EVS - Envirosuite (was PEH)

[Lizard]

Decided to start a new thread for this one, although it has had a mention a while back on the micro-cap thread.

Very illiquid, so read no further if this is an issue!

Market cap only $4.7m at last traded price of 4.8cps, although current bid at 5cps after positive 4C today and offer at 6.2cps. Has recorded $12.2m in cash receipts for FY and $1.2m in op cashflow, with majority of that in the last quarter.

The company is engaged in environmental consulting, listed 2008 and with significant board and management changes in 2012 setting it up for a move into profit. The recent May presentation gives a good background, so I won't rehash it here.

My only reservation is that there is convertible note borrowing from an Executive Director, Robin Ormerod, which is significant ($1.8m) and, more concerningly, the terms of this note were re-negotiated a year in advance of expiry with an announcement buried in the Christmas-New Year break which markedly improved the terms of these notes for Mr Ormerod in exchange for extension to June 2017. The terms allow him to convert the notes at 3 month VWAP prior to signing of the loan agreement - which according to my enquiry to the company was 3.37cps, so equivalent to about 53.4m shares or about 54% of current equity. There are a couple of safeguards, including the company's ability to repurchase and prevention of trading in converted shares for more than 10% of issued capital in the first 4 years of the agreement (i.e. beyond the life of the loan), so it is not completely one-sided.

PEH appears likely to report a profit for FY13, although second half will likely be lower than first half ($700k) due to seasonal slow-down of consulting works in January, but could trigger some interest. Acquisition activity is expected to form part of future growth.