HCL HighCom Limited (Prev XTEK Ltd (XTE)

[percy]

Didn't take long for his to fall on his sword - hope no golden handshake.....

What a sh1tshow!!

I sold out at 19.5 cents at open..
Approx 50% loss.

[DarkHorse]

I sold out too. Extremely disappointing. I had doubts after last results - explanation for drop in HY2 cf to prior didn't ring true; my weak point is not pulling the trigger to sell soon enough. Also a lesson in focusing on quality of earnings - not reading too much into one or two big contracts.

[Rawz]

Ive been looking back trying to see what signs there were that this was going to custard.
Nothing major imo. I dont think the cash drop in the 2nd half of last year was a warning sign as it was mostly to do with the pre payment of a major order in the period prior.

Two things i have noted however.

- Insiders did not buy a single share when Regal were selling down to below 30cents. This is when most of us retail investors were bullish due to the "continued growth in revenue and profitability" and $375m pipeline bs we were sold. With the benefit of hindsight the question should have been asked- its so cheap why are the insiders not loading up??

- Guidance was never given. I.e. revenue in the range of $$$-$$$ and profit in the range of $$$_$$$. Again with the benefit of hindsight this could have been a flag that the sales pipeline was far from qualified and instead it seems they have just added up the $375m pipeline based on the whiff of a potential sale.

Overall i dont think i fully appreciated the risk these types of businesses have when they are dealing with big chunky contracts that they essentially live and die by.

[percy]

In hindsight I should have taken more notice of Regal's selling.I thought they were wrong.
I missed any other warnings.
I had done extremely well with Scott Basham with AVA,so thought he would deliver.
Everything looked to be on track,and his 5th December 2023 Company Overview Presentation was very positive.

PS.When I sold sold books to schools any "bad" buys I would give them away,if the school had bought a lot of books.Saved time mucking around with them.I had good margins so could do so.
Same with shares.My performers perform.Non performers are either sold or given more time.Seems to work just fine.

[caenix]

Looking back at my notes, I started questioning the company's ability to compete and sell their products in mid-September 2023 (coincidentally at the September share price bottom and max market pessimism).
- The Indian helmet contract was supposed to start before the end of 2023, and I found an article in September saying SMPP Pvt of India won an Indian helmet contract, suggesting XTEK may have missed out.
- In that interview with Strawman, Scott mentioned the Australian DoD buys helmets from a US competitor instead of going with HighCom. Also, just the general lack of tenders and awards for HighCom gears in Australia, which is the segment where the company generate most of its margin.
- There was a lack of new sales announcements throughout most of the half, until the 2 months leading up to the AGM when several contracts were announced. However, the total value of announced contracts by the end of Nov added up to about $30m, a fair way off meeting their guidance on growing revenue.
- They guided growing revenue but not growing profit for FY24, only to maintain profitability.
- Other red flags included management holding little to no shares in the company and the company secretary leaving after 20 years of service.

I decided to just hold on to my very small holding back then, mainly because HighCom gears are often given good reviews and are recommended on the internet, while the market cap of the company was barely above their liquid assets minus debts. I thought the HighCom brand was worth at least something.

The company closing its Poland office without achieving much is also very disappointing. This is with the geopolitical environment surrounding the area, on top of Poland massively expanding its own military at the moment (Poland aims to have the largest land force in Europe by 2035). The competition in the US is not likely to be any easier.
I think there is a good likelihood they will run low on cash after the loss this half.

I too have exited all my shares on yesterday's open.

[DarkHorse]

I appreciate the mature, candid reflections on this forum. We're never too old to learn, and "with humility comes wisdom" as the good book says.
I too put too much faith in Scott Basham, and underweighted both the lack of management alignment and risk due to dependence on large contracts.
The silliest thing on my part was to recategorise HCM from high conviction to speculative (even putting them in my "speculative' "guest" 2024 stock picks) without reducing my position size to a very small one, simply because they looked so cheap.
With microcaps, there will always be a lot of non-performers, but the downside can be significantly reduced through position sizing based on risk profile.

[Muse]

an interesting thread this one. Was never a holder in HCL but checked up on it from time to time.

Some good rewards in hunting in microcap land but got to remain nimble...a lot of these companies lack some of the characteristics of larger companies that make them more robust (diversity of income streams, depth & quality of mgmt and systems, blah blah blah).

When it comes to investing, you can only lose your money once, whereas you can make multiples of your initial capital....so worth focusing your time, capital and emotional energy into the winners - particularly in microcap land. and from the looks of the posters here many have done famously well and more than offset the loss on other successful microcap investments.

Contract businesses are tough. Win a couple from a small base and you are flying, lose a few and you are back to square one. Even things like Serko and Task I shy away from, and is part of the reason for my sell down of Acrow (that together the metals implosion ex iron ore).

The candor and honesty is refreshing from the usual threads where everyone acts as if they are gordon gecko. Smooth seas do not make for good sailors.

[Ferg]

Indeed - some great posts and some great reminders from everyone here. Lesson learned so I guess "fool me once..." applies. Plus there is no other way to spin what happened - it is clearly a bit of a cluster. Like you Muse I also sold ACF, but for two reasons: I just got burned on HCL and I wanted to avoid being burned on another small cap (with the attendant risks you mentioned) and b) more importantly the gain from ACL subsidised the loss from selling HCL, ignoring the time value of money.

[percy]

Indeed - some great posts and some great reminders from everyone here. Lesson learned so I guess "fool me once..." applies. Plus there is no other way to spin what happened - it is clearly a bit of a cluster. Like you Muse I also sold ACF, but for two reasons: I just got burned on HCL and I wanted to avoid being burned on another small cap (with the attendant risks you mentioned) and b) more importantly the gain from ACL subsidised the loss from selling HCL, ignoring the time value of money.

Yesterday I sold ACF,JYC and some more ATP.,
Sold half of my HMY on 8th Feb,and all my HCL on 14th Feb.

[Rawz]

Yesterday I sold ACF,JYC and some more ATP.,
Sold half of my HMY on 8th Feb,and all my HCL on 14th Feb.

What have you been buying, Percy?