World Reach Ltd - WRR

[Lizard]

World Reach Ltd (WRR) has been touched on a few times on the micro-cap thread but yet to get its own thread. Now that the convertible note issue appears to be resolved and with a promising second half report due soon, I thought it might be a good time to throw up some background on this one.

The fore-runner of WRR, Tele-IP Ltd (TEE) was back-door listed into a distressed mining explorer (Parcarc PAE) back in the last tech boom/mining wreck peak of 1999/early 2000. Tele-IP encompassed the assets of Martin Communications, a private company with a niche in telco network management systems. Starting revenues were around $3m/yr.

Early in 2003, the company set up subsidiary, Beam Communications, to distribute a new range of satellite-based phone systems. Within the year, Beam had its first Telstra contract and Tele-IP reported a maiden $16k profit on $4.6m of revenue.

In 2005, Tele-IP attempted some larger acquisitions in the form of two companies focussed on data and voice convergence in telecom networks. This led to a jump in revenue to $12.9m in 2006, but a loss of $2.5m. Unfortunately, the gathering global storm clouds in 2007 spelt an end to the company's ability to continue raising capital through various placements and convertible note issues. Both the Chairman and Managing Director resigned. By October, trading in the company was suspended for failing to lodge an annual report following the default of a funder on contractual obligations. Still, revenues had continued to grow to $17m, although losses had ballooned dramatically to $6m. By this stage, Beam was outstripping the Network Services division in both revenue and profitability.

To halt the bleeding, TEE was forced to ditch the Network Services Division in early 2008, receiving a bare $1m for goodwill, along with payment for the accounting value of inventory and fixed assets. Shortly after, the company name was changed to World Reach Ltd. The founding GM of Beam Communications, Michael Capocchi, took over as Managing Director, where he remains today (and is contracted through to 2018).

Despite the necessary re-grouping and restructuring on a shoestring budget, along with the impact of the Global Financial Crisis, Beam was able to keep increasing revenues, reaching $9.1m in FY2009, with a net profit for WRR of $634k. However, the economic challenges took their toll in 2010, along with the high AUD:USD exchange rate.

Growth resumed in 2011 and 2012, with revenues of $10m and $13m respectively, although the company continued to run small losses and require regular doses of capital, mostly in the form of convertible notes.

In late 2012, SatPhone Shop was launched as a dealer in Telstra Satellite phones and accessories for the Iridium network.

In full year 2013, the company generated revenues of $14.0m and NPAT loss of $600k, with a high AUD and a handful of delayed orders being blamed for the loss. However, going into 2014, the company was indicating that a major new product with Iridium would boost them to profitability. For the first half of 2014, revenues were up, losses were a marginal $6k, but cashflow was impacted by the development of the Iridium product - a satellite-based wi-fi hotspot, known as "Iridium GO! (http://www.iridium.com/Products/Iridium-GO.aspx?productCategoryID=29)". Currently in launch phase, Iridium committed to a minimum of $3m in orders for the first 12 months, the majority of which is expected to be taken in upfront pipeline-fill. As a consequence, the company is forecasting a net profit of $350 - 450k for the 2014 full year.

With the constant capital raisings and potential dilution from convertible notes, the company share price has been a perennial disappointment. The equivalent adjusted share price at time of the Tele-IP transaction in 2000 would be about $75 per share. However, the 10 year chart is enough to get the picture:
6039

Yet, there may be light at the end of the tunnel. Beam now has a strong record of growth under Michael Capocchi. Currently the company is undergoing a partially-underwritten renounceable rights issue which will be used to repay the unconverted notes. Both the increased free float/liquidity and the removal of the possible dilution should improve the attractiveness. Fully diluted, WRR will likely have a market cap of around $7.1m (based on current share price of 16cps), which remains cheap given the $14m in revenues.

In my view, it is possible that WRR has now reached the point of critical mass where profitability may become the norm and capital raisings become necessary only for significant acquisitions. Although I sold a handful of shares at the 33cps mark, I think they are good value back here at 16cps. The rights issue was on a short timeframe, making it difficult to participate (closed today), but I would expect the price to begin rising again shortly, buoyed by the upcoming quarterly and year end reports.

