The static growth in revenue over the last 12 months is a real concern, my thesis is growth in FCF of around 5% this year, hard to see them doing that on flat revenue unless the magic is in the move to SaaS, increasing margins. Will need to watch results closely. Low conviction at this point.
5
EZZ guiding for sales to have increased 75% on Q3 2023 results, that implies sales of about $19.6m for Q3 this year - thats about the same as the result for the whole of H1 2024!! Will be interested to see how much the advertising & marketing spend has increased.
Its also over 40% up from Q2 2024.
[ You are not allowed to view attachments ]
Its also over 40% up from Q2 2024.
[ You are not allowed to view attachments ]
6
RDX, Redox Ltd is another business I uncovered while screening ASX businesses, it is basically a chemical distributer, its been around for about 70 years but only listed 2 years ago.
Redox Limited supplies and distributes chemicals, ingredients, and raw materials in Australia, New Zealand, the United States, and internationally. It offers antioxidants, proteins and fibres, leaving agents, acidity regulator, sweeteners, thickeners, stabilisers and gums, vitamins, amino acids, mineral salts, preservatives, phosphates, humectants, essential and vegetable oils, herb and spice extracts, natural colours, emulsifier, dairy products, wine and brewing, cleaning and sanitation, specialities, additives, emollients, emulsifiers, hair care, solvents, sunscreens, surfactants, thickeners, vegetable oils, processing aids and fining, cleaning and sanitation, waxes and fatty acids, and functional products. The company also offers feed trace elements and minerals, fats and oils, fertilisers, fertiliser trace elements, herbicides, fungicides, pool chlorination and bromination, water softeners, water hardeners, PH adjusters, UV stabilisers, flocculants and coagulants, filter vessels, manganese remover, dechlorination, bore anti-fouling agents, anti-foams, odour control, boiler treatments, oxygen scavengers, corrosion inhibitors, organophosphonate sequestering agents, tannins, biocides, slimacides, algaecides and bactericides, polymeric dispersants homopolmers, polymeric dispersants copolymers, activated carbon, ion exchange resins, esters, polyalphaolefins, and polybutene. In addition, it offers chemical products for roading, glass and glass insulation, wood preservatives, gypsum, plasterboard and drywall, concrete and admixtures, insulation, and ceramic and brick. The company serves food and beverages, human health, crop production and protection, detergents, animal health and nutrition, personal care, surface coatings, metals, building construction, textile and leather, lubricants, mining, oil and gas, and water treatment, as well as rubber, and plastics and foam industry sectors. Redox Limited was founded in 1965 and is headquartered in Minto, Australia.
It appears the purpose of listing was to give members of the founding family a way to unlock stranded assets - loans to the business, and to create liquidity to allow them to sell some of their holdings. So essentially the participants in the IPO paid off the debt, gave the founding family an exit strategy and provided some funds for expansion or M&A activities. The cost for the existing shareholders was massive dilution, but they must have felt this was offset by the liquidity and debt repayment.
The biggest question this leaves me with is what caused the business to accumulate so much debt, and why wont that just happen once again? And if not new debt, will the company go to the shareholders for capital instead, further diluting the business?
My next concern is the business reports with a heap of bullshit earnings reports, basically adjusted EBITDA and NPAT, EBITDA is meaningless enough on its own, but when its further adjusted its just a huge red flag. The weird thing is they appear to have no reason to do it, D&A are very small % of EBIT, the adjustments are mainly FX ones that could be footnotes to the audited financials. It would be much better if they cut all this bullshit out and just reported the audited financials.
The final red flag is that for a company claiming to be focussed on Investor relations, they have outsourced this to Atomic, their share registry. This is a terrible move as the share registry has no idea about any issues an investor may have.
The positives are its longevity, 70 years is a fantastic result for the founding family, nearly all that as a private company. It looks relatively cheap on most metrics I look at, although its a bit hard to get the full picture with such a short listed history. Its an easy to understand business, it has good margins for a distributer, 20%+ gross and around 10% operating margin. Its still tightly held by the family, with a relatively small free float.Family hold about 54% directly, top 20 hold 93% so there is strong alignment with other SH's and plenty of skin in the game. Key management personnel all have significant shareholdings. Between family and management over 60% of shares outstanding.
