Sunday 25 July 2021

A turnaround in Earnings: Global Invacom

The company is in the business of selling satellite communication equipment. My investing premise is on a turnaround in the company's profits from potential cost savings in manufacturing efficiencies.


In 1HFY20, the company recorded only a US$300k net profit. However for the full FY20, it had a US$2.6mil profit. 

Revenue wise, 1HFY20 was $52 mil vs 2HFY20 of $50 mil

Gross profit, 1HFY20 was $12.3 mil vs 2HFY20 of $13.3 mil

This means its margins improved in 2HFy20 and its partly due to the relocation of its manufacturing operations, which was completed in the first half of FY20.

Expectation of FY21

With the Covid recovery, I expect revenue for Global Invacom to improve. At USD$104 million revenue level, it can be expected to clock a full year net profit of US$4.4 million, assuming 2HFY20 margins. The current market capitalization is SGD$36 million (USD $26.6 million). Therefore, purchasing this company at a current P/E of 6 times is a worthwhile investment.

There is some room for revenue to grow because in FY20, G Invacom saw a decline of revenue to $104 million from US$134 million. Assuming a 20% growth in revenue (its 5 year revenue average), I expect future profits to be at US$5.4 million

Cashflow Quality

The company has been generating free cashflow over the years (including during Covid periods). Free cash flow yield is in the 20% region as compared to market capitalization. Usually companies only trade at a low free cash flow yield of 10% and below.

As the company is trading at a low price earning ration and high free cashflow yield (above 20%), I have invested in it. Unfortunately, I was not lucky enough to spot it early on and had bought it at 11.7 cents when it had a run up in prices last week. I am projecting the company to be worth SGD $60 million (USD$44 million) at 10 time P/E to FY21 profits. Forecasted FY21 profits should be US$4.4 million with further profit growth as revenue recovers. 

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