Bulletproof Networks: HY15 results (BPF)

BPF released their HY15 results this week, showing the following results on PCP:


  • Revenue $11.9M (up 46%)
  • Underlying EBITDA $1.2M (up 20%)
  • NPAT $808k (HY14 $95.7k loss)
  • Underlying NPAT $567k loss (Due to performance share revaluations)


So the business is now making money, having doubled staff in 12 months, and are growing revenues at a good rate.  What’s going to create additional earnings upside is the following:

  • Contract optimisation and automation reducing back-end cost
  • Re-signing annuity revenue which lowers cost of sale
  • Building out product portfolio to include PaaS (Platform as a Service)


It’s difficult to forecast where BPF will be in HY16, but I would expect revenues to grow another 50%, with improved profitability.  As the business matures later this decade, we will see more of the annuity contracts enter a steady state, and get a good picture of new business growth vs continuing operations.  I also anticipate seeing more acquisitions of other MSPs to either build scale or complement the existing business.



Reverse Corp HY15 earnings (REF)

Reverse Corp provided an earnings update for HY15 this week, and confirmed things were still moving in the right direction:

Revenue $4.51M (up 4%)
EBITDA $1.84M (up 16%)

NPAT $1.05M (up 56%)


So revenue nearly flat, with increased profitability thanks to more efficient operations at 1800 Reverse. OzContacts is now breakeven, so we can anticipate some earnings accretion from this in FY15.

Of note: Recievables have blown out from $658k to $900k (up 37%)

Current cash in bank sits at $6M though, meaning at a market cap of $14M, REF is generating $2M a year cash off a business valued at $8M, a P/E ratio of 4.

There is still the risk of revenues falling off a cliff, but as I said earlier, this is definitely in the cigar butt territory.

The upside is for improved profitability of OzContacts.com.au, and revenue growth from 1800-Reverse to remain flat at least, allowing REF to continue generating cash.

BigAir HY14 numbers (BGL)

BigAir released their HY14 numbers today, and while the topline numbers are growing at a steady rate (19% against PCP) the bottom line continues to accelerate with NPAT up 44% and operating cash flow up 25% to $5.6m.

My concerns around a different balance sheet profile don’t seem too big a deal now as management has indicated they will pay down debt facilities quickly using their cash flows.   The acquisitions also seem to be achieving critical mass due to the cross sell opportunities between the Telco, Managed Services, and Accommodation facilities parts of the business, using BigAir’s common core and low-cost access network.

The pipeline is also strong.  This should come as no surprise, in my own experience many firms are realising that managing IT infrastructure is not their core business, and they can cost-effectively outsource this job, complete with SLA.  BigAir have just won their first 2 sites in the retirement facility market but have a pipeline of 70 sites.  With specialist providers offering better reliability, lower cost, and still making healthy margins (due to their scale), and days of the in-house IT technician are numbered.

Colorpak – FY13 results (CKL)

The past year or so I haven’t had much to write about.  While I feel the ASX is probably on the mark in terms of valuation, I can’t see a lot of positive news coming down the pipeline, which is why I’ve kept my powder dry as far as value opportunities go.  I don’t see any point picking up a bargain if the ASX is going to fall 30% and take all the good stocks with it.


I recently bought a copy of Poor Charlie’s Almanack, which refers to the idea of waiting for a fat pitch.  Investors frequently have a problem sitting still (I’m no exception, pumping money into gold shares instead of staying put), and instead of chasing marginal opportunities, just for activity’s sake, you’re better off waiting until you can swing hard when a pitch comes right in your strike zone.