Adjusted FCF per share is about 30c but with so little history its hard to tell where that sits in relation to historical trends and there may be some significant working capital movements that flatter it, especially as its quite a bit higher than EPS. I have used 15c FCF for my valuation and I still get a range of value around $2. ROIC is reported as 18%, again lack of historical data and the impact of the IPO make this hard to qualify.
The strategy of the business is to consolidate the fragmented local distributers in ANZ and to expand their model further into US, Mexico, Canada & SE Asia
Business risk is well controlled with both suppiers and customers being numerous and varied so there should be ongoing resilience to external economic cycles and trends. No single supplier accounts for more than 3% of revenue. Largest customer is only 2% of Revenue
The company claims a 12% CAGR for revenue over the last 20 years, which is certainly an impressive outcome if accurate!
There are some barriers to entry in what is largely a commoditised market, the capital requirements to enter the chemical import sector, licenses and regulations, the regulatory environment around EH&S, Hazadous goods storage and transport, and Major Hazard Facilities. Also possibly their in-house software, if the claims for it are not exaggerated its probably also a competitive edge.
Decided not to invest at this time, I found Kim Yap, CFO's email address and asked him about some of the issues I had and I found his response pretty poor, when I followed up with a second email he didn't bother to reply. My suspicion is that the listing of RDX is solely for the benefit of the founding family and they have no interest in retail shareholders - other than using them to pay debt off and provide exit liquidity.
Hi Kim,
I have been researching and analysing RDX with a view to investing in the business since finding it in a screen I was running for businesses that match the criteria I look for in publicly listed companies.
At this point I have a few questions and a couple of observations I wanted to speak to someone at Redox about, so I tried to find a contact for Investor Relations on your website to email these to. I then discovered another red flag for me - Redox have outsourced their IR to a Share Registry, Atomic. I have come across this with another company in the past, ironically a business that claimed they had a very strong focus on shareholder value and engagement!
So I overcame my initial reaction to just move on and forget about the business, and emailed the contact at Atomic explaining why I wanted to speak directly with someone at Redox, as you can see from the email below I have forwarded. Of course he ignored my request and even got my name wrong! So my instincts about outsourcing IR seem to be justified once again.
Anyway, I thought I will give it one last shot, because there is a lot I like about the Redox business so I think its worth the effort, so I found an email address for you as CFO figuring that you were probably the best person to address my questions and concerns given your role and length of time with the company.
My biggest concern with the business is that while I understand the rationale for the IPO, to provide liquidity for the founding family and existing shareholders, and a capital injection to primarily retire related party debt and also provide for supporting future growth opportunities, I dont understand how the business came to have so much debt.
Therefore I am not confident that having listed and got the new shareholders to pay off the debt, that a few years down the track the debt wont grow back to previous or even higher levels, or decide to do capital raising and further dilute shareholders. I guess this is basically a capital allocation question, and I am looking for an understanding that there are not structural problems with the business model.
My second concern is the amount of focus on what Charlie Munger famously described as “Bullshit Earnings” - EBITDA, or even worse in Redox’s case, adjusted EBITDA. Whenever I see a company reports and announcements having a level focus on this sort of nonsense, I regard it as a major red flag. Especially if they are using adjusted metrics. I am particularly surprised with a business like Redox behaving like this, its more common with tech/SaaS type pre-profitable, high intangibles businesses, there is just no need for it with a solid, profitable and simple to understand business like Redox.
Its not like “D & A” is even a meaningful part of the financials of the business. I much prefer when businesses just present audited financials, without any adjustments or non-statutory reporting. Where there are adjustments for consideration they can be footnoted and referenced in the notes, eg listing costs & FX effects. Anyway, its a pet peeve of mine and I am always suspicious of the Management motivations for doing it.
The final concern is the issue of the outsourcing of IR, this is just not consistent with a company that has a real regard for it’s retail shareholders, and my instinct is that if Management go to this length to make themselves inaccessible to retail shareholders, its likely that they will not take our best interests into consideration.
Cheers,
rick mooney
Hi Rick
Thank you for your email.
