BT4/ Ability to raise margins at above the rate of inflation [perspective 2020]
Net Profit margin = Normalised Profit / Normalised Revenue
FY2016: $3.455m / $32.923m = 10.5%
FY2017: $3.815m / $34.766m = 11.0%
FY2018: $4.372m / $34.225m = 12.8%
FY2019: $4.202m / $34.771m = 12.1%
FY2020: $1.326m / $32.868m = 4.0%
Conclusion: Good profitability gains between FY2016 and FY2018 which proves it can be done. PASS test!
SNOOPY
Grant Samuel Valuation Updated (FY2020 Perspective)
Quote:
Originally Posted by
flyinglizard
Very interesting chart, feed me at $0.77 -$0.75 if you do not want the share
I for one won't be feeding you any shares Flyinglizard, because I don't hold any. The Buffett style interrogation of the financials has thrown up a couple of unwelcome trends. But like all published information, it is historical. I think anyone investing from here will be looking for a recovery. Indeed that is what the Grant Samuel valuation report said back in 2017 when Spark made their takeover offer at 80c, and the Samualoid came back with a much higher valuation (refer to page 27 of the 'Independent Advisors Report' dated 23rd March 2017). Using a perspective from the last balance date, I have adjusted this valuation for:
1/ The sale of 'Farmside' AND
2/ There now being 41.381m shares on issue AND
3/ Current Net Term Debt being $1.8m - $14m AND
4/ A Capital Investment adjustment of $7.809m
to be between
Vital Valuation Summary (Adjusted GS) |
|
Low |
High |
Enterprise Value - Teamtalk Mobile radio |
$30.8m |
$38.5m |
Enterprise Value - Citylink |
$44.6m |
$52.7m |
Equity Proportion of Corporate Costs |
($5.7m) |
($5.7m) |
Combined Enterprise Value |
$69.7m |
$85.5m |
Net Debt for Valuation Purposes |
($12.1m) |
($12.1m) |
Capital Expenditure Adjustment |
($7.8m) |
($7.8m) |
Equity Value |
$49.8m |
$65.6m |
No. Shares on Issue |
41.4m |
41.4m |
Takeover Share Price |
$1.20 |
$1.58 |
Expected Trading Range (x0.75) |
$0.90 |
$1.19 |
The above also assumes that Vital will be able to execute their business plan successfully.
Grant Samuel in 2017 was looking at a CAGR (Compounding Annual Growth Rate) for revenue of 3.4% for Citylink and 4.6% for Radio up until FY2022. The actual revenue growth rate so far is as follows.
|
FY2017 Revenue |
FY2020 Revenue (Actual) |
FY2020 Revenue (GS Forecast) |
Citylink Revenue |
$14.599m |
$13.678m |
$16.139m |
Teamtalk Radio |
$20.167m |
$21.771m |
$23.080m |
Notes
1/ For annual growth rates, see GS Report p29 (Mobile Radio Growth, CAGR 4.6%) and GS Report p30 (Citylink Growth, CAGR 3.4%)
Comparing 'actual' to 'forecast' revenues, there is quite a lot of catching up to do. So it looks like that expected trading range of the share price that falls out of the GS modelling is a little high. So that could explain why the share price for VTL closed at 80c today. Maybe Mr Market isn't so stupid after all?
SNOOPY
Profit Forecast for FY2022 and FY2023
Quote:
Originally Posted by
Snoopy
Net Profit margin = Normalised Profit / Normalised Revenue
FY2016: $3.455m / $32.923m = 10.5%
FY2017: $3.815m / $34.766m = 11.0%
FY2018: $4.372m / $34.225m = 12.8%
FY2019: $4.202m / $34.771m = 12.1%
FY2020: $1.326m / $32.868m = 4.0%
HYR2021, a 25th February announcement, contains the following quote in the interim report covering letter.
-------------------
Outlook
Vital provides full year guidance for FY21 that Net Profit after Tax will be broadly in line to FY20.
-------------------
This statement is in the context of the previous year incorporating the initial Covid-19 lock down and the immediate business uncertainty that followed to 30th June 2020. That being the case, it is disappointing that there will be no improvement in NPAT this FY2021 year. The new St John Ambulance contract announced at EOFY2020 should have flowed into the HY2021 result. Revenue was up to $17.85m for the half year, which combined with 2HY2020 revenue of $15.978m, gives a half year annualised revenue of $33.828m (+3% on FY2020). Not disastrous, but still below FY2019, FY2018 and FY2017, despite all the new technology being deployed.
