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Tim Boreham
Expert
+ About Tim Boreham

Welcome to the New Criterion, authored by Tim Boreham.

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades’ experience of business reporting across three major publications.

Tim Boreham has now joined Independent Investment Research and is proud to present The New Criterion, which will honour the style and purpose of the old column. These were based on covering largely ignored small- to mid-cap stocks in an accessible and entertaining manner for both retail and professional investors.

The New Criterion will strive to continue the tradition in a weekly online format.

The column will not offer stock recommendations because we think readers can make up their own mind on the facts and opinions presented.

Our coverage will include both the industrial and mining sectors, including listed investment companies and IPOs. The stocks covered will not necessarily be of investment grade with sound financials. But they will have credible management and – at the very least – an interesting story to tell.

We hope readers will find The New Criterion both entertaining and informative.

Could these penny dreadfuls become dollar dazzlers?

Friday, October 04, 2019

As a rule of thumb, sub 1 cent stocks are usually mired in debt or running out of cash, with little or no ability to raise fresh equity. They usually have hundreds of millions if not billions of shares on issue, the result of highly dilutive capital raisings.

In the case of the resources sector – where most of the sub 1 cent ultra nano caps reside – they’ve usually been unlucky with the drill bit as well. But while stocks are almost usually cheap for a reason, there can still be money to be made from companies that have a decent yarn to tell.

For instance, shares in drug developer Actinogen Medical (ACW) soared 466% – from 0.9c to 5.1c after the company reported success with its cognitive diseases program after an earlier clinical setback.

The eclectic Authorised Investments (AIY, 2.6c) slumped to a low of 0.7c in September 2017, but by April 2018 were trading at 14.5c on the back of some digital media deals.

Persistence is yet to pay off at YPB Group (YPB, 0.6c), which has presented a consistent story to the market with its smart phone based anticounterfeiting measures. The stock traded as high as 40c, in October 2015.

In the gold sector, Lazarus is hard at work at “advanced gold developer” Alice Queen (AQX, 3.7c), which has the Horn Island joint venture with St Barbara Mines.

Alice Queen traded at 0.9c in mid June. The stock is in trading halt pending a capital raising, which will be the second bite of the cherry given the company in August raised $516,000 at 1.2c apiece.

Shares in Valor Resources (VAL, 0.6c) plumbed a low of 0.2c in March, but in August hit 0.9c on plans to buy a half-stake in the Radio Gold Mine in WA.

In the energy sector, investors endorsed plans by ADX Energy (ADX, 1.2c) to acquire a small producing oil field in the Vienna basin for €4m ($6.5m). In doing so,

ADX claims its own slice of history as being the first foreign publicly listed oil and gas company to operate in Austria.

ADX shares traded at half a cent in late May.

Shares in labour hire company RBR Group (RBR, 1.3c) traded at 0.4c in May 2017, but have got as high as 2.6c on the promise of the company’s plans in Mozambique (where the company is mandated with rustling up workers for the country’s three new and proposed LNG projects).

RBR recently bolstered its coffers with a $1m placement, struck at 1.4c apiece.

Of course, there are plenty of one-cent wonders that look to going nowhere after years of trying.

Take the Gina Rinehart-backed Victorian onshore oil and gas explorer Lakes Oil (LKO, 0.1c), which has been stymied by a statewide drilling ban. Legal attempts to overturn the moratorium so far have been in vain.

Other fallen soufflés that could rise again include:

Boart Longyear (BLY) 0.7c

The global driller reported July (first) half, the company grew ebitda by 90% to $US54m ($80m), despite revenue slipping 2 per cent to $US388m.

The Utah based entity even recorded a net profit of $US2 million – its first surplus in seven years – with second quarter performance strengthening over the first.

The catch is that Boart is groaning under an $US731m debt burden, the legacy of a rescue deal in the aftermath of the global financial crisis.

Still, investors who rode this one up from a share nadir of 0.2c in November last year to 0.9c post results more than quadrupled their dough.

With 26 billion shares on issue – and that’s not a misprint – Boart Longyear is doing the sensible thing and proposing a 300 to one share consolidation.

