Anticipating the results of these 3 troubled performers
KME.ASX Kip Mcgrath, VMT.ASX Vmoto Limited, SPZ.ASX Smart Parking
We’re right in the midst of reporting season and as always, things are very interesting. In a similar fashion to what we experienced in August, many companies are posting strong results, but being sold down on the basis of gloomy outlooks.
The reactions to these announcements is a good display that many investors are fidgety. Personally I wouldn’t label myself as such; I’m in this for the long-haul, not just the next few quarters.
Whilst many companies have come out with their results already, many on the smaller end of town have not. Today I’ll share my comments on 3 companies that haven’t yet reported:
KME.ASX : Kip Mcgrath
VMT.ASX : Vmoto Limited
SPZ.ASX : Smart Parking Ltd
Once the season wraps up, I will share a number of posts commenting on the results of companies I took time to look at.
KME.ASX : Kip Mcgrath
Reporting this upcoming week will be Kip McGrath. The company operates education centers that teach English and Maths in Australia, the UK, NZ, and other countries. They also purchased a company (Tutorfly) last year to help them enter the American market with a peer-to-peer business of online tutoring.
If you’ve never heard of them and would like to understand the business model, Luke Winchester explains it well in his blog here.
I’m interested to see Kip’s half-yearly results because last year was a year when they invested significantly in their business. As a result of this, reported profits looked weak at the time.
Last year, the company repurchased some of their centers (which were previously franchise owned), in an attempt to optimise their operations and benefit from greater more operational efficiencies. They were also one of the few companies to be awarded a sizeable contract from the NSW government which they mentioned would unfold over the next few years.
Kip McGrath have never been very promotional, and rarely provide market updates, so with the investment phase now appearing mostly complete, it will be interesting to see what the last 6 months were like for Kip McGrath. If they were able to execute, the current valuation may be undervalued for a company that’s delivered consistent growth and profits over the years.
Whether or not they can shift the trend of the stock price that’s been on a slow downward spiral for the last 2 years, well, we’ll see.
VMT.ASX : Vmoto Limited
Vmoto is a global electric scooter and motorbike manufacturer. We expect that they too will be reporting this week.
Vmoto might be an interesting one to put on the watchlist considering they haven’t had a down quarter in the last 2 years, yet the stock is trading close to 2 year lows given recent rough waters.
Whilst the business may sound simple, the story can get complicated. On the 9th of February, Vmoto told the market one of its clients, owning Vmoto a total of $2.7M USD (~$3.92M AUD), had filed for bankruptcy.
That’s not good news, and may surface questions about the broader state of health of Vmoto’s B2B clients. Throw in the rising tensions between China (where they manufacture their bikes) and the US and now, unsurprisingly, investors are worried.
It appears the company isn’t too troubled about this. They were out last week with some new high-quality videos (here and here) showcasing the brand and their bikes. In the past they’ve focused on operating their business, and their results make it hard to argue that they haven’t done the right thing.
With $28M in cash on the balance sheet, Vmoto’s Enterprise value today stands at roughly $66M.
They are aligned to a calendar year, so this will be their full year release. Last year they delivered $8M in NPAT for the full year. Given they are profitable, they don’t need to update the market every quarter with detailed cash flows, but still offer a high-level view on the number of bikes they have shipped every quarter. Growth slowed down this year compared to last year, but didn’t go backwards either.
It will be interesting to see if the growth in units sold flowed to the bottom line, given they didn’t provide updates on investments they made this year. Even with marginal profit growth over last year, they will likely land on a PE in the single digits, and this is a company with a fortress balance sheet growing at near 20% YoY.
Let’s see if the fears of investors will be well placed, or not.
SPZ.ASX : Smart Parking Ltd
Smart parking helps shopping centres, hospitals, airports, universities and hotels to better manage their parkings. Their technology consists of automatic number plate recognition, digital signage, in-ground sensors and software that allow better operations, and allow these customers to issue parking breach notices.
As you may have guessed, for the system to work, they require governments to allow them to access registration details of vehicle owners.
Everything was going well for Smart Parking, with the share price reaching 2 year highs, when they too, received a spanner in the works. On the back of complaints from upset motorists, the Queensland government decided to temporarily remove the ability for private parking operators to access vehicle registration details (from 20th February 2023 pending a review of regulations).
The stock took a near 20% dive on the day of the news being released. Whilst investors would have known that Queensland only accounts for 4-5% of the company’s revenue, the fear that this government reaction may happen elsewhere created some level of agitation.
Putting this obstacle aside, I’m personally keen to see what Smart Parking delivers for this first half (Results will be released on Monday 20 February 2023). They posted strong revenue growth in the latest full financial year (full year FY22), but profits were impacted significantly by the large investments they made in growth. In the year prior (full year FY21) margins were very strong, hence it will be interesting to see what margins come out of the first 6 months. I also wonder what management’s commentary wil be on the recent Queensland government changes.
Another one to watch.
Conclusion
As always, thanks for reading. If you’ve got any feedback, or if you would like my comments on a company you follow, feel free to ask away.
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Excelling writeup JP. With respect to vmoto, what do you think the moat is? Generally, manufacturing is a capital intensive low margin business. How can they sustain themselves against well capitalised behemoths with almost every 2 wheeler manufacturer getting into electric now?