[mark100]

Hi Lizard, nice summary. I missed the first run up but have used this capital raising induced pull back as an opportunity to pick up a few

[Lizard]

Nice one, Mark. Looks like you're off to a good start with buyers at 21cps again today. :)

[Lizard]

Always hate these late reporting companies with a flagging share price, so relieved to see all looks okay. Profit of $0.44m and outlook is good, but I suspect the market will be waiting to see what develops over the coming quarter with the sales of Iridium product before giving them the thumbs up. At least all convertible notes are cleared (although not in the accounts out today) but now have a fairly good base to work from.

Looks reasonable value still here, provided growth is proven in the next quarter or two.

[Lizard]

So agm presentation looked positive yesterday, but seems one director wasn't re-elected and we've had a fairly sudden change of Chairman recently as well, which is slightly unnerving. Either way, the dump seems too cheap, so I've now picked up a few more at 14cps. Hoping that was the end of the dump!:scared:

[percy]

So agm presentation looked positive yesterday, but seems one director wasn't re-elected and we've had a fairly sudden change of Chairman recently as well, which is slightly unnerving. Either way, the dump seems too cheap, so I've now picked up a few more at 14cps. Hoping that was the end of the dump!:scared:

Yes exciting times ahead for you Lizard.
From the presentation,pg 11 "Company Well Positioned for Growth."
page 12 was the classic; "Endless Possibilties,Application and Uses."

[Lizard]

Yes exciting times ahead for you Lizard.
From the presentation,pg 11 "Company Well Positioned for Growth."
page 12 was the classic; "Endless Possibilties,Application and Uses."

Okay, but how many times did they use the word "significant"? :ohmy:

[percy]

Okay, but how many times did they use the word "significant"? :ohmy:

NOT ONCE !!!!!!
However consistent [or consistently] was used 3 times.!!!
Complimentary was well used only the one time.
"Exponential growth" was used with good affect.

Disclosure....The smart Alex's who wrote the prospectus for Arvida IPO used " significant" 27 times!!!!!!!!!!!!!!!!!!!!!!!

[Bigane]

I sold out yesterday. This company could do very well, but I am very wary about being exposed to illiquid small cap stocks when the market is turning.

[Joshuatree]

Fifth order from MCN (marine communications)China for $250 k.
Multiple rev and Global customer base
Converts smartphones (up to 5) to satellite phones and is USP
Like a "portable phone tower"
Great if you're on a plane or a boat and anywhere remote.
Re $5.4 mill mkt cap
Comp from In marsat but Go is cheaper with first mover advantage.WRR also design and make product for Inmarsat.for
Go makes up re 30% of WRR's sales
WRR has commercial agreements with $3 billion corps (telstra,Inmarsat,Iridium)
One prediction of at least $2 mill EBITDA in 2015
Chart not good ; selldown continues. I'm in the red currently,

[duncan22]

Quarterly showed cash on hand of $1.29m with sales of $4.6m and all interest bearing debt paid off.

http://www.asx.com.au/asxpdf/20150130/pdf/42w91rbn4f5k58.pdf

[trackers]

Quarterly showed cash on hand of $1.29m with sales of $4.6m and all interest bearing debt paid off.

http://www.asx.com.au/asxpdf/20150130/pdf/42w91rbn4f5k58.pdf

So they're looking to make ebitda of about $2mil this year (i.e same as last year) on sales of around $18mil (6 months x 2) I guess

Excellent for market cap of $5.6mil (EV $4.3mil)...

[Joshuatree]

Finally....some rerate, 27% up atp 16.5c. Hope it holds.

[percy]

Finally....some rerate, 27% up atp 16.5c. Hope it holds.

Lets hope so.pleasant surprise.!
Thought I had paid too much when I brought a small parcel a few weeks ago at 13cents.!!!! lol.

[trackers]

Lets hope so.pleasant surprise.!
Thought I had paid too much when I brought a small parcel a few weeks ago at 13cents.!!!! lol.

I got a few last week at 12.5! Its not often I'm that lucky percy :D

[percy]

I got a few last week at 12.5! Its not often I'm that lucky percy :D

BUT WAIT THERE'S MORE LUCK COMING YOUR WAY !!!!!
Get down to The Brewers Arms next Tuesday night,the 17th and I will shout you a beer.!!!!
KW may shout you one too.!!!!