Yep –a $2.10 share price sounds much more respectable, but the group will still bear a lowly market cap of $180m.

Latrobe Magnesium (LMG) 1.3c

Highlighting the potential of the sub-1c laggards, Latrobe Magnesium shares have more doubled since mid August on the company’s plans to produce fly ash material from Victoria’s power generators.

Given it’s taken close to two decades to get this far, the investor reticence to date has been understandable.

A feasibility study has costed the plant at $54 million, based on initial output of 3000 tonnes a year and ramping up to 40,000 tonnes within 12 months.

Put in context, the world produces about one million tonnes annually.

While magnesium isn’t a battery metal as such, it ticks all the ‘green’ boxes as a lightweight material to reduce motor vehicle fuel use and thus carbon dioxide emissions.

Latrobe’s process is CO2 neutral, especially as it produces a by-product of cement substitute material (concrete making is one of the most carbon-emitting activities).

Latrobe has a compact with Energy Australia – operator of the Yallourn generator – to supply the fly ash, which is hanging around in vast storage dams.

The company also has offtake agreements for 70,000 tonnes from Japanese and US parties.

Funding? Glad you asked. The company is confident of a $28m grant from Ausindustry, as well as $12m from additional state and federal funding.

The $16m gap would be filled partly from raising additional parties from shareholders that include engineer and former army colonel Jock Murray (brother of David) and Kevin Torpey, the former head of Denison Mines and Devex Kevin Torpey.

The company expects a final investment decision by December and will turn the first sod at its 14,000 square metre site, in the heart of the Latrobe Valley, shortly thereafter.

Company estimates a 3000tp plant would generate $30.9m of revenue and ebitda of $5.6m annually. This is based on the magnesium market price of $US2650 a tonne, which compared with $US500/t two years ago.

Shareroot (SRO) 0.1c

The liberating thing about trading at one-tenth of a cent is that the ASX won’t allow your shares to trade at a lesser amount.

The only way is up!

Shareroot listed in late 2015 on the back of a Silicon Valley business that had something to do with social media influencers.

Needless not say, success was elusive but along the way the company acquired a useful business called The Social Science, founded by former Telstra Businesswoman of The Year Michelle Gallaher.

Now led by Gallaher, Shareroot revolves around harnessing informal patient data, such as blog entries from cancer patients, to enhance healthcare products. In regulatory circles such data is known as ‘real world evidence’.

In the June quarter Shareroot recorded revenue of $194,000 and a loss of $218,000. The company also had a mere $100,000 of cash, since supplemented with a $1.2 million rights issue.

Shareroots's $2.85m market valuation would struggle to buy even a modest pile in some parts of Sydney.

Battery Minerals (BAT) 0.9c

Chaired by former Atlas Iron supremo David Flanagan, the graphite hopeful is not being given much credit for its two projects in Mozambique: Monepuez and Balama Central.

Given Battery’s $11.9m market cap and cash of $5.7m, there’s a hefty Africa Discount being applied. It doesn’t help that sector heavyweight Syrah Resources has slashed output at its Balama mine, also in Mozambique, by two thirds.

There’s a long way to go with both of Battery’s projects, but Flanagan’s dual role as Murdoch University chancellor at least means he’s sure to put a lot of thought into it.

tim@independentresearch.com.au

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

Substitute ‘meat’ for him

Friday, September 13, 2019

The first and last time your famished columnist had a vegan sausage was at an animal charity’s food stand at Bunnings, with no carnivore alternative on offer.

Suffice to say, the taste and texture of the mystery bags was redolent of sawdust, with an odd aftertaste that even dollops of tomato sauce and onions could not conceal.

Still, your columnist accepts that as well as being murder, meat is injurious to the planet and increasingly unsustainable, given population growth and shrinking arable land.

Increasingly, animal flesh will be off the menu – and not just in the dining halls of Melbourne’s inner city Moreland Council that has imposed a ‘meat free Monday’ on its councillors and staff. (Such is the joy of democracy an opposing councillor promised a protest BBQ across the street).