I’ve kept BGL because of its stable earnings, and CKL remains in the mix because the company is in the process of swallowing a large acquisition and undergoing a transformation in the process.  CKL’s preliminary FY13 results were released today and the business is now showing major progress towards its objectives:

  • Revenue down 10.5% to 171.6M (due to dropping unprofitable CHH contracts)
  • EBITDA up 8.8% to $18.2M (This is against underlying EBITDA last year, reported was 1.3M)
  • EBITDA margin 10.6% vs 8.7%
  • NPAT 7.5m down 2.2% (This is against underlying, reported NPAT was 3.2M loss)
  • EPS 9.2c
  • Cash flow $8.7m

So while the business has had to rationalise by eating some pretty big impairment charges over the past couple of years, since 2010 Colorpak has doubled turnover, managed to claw EBITDA margin back up to 10.6% against 18.2% in 2010, and now has opportunities to further optimise its cost base to further improve margins.  Management aren’t sitting still, and have slated a consolidation of the Victorian operations, further reducing cost.  Just a reminder, the CHH business cost $5m.


Meanwhile packaging giant Amcor is running NPAT margin of 3.4% on a turnover of 12.2B.  Colorpak’s NPAT margin is currently 4.4%, but I believe management can get this back up to 8% within the next 2-3 years, which would generate NPAT of $14.4M on $180M revenue, and at 12x earnings would result in a market cap of $173m and share price of $2.12.


Returning to the strike zone, the recent appreciation of CKL’s share price 2 weeks ago (what a coincidence) and again today gives me a cumulative return of 30% over the past 2.5 years, not counting dividends, which have been around 5% per annum, for a total annual return of around 16%.  The bulk of this has been earned in the past 2 weeks, as the market comes to recognise the success of Colorpak’s transformation.


I intend to continue holding for the foreseeable future, in expectation of a large-scale re-rate of the firm’s value, and may have to reward my patience with a tub of Connoisseur ice cream (look at the bottom of the package next time you’re at the supermarket).

Warren Buffett’s 2013 letter to investors has been released

You can find a copy here: http://www.berkshirehathaway.com/letters/2012ltr.pdf

I’ve been reading the Buffett letters for years, and have read the historic reports dating back to 1977.  My main interest is the colour Warren puts on his approach to a manager, and his openness with investors.  He uses increases in book value against the S&P500 as a yardstick for BRKA’s performance.  I particularly enjoyed this quote from the latest letter:

“There are a lot of ways to lose money in insurance, and the industry never ceases searching for new ones.”

I disagree with his current view that the US economy will not tank, but there’s still plenty to learn from the letters.  For further reading on Buffett I would recommend The Snowball: Warren Buffett and the business of life.  The Author, Alice Shroeder, used to cover Berkshire Hathaway as a financial analyst.

BigAir – HY13 numbers (BGL)

BigAir today put up their HY13 results, and while I (and so it would seem, the market) was expecting better, the results are still solid:

Revenue $15m (up 36%)

EBITDA $5.5m (up 20%)

NPAT $2.37m (up 15%)

Operating Cash Flow $4.48m (up 19%)


What we see is a business priced at $100 million, with annual revenues of $30m, with EBITDA margins around 37%.  The key measure BigAir use as a yardstick for the business’ ability to print money is the EBITDA run rate – an annualised measure of the billing base which can be used to calculate the growth in the business.  FY12 saw full-year EBITDA at $9.75m.  During the second half of FY13, EBITDA run rate is expected to hit $14m.  Given a half year EBITDA of $5.5m it is reasonable to anticipate a FY13 EBITDA of $12m, which would give a full year NPAT around $5.4m or underlying EPS of 3.3c per share.


There’s no getting around the fact that after hitting a CAGR of 50% for revenue over the past few years, that the BigAir’s meteoric growth is beginning to slow down.  There are additional synergies to be unlocked from the Allegro acquisition but it’s getting harder to justify a 20x earning multiple (as of today it’s 16.5)


As management were silent on the prospects of a dividend it’s safe to say the 1c per share paid in 2012 will be all for this financial year.  Right now I think the business isn’t too overpriced, and will continue to hold.  If the share price goes up toward the 80c mark I intend to sell.