[trackers]

BUT WAIT THERE'S MORE LUCK COMING YOUR WAY !!!!!
Get down to The Brewers Arms next Tuesday night,the 17th and I will shout you a beer.!!!!
KW may shout you one too.!!!!

Sounds like an offer I can't refuse Percy!

[Joshuatree]

Pretty good breakout thru 180DMA. been frustrating stock but hope a stale seller is finally out and its chocks away.

[Wolf]

Just hit 26c, go you beauty :t_up:

[Joshuatree]

Yes . Been another long swing trade for me; am out for now. Hit 27.5c plenty of buyers. Big seller exhausted. If they can control /get development costs down a bit , future looks good ATPIT.

[trackers]

Sold out too early. Bugger. Ignore TA at your peril huh..

Another Steve Fleming special. What an absolute legend, seriously

[Joshuatree]

Id like to credit Lizard too for starting this thread.:t_up:

[stoploss]

Before you all get too excited by the turnaround in this company, you might want to consider the actual 2015 outlook direct from the horses mouth (ie. Iridium) released a few weeks ago.

"When evaluating our 2015 financial outlook, we expect continued solid growth in our M2M, maritime and aviation business lines, but see pressure in our legacy voice business. We believe a strong dollar has softened handset sales in many places outside the U.S. in the last few months.

The Company does not expect equipment revenue to grow in 2015, primarily due to a reduction in commercial handset sales as a result of the recent pronounced increase in the strength of the U.S. dollar.



KW: thanks for the note of warning .
I have fed a few to the dogs this morning . However just as a general rule you normally preach buying to stocks in an uptrend ? Not selling in an uptrend ... 27 > 33.5 this morning after a speed ticket , surely in an uptrend ?

[steve fleming]

Before you all get too excited by the turnaround in this company, you might want to consider the actual 2015 outlook direct from the horses mouth (ie. Iridium) released a few weeks ago.

"When evaluating our 2015 financial outlook, we expect continued solid growth in our M2M, maritime and aviation business lines, but see pressure in our legacy voice business. We believe a strong dollar has softened handset sales in many places outside the U.S. in the last few months.

The Company does not expect equipment revenue to grow in 2015, primarily due to a reduction in commercial handset sales as a result of the recent pronounced increase in the strength of the U.S. dollar.




To be fair, that is a pretty selective cut and paste!!

Why on earth would you not then quote the very next line which says "This effect should be partially offset by shipments of new products specifically Iridum Go " ??? which is far more relevant!!!

and then later on "So, we have new products in thespace with the Iridium GO! coming into its own this year. That's been very well received and continues to ramp"

http://files.shareholder.com/downloads/ABEA-3ERWFI/3650759912x0x812574/59D05032-86B1-4377-BA57-9CB787C881EB/IRDM-Transcript-2015-02-26T13_30.pdf

Hopefully also per your FB comment, you now understand that GO is very much compatible with NEXT, and so GO won't be obsolete in 1 years time!

I should also say, i agree with you that there is hype in the share price. However, selective quoting, while useful in making a point, does't really help when you are properly trying to understand a company's prospects.

[mark100]

The antics on some online sites reminds me a bit of the davidrob days. No criticism of anyone here

[steve fleming]

There was no further info in the release i read on the Iridium site, and no mention of GO sales. So i didnt selectively quote it, just repeated the info they gave.

perhaps a better question is why did Iridium remove those statements from their market release?

Fair enough - hopefully if you get a chance to read the full document you will see that what Management has said is very different to your initial cut and paste.

The general theme being that yes, as you quoted, handset sales will be down, but some of this will be offset by the new sales from GO (which is not a handset - but is classed as equipment) and that GO is getting broad acceptance and has been well received, sales are ramping up and are expected to continue to increase into the Northern American summer.

Of course the big unknown is the volume of the sales. Iridium Management have said "We expect meaningful contributions from new products including Iridium GO and commercial push-to-talk during this timeframe. [to 2018]" This suggests that Iridium sees a reasonably long future for GO, which should be a positive for WRR.

[steve fleming]

By the way, nice to see you back on ST Steve.

MSS is not a high growth market, particularly so on the voice side of the business, so its more a question of how quickly will they reach saturation point. Initial sales volumes will be skewed by channel stuffing, and sales to the satellite phone rental companies. It will be awhile before underlying and recurring customer demand is apparent.

Good points, I agree.