As with all bandwagons, investors have been quick to leap on the enterprises developing more scientific and tastier alternatives than that sad Bunnings banger.

Supported by luminaries such as Leonardo Dicaprio and Bill Gates, shares in the Nasdaq-listed faux meat play Beyond Meat have bounded more than 600% since listing in early May, ascribing a meaty valuation of $US10 billion. Beyond Meat’s burgers even contain beetroot juice to emulate that oozing effect from a par-cooked patty.

The unlisted Impossible Foods has grown from an $US30m ($45m) entity to a $US2 billion one, with the near-impossible backing of investors including Katy Perry, Serena Williams and rapper Jay Z.

Even more impossibly, the company supplies beef bastion Burger King, which is experimenting with a vegan line called the Impossible Whopper. Meanwhile, KFC in the US is trialling Beyond Meat’s plant-based nuggets and boneless wings at one of its Atlanta restaurants.

Locally, investors are not yet able to dine out on meat substitute stocks in earnest, but a couple of tech minnows are aligning themselves to the trend with better methods to grow the core ingredients such as protein-laden peas and beans.

With the inapt ASX ticker of ROO, Roots Sustainable Agriculture Technologies (5.5c) is working on ways to improve plant yields through temperature control and less water usage.

As its name suggests, root zone temperature optimisation (RZTO) either heats or cools the plant to maximise protein. The technique in particular produces more of a protein called leghemoglobin, which has the look and flavor of real beef.

Based in parched Israel, the company is also developing Irrigation by Condensation, which draws water from the air using wind or solar power. Because of this, the technique is most useful for off-the-grid farming locations.

So far, the company claims a 40% increase in bean (and cannabis) yields and a 66-150% gain in leafy vegetable yields. By heating their roots during winter, Israeli basil farmers increased their crops by an average 66%.

In southern Israel, yard long bean growers improved yields by 40% after their winter crops were kept at a constant 20 degrees.

In Amera in Spain, greenhouse crops kept at 21 degrees experienced a similar boost in fecundity.

The company has begun a trial planting of peas and bean crops at its Israel R&D hub. The results from each plot will be compared with a control plot planted under the same “ambient conditions”.

“If successful, Roots will continue to allocate further marketing resources to develop their offering to the plant based meat market,” the company says.

Roots listed Dec 2017, raising $5m at 20c apiece. In May, the company raised $1.66m in a private placement of ordinary shares at 7c apiece, supported by director and EverBlu principal Adam Blumenthal.

A reality check has since ensued, with an options issue targeting $1.7m raising only $216,343.

Roots’ June half accounts show revenue of $US83,000 and a $US1.69m loss. But the company also reports sales of $US528,000 since January 1, so like a good drip-feed irrigation system, these sales should trickle down to revenue.

Meanwhile, Wide Open Agriculture (WOA, 12c) hasn’t exactly eschewed the meat mantra but is growing “regenerative” beef and lamb in WA’s wheat belt.

In simple terms, this is organic beef. It’s a concept inner urban vegans would still turned their pierced noses up at but meat produced from chemical free pastures and free of all antibiotics is preferable to the traditional product.

The company has a protected cropping system that allows farmers to grow crops in landscapes that would normally be too harsh for growing vegetables.

The company’s food brand, called Food for Reason, distributes vegetable products grown at the company's farming sites. While the company has no beef with growing cattle, it’s also planning to launch non-dairy (oats based) milk and plant-based burger products next year.

Wide Open’s June quarter accounts show receipts of $28,133, a cash flow deficit of $603,000 and an end-of-quarter cash balance of $3.28 million.

Wide Open listed in July last year after raising $5m at 20c apiece. The company was founded by chairman Anthony Maslin, who was motivated to forge positive changes after the death of his children Mo Evie and Otis on MH17 (the Malaysian Airlines flight shot down by Russian rebels).

Drawing a wider string to the “wellness” bow, a slew of stocks play in the healthy food additives game, especially in industrial hemp production (hemp is a rich source of omega 3).

A mini version of Blackmores (BKL, $73), Vita Life Sciences (VLS, 66c) purveys over the counter vitamins and supplements, as does BOD Australia (BDA, 52c).