Colorpak HY13 numbers (CKL)

Colorpak’s HY13 results were released recently, and are now giving a picture of what the entity will look like post-consolidation.


HY13 figures are as per below:

Revenue: 92.7m

EBITDA: 10.7m (11.5%)

NPAT: 4.7m (5.1%)

EPS: 5.8c


On the surface, it appears Colorpak have transitioned quite well through the CHH acquisition, emerging with a business double the size.  While EBITDA margins have fallen from an average around 18%, they are improving.  The emerged business now has net assets of 86c per share, debt/equity of 47%, and generated free cash flow of $7m (8.7c per share) in HY13.  The fall in revenue is attributed to the loss of a number of low-margin CHH accounts.


Management has also done a sterling job consolidating operations, with headcount falling 16% from 820 to 690.  HY dividend has increased to 1.75c.  Having been roughly break-even on my shares the past 2 years, one could be tempted to sell out after the recent rise in price from 55c to Monday’s close of 73.5c.  But I’m pretty bullish on CKL over the next 2 years, given not many are aware of the business, and EBITDA margins should continue to improve, I’m anticipating a big re-rating of CKL by the market over this period.  I will continue to hold and am considering adding to my current position.

Supply Network HY13 numbers (SNL)

I’ll be honest, when I originally posted about SNL back in 2011, I thought I’d found a cheap company with a stable business that wasn’t set to grow much faster than the economy.  Back then, it was a $19m market cap minnow, selling for 9.2 times earnings.  Since then market cap has more than tripled, to $53m, and earnings have kept a reasonable pace, with a P/E multiple of 13.39.  Over the past 2 months alone it has rocketed from the $1.20 range up to $1.60!


So today management released preliminary HY13 figures.  NPAT of $2.08m represents an increase of around 17% against PCP, with a half year dividend of 3.5c.  I’ve already sold down half my holdings, and my 1 year capital gains discount applies at the end of February.  I’m still sitting on a 75% profit on my most recently bought parcel, so if share prices are still at current levels in a month’s time I will take profits.  Much of SNL’s growth has been from Central Queensland mining, and if commodity prices fall it could lead to reduced sales.

HGL – Like a cancer to be removed (HNG)

After a year’s patience with HNG I’ve decided to sever my relationship with the holding and my book is already thanking me for it. It had a big margin of safety which was unfortunately eroded by multiple businesses losing money, particularly Biante.  If the business had stayed profitable, I could have justified maintaining my holding, but with the group currently booking losses, I’ve decided to exit my position to tally up the lessons learned.


This is not before taking a 60% haircut from what was a fairly large position.  Looking back at what I could have done better, the main thing I could have done to improve the final outcome would have been to take a smaller position so it would have had a smaller impact on my portfolio.


The original purchase had a decent margin of safety, but with the businesses losing money (and only a few small pieces of good news such as from the Mountcastle brand) it was time to SUMO (Shut Up and Move On).

BSA – FY12 figures with some alarm bells (BSA)

Since my previous post on BSA’s latest result, the share price has now fallen back to the 20c mark, with a more lacklustre performance for year end.  Let’s take a look at FY12 numbers:


Revenue up 22% to $492m

EBITDA up 1% to $16m

NPAT $5.8m

EPS 2.57c


If we look at HY12 numbers, you wonder where the money went.  Another $230m through the door, and yet profits for the full year are lower than the half.  If you think that’s bad, it gets worse.  Although net cash has gone from a $10m deficit to $10m surplus in the past 2 years, the company is now in a working capital trough, meaning more cash will be shelled out soon.


EBITDA margins have shrunk, and so has NPAT margin.  While there is some promise in the technical maintenance division, the Foxtel contract is going to undertake a slow and inexorable decline.  BSA just doesn’t have the same margin of safety it had 2 years ago.  Given the poorer outlook of the business, I’ve decided to exit my BSA holdings for a small loss, given that I’m anticipating future earnings will continue to shrink.  HVAC just doesn’t seem like a good business to be in.