Since its beginning in 1965, Redox has operated in line with the relevant accounting standards and has at all times been appropriately geared. While the absolute levels of debt have changed from time to time, payments have always being well covered by the strong revenue and cash generated by the business. Our annual financial statement is audited every year prior to being listed on ASX.
In terms of our P&L disclosures, we provide a number of earnings lines including EBITDA, net profit before tax and NPAT, that investors can use their prefer measurement to judge the performance of the company.
If you would like advice on investing in Redox, please contact stock broking advisory firm who has a coverage on Redox, Ord Minnett or Shaw and Partners.
Regards,
Kim Yap
Chief Financial Officer
Hi Kim,
Thanks for the prompt reply, always nice as a small retail investor when senior management respond!
My point about the debt has been somewhat missed, the levels of Debt to Equity that the business was running at the time of listing would have made it uninvestible for me. I have a hard rule about avoiding businesses with anything other than very conservative debt ratios - hence my question about the likelihood of debt being significant again in the future, or capital raising for the same purpose. Also the point of my question as to whether the debt is really a structural issue in the business model.
I realise you choose to report EBITDA, just wish you were not one of the many businesses that have fallen into this bad habit!
Thanks, but the last people I would contact about an investment position would be an advisory firm that covered a company, unless I was looking for shorting ideas!
Cheers,
Redox Limited supplies and distributes chemicals, ingredients, and raw materials in Australia, New Zealand, the United States, and internationally. It offers antioxidants, proteins and fibres, leaving agents, acidity regulator, sweeteners, thickeners, stabilisers and gums, vitamins, amino acids, mineral salts, preservatives, phosphates, humectants, essential and vegetable oils, herb and spice extracts, natural colours, emulsifier, dairy products, wine and brewing, cleaning and sanitation, specialities, additives, emollients, emulsifiers, hair care, solvents, sunscreens, surfactants, thickeners, vegetable oils, processing aids and fining, cleaning and sanitation, waxes and fatty acids, and functional products. The company also offers feed trace elements and minerals, fats and oils, fertilisers, fertiliser trace elements, herbicides, fungicides, pool chlorination and bromination, water softeners, water hardeners, PH adjusters, UV stabilisers, flocculants and coagulants, filter vessels, manganese remover, dechlorination, bore anti-fouling agents, anti-foams, odour control, boiler treatments, oxygen scavengers, corrosion inhibitors, organophosphonate sequestering agents, tannins, biocides, slimacides, algaecides and bactericides, polymeric dispersants homopolmers, polymeric dispersants copolymers, activated carbon, ion exchange resins, esters, polyalphaolefins, and polybutene. In addition, it offers chemical products for roading, glass and glass insulation, wood preservatives, gypsum, plasterboard and drywall, concrete and admixtures, insulation, and ceramic and brick. The company serves food and beverages, human health, crop production and protection, detergents, animal health and nutrition, personal care, surface coatings, metals, building construction, textile and leather, lubricants, mining, oil and gas, and water treatment, as well as rubber, and plastics and foam industry sectors. Redox Limited was founded in 1965 and is headquartered in Minto, Australia.
It appears the purpose of listing was to give members of the founding family a way to unlock stranded assets - loans to the business, and to create liquidity to allow them to sell some of their holdings. So essentially the participants in the IPO paid off the debt, gave the founding family an exit strategy and provided some funds for expansion or M&A activities. The cost for the existing shareholders was massive dilution, but they must have felt this was offset by the liquidity and debt repayment.
The biggest question this leaves me with is what caused the business to accumulate so much debt, and why wont that just happen once again? And if not new debt, will the company go to the shareholders for capital instead, further diluting the business?
My next concern is the business reports with a heap of bullshit earnings reports, basically adjusted EBITDA and NPAT, EBITDA is meaningless enough on its own, but when its further adjusted its just a huge red flag. The weird thing is they appear to have no reason to do it, D&A are very small % of EBIT, the adjustments are mainly FX ones that could be footnotes to the audited financials. It would be much better if they cut all this bullshit out and just reported the audited financials.
The final red flag is that for a company claiming to be focussed on Investor relations, they have outsourced this to Atomic, their share registry. This is a terrible move as the share registry has no idea about any issues an investor may have.