Probietec (PBP, $1.63) produces protein and diet shakes and skin products.

According to Markets and Markets, global demand for plant-based meat is expected to reach $US27.9 billion by 2025. The global meat industry meanwhile is reportedly worth $US1.4 trillion ($A: a lot).

Of course, neither of the aforementioned minnows truly fit the “faux meat” category, in terms of manufacturing, packaging and marketing the produce for pernickety urban consumers. But we’ll punt vegan sausages all round that one of them will list before we’re carving out ersatz Christmas turkey. 

tim@independentresearch.com.au

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

A toy story

Wednesday, September 04, 2019

Fun has been a rare commodity at Funtastic (FUN) 4.5c, despite its impressive portfolio of brands that includes Razor Scooters, Pillow Pets, Jojo Siwa, Chill Factor, Floaties and the rights to Toy Story 4 merchandise.

Despite years of underperformance, Funtastic remains well supported with Gerry Harvey, Lachlan Murdoch and Mathieson family (of pokies fame) gracing the register.

After the latest management revamp, the company is now being run by David Jackson, a former head of Britax Childcare, Sunbeam Corporation and Escor Group (a Smorgon family business).

It’s also now chaired by former Myer chief Bernie Brookes, who replaced long-term helmsman Shane Tanner. “I love a challenge,” says Brookes, who described Funtastic as a flagship brand that became a small one.

A bit like Myer really ... .

The deep-pocketed support helped Funtastic raise $8.2m of equity to repay debt to National Australia Bank, which kindly forgave $16.7m in order to keep the company a-Floaties.

Funtastic has drifted in and out of underlying profitability, recording a $820,000 loss in the half-year to January 31, but a $2.5m surplus in 2017-18. Last year’s collapse of Toys R Us – a key customer – didn’t help.

As of the first half, the company’s debt stood at $1.6m compared with $19.5m a year earlier

Meanwhile, box office takings from Disney’s Toy Story 4 this week crept over the $US1 billion mark, according the movie ‘smash hit’ status.

Funtastic’s late September full-year results will reveal whether this box office success trickles down to ancillary merchandise sales and – crucially – the bottom line.

With Funtastic shares edged up from their 2c nadir in late June to 7.4c in early August, there’s a sense that it will, although given the company’s sub $12m market cap it’s not exactly a case of ‘infinity and beyond’ for one of the bourse’s perennial underdogs.

tim@independentresearch.com.au

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

What’s false eyelashes got to do with it?

Friday, August 30, 2019

McPherson’s (MCP) $2.15

An old leopard can change its beauty spots, as the supplier of prosaic items such as hair brushes and false eyelashes would attest.

This 159-year-old institution has spruced up its game, with a series of revamps and restructures, finally delivering rewards to patient shareholders.

With stabilising earnings and debt under control, McPherson’s is gaining favour for its generous dividend payouts and investors are taking notice.

Released on August 15 – a day when the market fell almost 3% – the company’s full year results pushed McPherson’s shares up 5.5c, or 8%.

This uplift was even more impressive, given the stock soared 19% when the numbers were pre-announced on July 23.

Dubbed a “cracking set of results” by one broker, McPherson’s underlying earnings grew 35% to $13.7 million, on a 7% revenue increase to $210m.

For the first time in years, the result was not blighted by abnormal losses.

“There are earnings and there are earnings and these are very high quality earnings,” enthuses chief numbers man Paul Witheridge.

A former global Coca Cola exec, Laurie McAllister has overseen a multi- faceted renovation since he assumed the uncomfortable CEO role in late 2016.

The key pillar in the turnaround effort has been re-positioning the company as a supplier in the$17 billion body beautiful business. Or as McAllister puts it: “a stealth-like focus on health wellness and beauty.”

McPherson’s well-known offerings include skincare brand Dr Leewin’s and the diverse A’kin, which purveys anything from hydrating water (is there any other kind?) to geranium and cedarwood deodorant.

The company has also shed low-margin agency businesses and has got rid of its misfit home appliance business that included the Euromaid and Baumatic brands.

