Ann: Half Yearly Report and Accounts, page-65

Good to see you can highlight things. Not my imaginations but knowing and looking at basic retail distribution business before as that is what JAT is, it takes a small margin for reselling other peoples products.

Going from a few k to $18m/qtr isn’t great PcP growth as it’s a function of BUYING revenue the company didn’t have before. Strong growth can only be assessed if you have the historical comps from the acquired businesses. Any company can buy strong statutory comps.

GK was bought on the promise it would get SAMR even though at the time everyone knew it was going to be way harder to do for any new brand. Without SAMR, JAT paid $3.5m for nothing. As per the accounts, the other acquisitions aren’t holding up to scrutiny and given the reported P&L its probably struggling to justify the margins assumed. The EBIT margins disclosed in the acquisition announcements are higher than the actual gross margins they’ve achieved. Claimed EBIT margins are ~10% for the combined entities whereas they’ve delivered a gross margin of ~6% (EBIT is many more layers of costs lower than gross margin). Either they trumped up the profitability in announcements or were sold pups (hence the auditor scrutiny involving independent valuers). Costs of rebranding, in-house products and all that stuff comes below the gross line so that wouldn’t drive it. With realised margins materially lower than expected/promoted, it means less profits on same sales or even more sales are needed to make the same profits. And either way, they're the kind of profits the market won't value very highly.

What’s $65m+ of revenue worth when the company makes 6% gross margin then has all the other costs associated, it’s a slow long grind to make net profits. What’s the value of a business like this, probably less than 1x sales. Basic retail distribution stocks don’t get valued like APT or even A2M as some people seem to want to believe.

One quarter of marginal Operating CF+ doesn’t make a trend and can be engineered by running down inventory in the shorter period. If you don’t restock, you reduce product costs to cash receipts (which should mirror sales closely) and can create CF+ in the period. The Sept qtr report stated inventories were over $3m and the HY report says it is $2.7m. So they ran inventories down over the people which would help the discrete CF+ outcome in the Dec qtr. Over the half year, $ms in working capital was used support whatever growth its achieving so it is still burning working capital to scale. Lower the margins, the more it takes unless you can finesse inventories and the demands of customers like no other retailer.

The comparisons to WHA and BUB are meaningless as they aren’t basic retail distribution businesses, they have a brand, supply chain, etc… However unlocking value for them requires SAMR. But I haven’t argued for or against them, this is your strawman comps.

Only question probably worth replying to is, with such strong growth demonstrated and guided to, why isn't the SP off the races with investors bidding over each other to get a piece of JAT?