On the hunt for clues, I happened to notice that testing for impairment modelling of goodwill has changed (AR2020 p27). Both the discount rate of future earnings of 9.69% ‐ 9.84% (c.f. 2019: 7.37% ‐ 7.71%) and terminal growth rate 1.0% (c.f. 2019: 0.0%) has gone up. However the overall goodwill on the books for both the wired and wireless networks has not changed. This would suggest to me that Vital needed the sales growth into the future to increase above past expectations, in order justify the same amount of goodwill on the books. If this is not happening, we could be looking for a goodwill write-down once the FY2021 accounts are done and dusted. I wonder if the announcement on 15th June 2021 that the Head of Sales and Marketing is to leave, with no indication of what 'the next phase of his career' might be (contrary to the announcement of the Chief Technology Officer leaving in March) is tied in to this sobering profit outlook picture?
Back to the half year profit announcement letter:
"Vital is also on track to achieve the savings target we set ourselves back in 2019, and to date we have identified $1.8m of the $2.0m annualised target. Approximately $1.1m is expected to be fully realised in FY22 financial year with the remaining identified savings to be realised in FY23."
Now let's say the new Head of Sales and Marketing is able to boost profits by half the modelled discount rate (4.85% - 4.92%) -say 4.89%- in each of FY2022 and FY2023. That would see underlying profits go up from $1.326m (FY2021 estimate unchanged from FY2020) to $1.391m (for FY2022) and $1.459m (for FY2023). On top of this, we can add the after tax benefits of the identified cost savings of 0.72 x $1.1m = $0.792m (for FY2022) and 0.72 x $2m = $1.44m (for FY2023). Putting all that together, my underlying profit forecasts for the future are (assuming 41.740m shares are on issue):
FY2022: $1.391m+$0.792m = $2.183m or 5.2cps
FY2023: $1.459m+$1.440m = $2.899m or 6.9cps
'Vital' trades at 79c on the market today. If my earnings predictions are accurate, then this trading price represents a PER 15.2 on FY2022 earnings and 11.4 on FY2023 earnings.
SNOOPY
Cashflow Position (FY2020 perspective)
Quote:
Originally Posted by
flyinglizard
They have completed three years network upgrading, so the future earning should go up again.
To garner the likelihood of flyinglizards prediction coming to pass, it might be useful to take all the reinvestment out of the equation and just look at the operating cashflows.
|
FY2016 |
FY2017 |
FY2018 |
FY2019 |
FY2020 |
Operating Free Cashflow |
$8.241m |
$7.121m |
$7.680m |
$7.102m |
$13.698m |
After a declining trend that bump in Operating Free Cashflow over FY2020 looks promising. So let's have a look at the Cashflow Statements for the last two years to try and see what happened.
|
FY2020 |
FY2019 |
Cash flows from Operating Activities |
Cash provided from: |
Receipts from Customers |
$37.197m |
$35.865m |
Net GST Receipts |
$0.212m |
$0.087m |
{A} |
$37.409m |
$35.952m |
Cash applied to: |
Payments to Suppliers |
$11.061m |
$15.968m |
Wages & Salaries |
$9.840m |
$9.659m |
Interest Expense net of Realised FX Gain/Loss |
$1.652m |
$1.133m |
Income Tax Paid |
$1.158m |
$2.090m |
{B} |
$23.711m |
$28.850m |
Net Cashflows from Operating Activities {A}-{B} |
$13.698m |
$7.102m |
To figure out what has happened we need to step back and think about how this company operates. A new bespoke job will typically involve a large payment up front for hardware, software and installation. This money, plus a profit margin, is recovered by Vital gradually over some years.
From p2 of AR2020 we learn
"Overall, we did see an impact to revenue, and we are experiencing a delay in forecasted orders, with some projects being postponed out to future years."
The key line in the above cashflow statement is the 'Payments to Suppliers' line. My contention then, is that, during the Covid-19 lock down, and in the months of doubt that followed, the cashflow was saved by not installing new customer equipment for the equivalent of several months. The ceasing of this work had a big effect on 'cash out'. But capital previously spent meant that the existing capital installations(*) were cash cows that kept churning out revenue. Thus capital spending (*) at suppliers stopped, but revenue kept coming. This is my explanation for the dramatic positive change in cashflow at the operational level over FY2020!
---------------------
(*) The 'capital installations' and 'capital spending' I am referring to here is what I call 'micro capital spending' on equipment dedicated to one customer that would be recovered from that customer as part of the operational business model. I am not talking about the generally larger spending on networks that service many customers with an indeterminate payback date that I would be class as 'Investment cashflow'.
---------------------
If I am correct in reading this situation, then once the FY2021 results are released, the operational cashflow will drop back by at least $5m, confirming we are not in a bold new era of generating large excesses of operational cash.
SNOOPY