And yes, this stock has certainly been a catalyst for a fair bit of discussion and emotion! :)

[steve fleming]

Yep agree again. Offsetting that, are the all the commercial and military customers (ie department of defence which is exclusively with Iridium) already locked into the Iridium network, who have a choice of buying an old school sat-phone or a GO when their existing handset needs replacing. Hiring is probably not a realistic option here. Management have already noted their surprise at the acceptance of GO among the DOD. But as per your previous point, we have no idea of the volume. And yes the Iridium network is slow, but it is the only network with total global coverage - hence its attractiveness to commercial and government customers.

At the end of the day, this was a very small Australian company (had a market cap of under $5m for many many years) that was successful in being first to market with an innovative wi/fi satellite technology. GO has been good for WRR, but it has survived without Go. It has other products out there, and using its IP and deep industry knowledge, and experience with bringing GO to market, is likely to have more innovative products on the way in the near future. GO may have not be perfect for some people, but Iridium seem pretty pleased with it.

WRR is profitable, strong balance sheet and a market cap of $13m - compared to plenty of other non-profitable tech companies out there, where their product has not even reached market, with market caps in excess of $100m.

[steve fleming]

As an example of customers locked into Iridium, this is what Iridium says about the department of defence:

"The DoD owns and operates a dedicated gateway in Hawaii that is only compatible with our satellite network. The U.S. armed services, State Department, Department of Homeland Security, Federal Emergency Management Agency, or FEMA, Customs and Border Protection, and other U.S. government agencies, as well as other nations’ governmental agencies, use our voice and data services for a wide variety of applications. Our voice and data products are used for numerous primary and backup communications solutions, including logistical, administrative, morale and welfare, tactical, and emergency communications. In addition, our products are installed in ground vehicles, ships, rotary and fixed-wing aircraft and are used for command-and-control and situational awareness purposes. Our satellite network provides increased network security to the DoD because traffic is routed across our satellite constellation before being brought down to earth through the dedicated, secure DoD gateway, thus providing additional levels of protection. Since our network was launched in the 1990s, the DoD has made significant investments to build and upgrade its dedicated gateway and to purchase our voice and data devices, all of which are only compatible with our satellite network.

Read more: http://www.getfilings.com/sec-filings/150226/Iridium-Communications-Inc_10-K/#ixzz3TwBFuzrP"

[steve fleming]

And just lastly, what happened on the other site I thought was not that good. I said as much, and got plenty of grief over it.
When a stock is up 100% in a week, it does tend to bring out a fair bit of emotion.
However, hopefully that does not detract from what is a pretty good success story here with WRR, that relatively to other tech developers yet to commercialise a product, remains an interesting company to follow, albeit illiquid, and with genuine unknowns in relation to potential sale volumes.

[Westboy]

Steven Fleming has a very level head here, despite the dramas and share price spike it still only has a market ca of $11M to $13M, it has some bright prospects, it is profitable and will generate significant free cashflow in the next few years. If it was an unlisted business that listed right now I doubt it would list for less than $30M

[Lizard]

Bit of a jump today, up to 38cps on the back of announcement re contract with another satellite communications company. Good to see they are building a broader base and proving themselves across the industry.

[Wolf]

Seem's to have turned a corner. It's Shame i sold half after the last run!

I liked this part particularly.

"Given the major improvements made to the Company’s balance sheet in the course of 2014,and the quantum of continuing net revenues from existing operations, it is currentlyanticipated that the development costs will be fully funded from operating cash flows and, ifrequired, existing bank facilities."

So no capital raising in the near future. Future's looking great.

[Westboy]

Unbelievably good anny today. This is at least 1,5M in additional npbt per year from 2017.Turnover will be over $20M in 2017 and likely to be in 2016 with the go product selling so well. With this in mind the r& d rebate comes into play here.It changes dramatically for businesses with revenue over $20M. This probably won't effect reported profits much as they have a very conservative accounting treatment of this but it will effect cashflow! Initial thought are this stock is worth at least $1 but I have to clarify the tax position with the cfo! Cheap even before clarification IMHO!

[Lizard]

I sold a third at 43.5cps on the way up a few weeks ago. Always good to take a few profits when liquidity is there in the micro cap market. The micros seem to be taking turns to fire up at the moment, before settling back. WRR still one of the cheaper market cap profitable companies out, but earning revenue in chunks with a lot of development cost is not my favourite type of company for the long term.