The positives are its longevity, 70 years is a fantastic result for the founding family, nearly all that as a private company. It looks relatively cheap on most metrics I look at, although its a bit hard to get the full picture with such a short listed history. Its an easy to understand business, it has good margins for a distributer, 20%+ gross and around 10% operating margin. Its still tightly held by the family, with a relatively small free float.Family hold about 54% directly, top 20 hold 93% so there is strong alignment with other SH's and plenty of skin in the game. Key management personnel all have significant shareholdings. Between family and management over 60% of shares outstanding.
Adjusted FCF per share is about 30c but with so little history its hard to tell where that sits in relation to historical trends and there may be some significant working capital movements that flatter it, especially as its quite a bit higher than EPS. I have used 15c FCF for my valuation and I still get a range of value around $2. ROIC is reported as 18%, again lack of historical data and the impact of the IPO make this hard to qualify.
The strategy of the business is to consolidate the fragmented local distributers in ANZ and to expand their model further into US, Mexico, Canada & SE Asia
Business risk is well controlled with both suppiers and customers being numerous and varied so there should be ongoing resilience to external economic cycles and trends. No single supplier accounts for more than 3% of revenue. Largest customer is only 2% of Revenue
The company claims a 12% CAGR for revenue over the last 20 years, which is certainly an impressive outcome if accurate!
There are some barriers to entry in what is largely a commoditised market, the capital requirements to enter the chemical import sector, licenses and regulations, the regulatory environment around EH&S, Hazadous goods storage and transport, and Major Hazard Facilities. Also possibly their in-house software, if the claims for it are not exaggerated its probably also a competitive edge.
Decided not to invest at this time, I found Kim Yap, CFO's email address and asked him about some of the issues I had and I found his response pretty poor, when I followed up with a second email he didn't bother to reply. My suspicion is that the listing of RDX is solely for the benefit of the founding family and they have no interest in retail shareholders - other than using them to pay debt off and provide exit liquidity.
Hi Kim,
I have been researching and analysing RDX with a view to investing in the business since finding it in a screen I was running for businesses that match the criteria I look for in publicly listed companies.
At this point I have a few questions and a couple of observations I wanted to speak to someone at Redox about, so I tried to find a contact for Investor Relations on your website to email these to. I then discovered another red flag for me - Redox have outsourced their IR to a Share Registry, Atomic. I have come across this with another company in the past, ironically a business that claimed they had a very strong focus on shareholder value and engagement!
So I overcame my initial reaction to just move on and forget about the business, and emailed the contact at Atomic explaining why I wanted to speak directly with someone at Redox, as you can see from the email below I have forwarded. Of course he ignored my request and even got my name wrong! So my instincts about outsourcing IR seem to be justified once again.
Anyway, I thought I will give it one last shot, because there is a lot I like about the Redox business so I think its worth the effort, so I found an email address for you as CFO figuring that you were probably the best person to address my questions and concerns given your role and length of time with the company.
My biggest concern with the business is that while I understand the rationale for the IPO, to provide liquidity for the founding family and existing shareholders, and a capital injection to primarily retire related party debt and also provide for supporting future growth opportunities, I dont understand how the business came to have so much debt.
Therefore I am not confident that having listed and got the new shareholders to pay off the debt, that a few years down the track the debt wont grow back to previous or even higher levels, or decide to do capital raising and further dilute shareholders. I guess this is basically a capital allocation question, and I am looking for an understanding that there are not structural problems with the business model.
My second concern is the amount of focus on what Charlie Munger famously described as “Bullshit Earnings” - EBITDA, or even worse in Redox’s case, adjusted EBITDA. Whenever I see a company reports and announcements having a level focus on this sort of nonsense, I regard it as a major red flag. Especially if they are using adjusted metrics. I am particularly surprised with a business like Redox behaving like this, its more common with tech/SaaS type pre-profitable, high intangibles businesses, there is just no need for it with a solid, profitable and simple to understand business like Redox.
Its not like “D & A” is even a meaningful part of the financials of the business. I much prefer when businesses just present audited financials, without any adjustments or non-statutory reporting. Where there are adjustments for consideration they can be footnoted and referenced in the notes, eg listing costs & FX effects. Anyway, its a pet peeve of mine and I am always suspicious of the Management motivations for doing it.
