The problem with trying to decipher this latest trading update is that there are quite a few moving parts to consider, notably the 50% increase in employee numbers over the course of FY2016 (to headcount of a whopping 23 @ June 2016, from 15 twelve months prior).
The bulk of this additional fixed cost investment (which is likely be close to $0.4m on an annualised basis, so the company's cost base could be around $150k higher - i.e., 10% up on pcp - in the current half, vs DH2015).
Now, given the expectation that DH16 Operating Profit is expected to be up 4% on pcp, and given what we know about the structure of the company's P&L, we can solve for what the top line has done, meaning that Revenue in the half must have increased by something between 7% and 8%.
I strongly suspect that ASW's customer count has not risen by anything near 7% or 8% over the past 6 months (I'd be delighted if that was the case, but I'm sure it's not), which means that ASW must be flexing its price list upwards.
(As the industry's "low cost manufacturer", heaven knows that they do have some wiggle room in terms of what they charge their customers.)
In summary, I think that this trading update risks masking what I suspect is a strong top-line performance.
To that end, I have some issue with the opinion that there is not much Revenue growth being achieved by the company. For the facts tell quite a different story:
Since listing the company's Revenue has grown at a CAGR of 8.4% (from $3.45m in FY09 to $6.1m in FY16) and since 2005 (the furthest back I can find financial statements) the CAGR in Revenue has been 10%pa.
That Revenues have remained flat between 2013 and 2015 is, I am sure, exclusively a reflection of the acute cyclical headwinds the company faced due to the severe unwind of the commodity boom. In fact, most other businesses - if faced with the same external business environment that ASW experienced over that period - would have seen their Revenue bases severely impacted by equivalent circumstances.
That ASW ceded absolutely no Revenue ground over that turbulent period, I believe speaks volumes about the sheer resilience of the business model.
The combination of ASW's teeny market share, the scale-ability of the business model, and the investment in the business infrastructure, leaves me in little doubt that ASW will sometime in the next several (5 or 6) years, be generating Revenue in excess of $10m, and on the back of that, EBITDA between $5.5m and $6.0m, and NPAT between $3.5m and $4.0m.
For that prospect, investors are today being asked to pay a Market Value of some $34m and an Enterprise Value of around $30m, i.e., prospective EV/EBITDA and P/E multiples of around 5.5x and 9.5x, respectively.
Assuming exit valuation multiples of EV/EBITDA = 9.0x and P/E = 15.0x (yes, the stock is notoriously illiquid, which detracts from a premium-to-market multiple, but then again, this is a near 30% - and rising - ROE business which, in turn, justifies a fulsome multiple), that would result in capital appreciation of around 9%pa to 11%pa (depending on whether it takes 5 or 6 years to reach the $10m Revenue mark).
Added to that is a dividend yield of between 5% and 6%, for a TOTAL SHAREHOLDER RETURN somewhere around 15% to 17%pa.
Given the low-risk nature of the investment, that to me is a highly attractive Reward-to-Risk relationship.
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