Never expected a superstar, rather a value play - and has given a solid performance since first post on this thread at 16cps in July 2014. I will continue to hold the remainder and see how it plays out.

[Wolf]

A PE multiple isn't a relative metric to companies like WRR if at all?
Due to the business model WRR currently have a very high amortisation expense so of course EPS are low.

I have WRR at 45c trading on a 2015 EV/EBITDA multiple of roughly 7. Which is fair at the moment in my view.
Operating cashflow of $1m this quarter, strong pipeline, everything is starting to come together for WRR.

Of course there are risks, just as there are with every company.
I'm happy to continue holding.

[Wolf]

Thanks KW, always good to have a contrarian view.
For every buyer there is a seller right?

I agree that EBITDA has it's shortcomings and generally use a DCF model. I only used a EV/EBITDA multiple in my post as a rough indication of value.
To give a better indication of the current price rather than it's "PE of 39" which is misleading.
Short of a DCF, EBITDA multiples are a good indication of value in my opinion as it removes the effects of financing and accounting decisions.

WRR is also still an early stage company coming off a low base of earnings which is worth noting.
It is not necessarily a great company, which is why it only has a market cap of $20m.

[VL SNTCHR]

I agree that EBITDA has it's shortcomings and generally use a DCF model. I only used a EV/EBITDA multiple in my post as a rough indication of value.
To give a better indication of the current price rather than it's "PE of 39" which is misleading.
Short of a DCF, EBITDA multiples are a good indication of value in my opinion as it removes the effects of financing and accounting decisions.

EV/EBITDA is a good quick relative valuation method. Keep in mind it is just that, a "relative" valuation tool. So all it is doing is providing value relative to other businesses. It is no good to look at it in isolation. To make it useful, as KW, suggests you will need to ensure consistency among comparables with accounting treatment of capitalisation and associated D&A.

[stoploss]

Boom , profit upgrade .

[stoploss]

EPS has fallen from 2.44 cps to 1.39 cps or a 43% reduction. And since they have stated that a lot of this year's miniscule profits are non-recurring, what do you think FY16 is going to look like, with all their increased development costs?
Hopefully they have increased sales to cover that ... Will await the final report to evaluate the position with more info .

[PSE]

Thanks KW, always good to have a contrarian view.
For every buyer there is a seller right?

I agree that EBITDA has it's shortcomings and generally use a DCF model. I only used a EV/EBITDA multiple in my post as a rough indication of value.
To give a better indication of the current price rather than it's "PE of 39" which is misleading.
Short of a DCF, EBITDA multiples are a good indication of value in my opinion as it removes the effects of financing and accounting decisions.

WRR is also still an early stage company coming off a low base of earnings which is worth noting.
It is not necessarily a great company, which is why it only has a market cap of $20m.

How much will it earn long term through the cycle, divide the market cap by the earnings and if the PE you get is 40 leave your money in the bank because you are only getting 2.5% return. If you think earnings and shareprice is irrelevant and you should focus on EBITDA, you will end up losing your shirt.
I don't know about this particular company but good to have someone like KW who seems to know their stuff warning people.
Not a fan of high tech, great rewards for those who pick the right companies but mostly a lot of competition and evolving technology.
Better to buy a company that does something unexciting and easily understood.

[Wolf]

I thought the FY15 result was great, exceeded all my expectations.
Earlier this year i had some concerns over FY16 but the Quarterly and FY have addressed them.
Currently there is a large amount of amortisation running through WRR, which will drop off after 2016.
So 2017 is looking like a ripper of a year with the addition of new revenue from their satellite terminal project.


Product revenues from the project are expected in FY2017. The minimum contracted revenue payable to theCompany will be US$3m in the first 12 months once deliveries commence.
Worth noting that US$3M is the minimum expected.

Fair point in regards to the grants KW.
However the company knows this and has currently budgeted not to receive further r/d grants. So any further grants will be a bonus, and have a large impact.
Company has came a long way since 2013.

From the 4th Quarter report

Development expenditure in FY2015 and FY2016 is currently being reviewed for suitability to meet the requirements of the Australian Government Research & Development Grant. At this juncture the Company has not budgeted for the receipt of further rebates, but it may well benefit if the review and applications are ultimately successful.

