Excellent update from Beer & Co. It reaffirms that we’re well and truly on our way and heading in the right direction. It also confirms, given some of the topics raised, that we have some pretty darn good posters on our HC thread. Who knows, perhaps with his NAN analysis,
@cadence1 is really Pieter Bruinstroop in disguise
Risk & It’s Role in Investment DecisionsEvery investor should be very aware of the role of risk in their investment decisions. Similarly, every investor has a different risk profile.
Personally, I look for 500-1000% returns over a 1-2 year time frame, with potential downside of 20-30% along the way. I’m also happy to invest in illiquid, sub-$10m cap companies in search of these potential gains. Contrast this with an institution or fund for example that won’t touch a stock until it reaches a cap in the hundreds of millions and is more liquid.
This scenario can work out perfectly for all concerned – I’m happy to sell to a fund/insto when a company has been derisked and the insto is happy with a much smaller return given that they enter when the company has been derisked. After all, return is commensurate to risk. A discussion of risk and its perception is a story for another day though.
Beer & Co. ReportsSo how does the issue of risk pertain to PO3 and today’s Beer & Co. update?
Beer & Co. put their gonads on the chopping block when they released a report in August of last year placing a valuation of $5.10 on PO3 when the share was trading at 55c – a very ballsy thing to do. They were vindicated on their prescience and I hope they and their clients were well rewarded for it.
They then upgraded their valuation in November 2018 from $5.10 to $20. What was the basis of their change in valuation? You only need to look at the sub-header to find out – “
New NED de‐risks PO3 and opens markets”.
Following is a copy/paste of every point from that report where the word “risk” is mentioned as it pertains to its specific valuation of PO3:
- Beer & Co.’s valuation of PO3 has increased due to…Some de-risking as Mr Parfet joins the PO3 Board
- Mr William Parfet, Billionaire, joins Board of PO3, de‐risking PO3
- FRG technology proven; risk is in the roll‐out
- Beer & Co.’s valuation revised to $20…some de‐risking as Mr Parfet joining the PO3 Board should facilitate market access and penetration (my emphasis)
- The key theme of Beer & Co.’s initiation report on PO3, from 13 August was that the FRG technology was proven but there was risk in the roll‐out
- In Beer & Co.’s view, Mr Parfet’s involvement in PO3 significantly de‐risks investment in PO3
- Our valuation has been partially de‐risked by Mr Parfet joining the Board of PO3
- Some small de‐risking of our valuation, especially for the medical applications
- Beer & Co affirms our Speculative, Strong BUY recommendation due to the significant gap between our risk adjusted valuation and the current share price
- We have included little of the value for surface sterilisation, and this vertical has the highest value on an un‐risked basis (my emphasis)
Beer & Co. Revaluation from $5.10 to $20 – Behind the NumbersNow how about we take a look at the numbers behind Beer & Co.’s jump in valuation from August to November.
Below are two figures showing the Beer & Co. risk adjustments from the August to November reports.
View attachment 1490279What was responsible for causing a 4x uplift in valuation in 3 months? Quite simply, a
minor risk devaluation across the verticals. More specifically, in the August valuation at $5.10 they had zero valuation of the Surface Sterilization because of the perceived risk. In the November valuation they risked the Surface Sterilization to 12% (USA) and 10% (other), which had a net effect on the valuation of $12.80!
Today’s UpdatePoints of interest from today’s report that I believe bear further mention include (all emphasis mine):
- The FRG unit has been further developed Ø reduced energy consumption; smaller size; and lower cost. (This reminds me of The Six Million Dollar Man intro: we have the technology.
We have the capability to make the world’s first FRG powered purifiers. Stryker Corp./Bissell/3M/Samsung/Whirlpool/Dyson will be the beneficiaries - better than they were before. Better, Stronger, Faster.) - Sales are expected from the recreational water sector late in Q3; air purification has been tested and further due diligence with other OEMs is in progress.
- Beer & Co believes is now significant upside potential to our $20 valuation: Beer & Co will wait until for some results before factoring these into our valuation. (Poor English, but we get the drift).
- India: While this has caused delays in conducting the actual tests, PO3 expects that it will result in a more powerful result as PO3 expects the FRG unit to eliminate the mould as well as the TB. (Good things take time).
- Air conditioning units perform poorly at air purification and incorporating an FRG unit creates a high end range that is particularly suited to Asian cities.
- PO3 reported that a series of trials were completed with one of the US market leaders, under a Non‐isclosure Agreement (NDA) in September 2018. The FRG system performance exceeded the requirements of that customer and PO3 is in discussions with this group. (I can smell an OEM not far away. The only reason I can smell them is because they aren’t using the FRG technology yet. We’re now 6 months from testing and although according to the report, “Large multinational OEMs are methodical in their approach to new technology…”, every day is a day closer to an OEM agreement that will put this stock in the double digits IMHO).
- Significant upside potential to Beer & Co.’s valuation. There are 3 areas in which Beer & Co sees the potential for valuation upside: Progressive de‐risking; Greater penetration into target markets; and Other segments.
- Other: The FRG can also be applied to other areas of water sanitisation, but Beer & Co has given no value to this segmentin which there are many other potential technologies…Which would more than double our valuation!!!
To SummariseWe are on a massive winner here; all we need is a little patience as there are a number of potential fundamental events that will catapult PO3 out of its current trading range.
Beer & Co. have “picked the eyes” out of this stock and I believe are waiting for the stock to break strongly through its initial $5.10 valuation before updating its $20 valuation. They have stated what will be the catalysts for this upgrade and also set the scene for their intent to do so. All they need do is change a few numbers in their Excel model and the valuation will jump. We have already been privy to this conduct and we should consider ourselves forewarned -
Which would more than double our valuation!!!With BP in the background pulling the strings and flicking through his Rolodex, the sky really is the limit for this stock. With the appointment of JH, we have already seen BP’s overt influence. No doubt there are many events unfolding in the background of which we have no knowledge…yet. BP is a proven company builder, and he wouldn’t be backing PO3 with his money, time and contacts if he didn’t see ENORMOUS POTENTIAL. Good luck to all of us as we ride his coattails and follow in his footsteps to substantial wealth.