The final concern is the issue of the outsourcing of IR, this is just not consistent with a company that has a real regard for it’s retail shareholders, and my instinct is that if Management go to this length to make themselves inaccessible to retail shareholders, its likely that they will not take our best interests into consideration.
Cheers,
rick mooney
Hi Rick
Thank you for your email.
Since its beginning in 1965, Redox has operated in line with the relevant accounting standards and has at all times been appropriately geared. While the absolute levels of debt have changed from time to time, payments have always being well covered by the strong revenue and cash generated by the business. Our annual financial statement is audited every year prior to being listed on ASX.
In terms of our P&L disclosures, we provide a number of earnings lines including EBITDA, net profit before tax and NPAT, that investors can use their prefer measurement to judge the performance of the company.
If you would like advice on investing in Redox, please contact stock broking advisory firm who has a coverage on Redox, Ord Minnett or Shaw and Partners.
Regards,
Kim Yap
Chief Financial Officer
Hi Kim,
Thanks for the prompt reply, always nice as a small retail investor when senior management respond!
My point about the debt has been somewhat missed, the levels of Debt to Equity that the business was running at the time of listing would have made it uninvestible for me. I have a hard rule about avoiding businesses with anything other than very conservative debt ratios - hence my question about the likelihood of debt being significant again in the future, or capital raising for the same purpose. Also the point of my question as to whether the debt is really a structural issue in the business model.
I realise you choose to report EBITDA, just wish you were not one of the many businesses that have fallen into this bad habit!
Thanks, but the last people I would contact about an investment position would be an advisory firm that covered a company, unless I was looking for shorting ideas!
Cheers,
7
Further evidence of execution on track, no doubt PRO has to keep executing well to transition to profitable and grow into the value case implied by the share price. I have learnt I need to watch these early stage businesses very closely.
[ You are not allowed to view attachments ]
The ability to grow revenue like this with no marketing or development spend is fantastic, obviously its likely a one off, but good news regardless.
[ You are not allowed to view attachments ]
[ You are not allowed to view attachments ]
The ability to grow revenue like this with no marketing or development spend is fantastic, obviously its likely a one off, but good news regardless.
[ You are not allowed to view attachments ]
8
General Discussion / Re: Decision Journal
« Last post by galumay on March 01, 2024, 03:52:25 PM »I have significantly reset the strategy for our SMSF and retirement funds now that Sal has retired. My first desire was to have a couple of years living expenses in cash, in case the market fell significantly. This cash buffer would help avoid forced selling into a depressed market. I also wanted to have sufficient cash on hand for the rest of this financial year.
Given the recent strength of the market, and in particular the very good reports from many of our businesses for H1 2024, it seemed prudent to sell down some of our bigger positions to provide the cash buffers as above.
As I did this I realised that we could in fact sell down to the point where the balance of our SMSF was about $1m and then maintain that balance with rebalancing as required. Of course if the market fell and provided compelling opportunities then funds could be reinvested to rebalance in the other direction.
So this has left us with about $1m in SMSF, $210,000 cash buffer (2 years expenses at minimum, if I still run the business, it will last longer), $40,000 to fund the rest of this financial year. (only requires $15,000), so we are actually funded thru to November 24.
Given the recent strength of the market, and in particular the very good reports from many of our businesses for H1 2024, it seemed prudent to sell down some of our bigger positions to provide the cash buffers as above.
As I did this I realised that we could in fact sell down to the point where the balance of our SMSF was about $1m and then maintain that balance with rebalancing as required. Of course if the market fell and provided compelling opportunities then funds could be reinvested to rebalance in the other direction.
So this has left us with about $1m in SMSF, $210,000 cash buffer (2 years expenses at minimum, if I still run the business, it will last longer), $40,000 to fund the rest of this financial year. (only requires $15,000), so we are actually funded thru to November 24.
9
A tough half for CCP, but the underlying performance was better than the headline numbers reflected.
[ You are not allowed to view attachments ]
[ You are not allowed to view attachments ]
[ You are not allowed to view attachments ]
[ You are not allowed to view attachments ]
10
Sold my position in Feb 2024, just not able to execute and too many red flags.