WRR will also benefit from the falling AUD, and net finance costs will be lower/maybe even positive.
They are generating strong FCF and have a large cash balance of $3.1m.
However they will need this to fund the development of the sat terminal which i think will cost about $2.5m in 2016.
Especially if they don't receive further grants. Which i think they will, but haven't forecasted for.

Using a 12% WACC and 3% TV i have a present valuation of 60c.
Willing to share my numbers, if you want to share yours?
Revenue and capex is rather difficult to forecast for WRR so there will be variability.

Thanks for your concern PSE.

[PSE]

I know it can be a bit annoying having your position criticized but bear with me Wolf, I didn't comment on WRR specifically I just said that the important thing is the profitability that you enter into your Discounted Cash Flow (DCF) model. You didn't share these numbers or how you evaluated the company's future earning power.

I am a value investor so I avoid companies which may have great prospects for growth if I have to pay too much, please keep this in mind.
To buy growth companies I think you would have to take the Peter Lynch approach of really understanding the product, knowing the market and seeing as a consumer what the analysts may not appreciate. Alternatively if I would call it the Bill Gates approach, working for a company you can understand how much it will make and continue to hold even when the price factors in a lot of growth and is therefore speculative.
The common factor - how well you know the business is essential and if you are sure of this and pay a reasonable price relative to prospects you will do well.

OK so looking at WRR's history, over the last ten years it seems to have made overall a loss so it's historical earning power is a negative inasmuch as that can be a broad guide to the future (the business has no doubt changed). It's balance sheet records 7 million dollars of shareholder funds which the sharemarket presently values at $18 million, presumably because the sharemarket thinks that future earnings will support a higher value on these assets than they may have cost.
So I see a tiny company with a history of losses being priced at a high multiple of underlying assets, half of which are inventories of some high tech satellite phones? which I hope won't get outdated soon.
There are none of the margins of safety of quantitative analysis at this quick first glance.
From a value investing perspective you are standing on the end of the limb of a tree without the quantitative aspects we would demand I would like to see the detailed analysis of the companies business that will enable you to leap to the next branch without falling.
For sure you can climb the tree faster (or make more money) this way if you know how to do the qualitative analysis required to fill your DCF spreadsheet.

[PSE]

Quite a cool product, a satellite phone and internet connection when you go bush. This is good, the focus for these things is being robust rather than super fancy change every year although they do still change rapidly I expect.
Not something I would have any use for, I go bush to get away from the hustle and bustle - if in trouble I would fire off my trusty PLB. Organisations with people in remote location though yup pretty useful.
So I can't speak to the product or the demand for it which seems essential to the business case for investment.

[PSE]

......................
For context, Iridium has approx 340,000 customers TOTAL. Remove the portion of the customer base that requires internet access (most boats, remote workers, people dependent on the phone as a primary service etc) and you are left with a very small pool of customers. And usually those customers find it much cheaper to rent a satellite phone for a quick holiday or boating trip then buy one that they probably wont use again.

In the meantime, companies all over the world are in the process of developing new equipment and handsets for the brand new Iridium and Inmarsat networks which launch this year, which may be more functional/cheaper than the current GO product.

I'd be waiting until there was feedback as to the actual end customer sales and use of GO, rather than delivery to Iridium equipment distributors, before getting excited about WRR.
..................

That's the qualitative analysis for you, there is no branch. Unless you can point it out for me I am not too worried about talking you out of a good investment or missing a good opportunity to buy.

[NZSilver]

thoughts on wrr?

[Wolf]

You guy's were on the ball here KW,PSE.
Dissapointing quarterly and profit downgrade after close.

In hindsight I was overly bullish/defensive.
Luckily I sold my remaining shares a while ago after deciding there were better opportunites around and no real catalysts until 2017.

[Wolf]

Still worth a place on the watchlist in my view though.

[stoploss]

You guy's were on the ball here KW,PSE.
Dissapointing quarterly and profit downgrade after close.

In hindsight I was overly bullish/defensive.
Luckily I sold my remaining shares a while ago after deciding there were better opportunites around and no real catalysts until 2017.

Pity KW posts on this have gone . Trying to look back and see the wisdom .....however when the posts are deleted , can't see the reasoning why KW correctly pointed out this was risky ....