While McPherson’s remains a key supplier to the supermarkets, it has also been bolstering its higher-margin shelf presence in the mega chemist chains.

Overall management has focused on its six biggest clients – Coles, Woolworths, Metcash, Priceline, Chemist Warehouse and the Terry White chemist chain.

Rather than haggling over margins and trading terms, McAllister says the company and the retailers are working harmoniously on joint business plans “to grow the pie collectively’’.

China and other Asian export markets beckon, especially with the higher-end beauty products.

Management expects China sales to grow to $27m in 2019-20, from a standing start of $7m in 2018. McPherson’s exclusive China agent ABM racked up $60m of Dr Leewin’s sales, a far cry from the $400,000 achieved in 2016-17.

Across the board, McPherson’s sales growth is outpacing the broader market in the grocery, health and beauty and household categories.

Marketing director Donna Chan singles out the Dr Leewin’s brand which had an “absolutely phenomenal” year with 125% revenue growth, outpacing the broader skincare market fourfold.

In China, one of its new collagen products sold 5,000 units in 68 seconds.

Granted, McPherson’s Multix-branded kitchen products – aluminium foil and cling wrap and baking paper – don’t exactly get pulses racing beyond the Masterchef crowd.

But even this category is showing growth, thanks to the rollout of a green-friendly range of freezer and lunch bags. The number one supplier of cotton buds, Swisspers has also boosted its eco credentials by removing plastic stems from the devices.

Meanwhile, McPherson’s key warehouse at Rosebery in inner Sydney is operating at only 50% capacity.

In pre-tax terms, management guides to a 10% earnings increment in the current year, despite the currency headwinds and relentless private label competition from the supermarkets.

As a goods’ importer, McPherson’s regularly has been pummelled by a weak Aussie dollar but this time around the company has hedged its currency needs for the next 12 months.

“We are also getting the benefit of lower commodity costs, particularly with Multix,’’ says Witheridge.

McPherson’s net debt has shrunk from $77m in 2015 to $7.5m, which bodes well for the company’s ability to maintain a high dividend payout ratio while dispersing $20.7m of franking credits.

Despite the solid rerating the stock still trades on a yield of 5-6%.

tim@independentresearch.com.au

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

Surge in shared office space

Thursday, August 15, 2019

These days, co-working is less about being a stop-gap measure and more about keeping millennial worker bees buzzing with concepts such as collaborative hubs, creative zones, chill out spaces and “wellness centres”.

In the old days they used to be called desks, meeting rooms, corridors and sick bays.

The cult-like terminology aside, shared space is surging in popularity among users and investors alike and now participants are rushing to list.

A warning sign, perhaps, of an overly frothy market?

Victory Offices (VOL, $2.05) listed in mid June after raising $30m at $2 apiece for a total valuation of $80m.

It’s a case of so far, so good: Victory shares marched to $2.38 and remain above the listing price despite this week’s roiling market.

Now, the listed property fund Blackwall (BWF, $1.03)  plans to demerge and then separately list its WOTSO Workspace business (a capital raising is not planned).

“WOTSO’s network now has the capacity to generate over $30 million of revenue, so we feel the time is right for it to stand alone,” says Blackwall director Seph Glew.

Launched in 2014, WOTSO has 17 sites covering 34,000 square metres, including its flagship Bakehouse Quarter in a former Tim Tams factory at Sydney’s North Strathfield.

Blackwall sold the building in April, but WOTSO remains the tenant under a sale and leaseback deal.

Victory, meanwhile, has 21 locations in Sydney, Melbourne, Brisbane and Perth, this month opening its 20th site in St Kilda Road. Occupying a whole building, the 3000 sq m of space is subject to a seven-year lease with a five-year option.

As with any property, occupancy rates are a key profitability swing factor: Victory claims all of its sites are at least 80% occupied, with the exception of its 72% full 420 George St digs in Sydney that only opened in March.

Victory generated $29m of revenue in 2017-18 and a net profit of $5.4m. Later this month the company expects to report 2018-19 revenue of $45m and a $9.3m profit.

As of 2017, research house Frost and Sullivan valued the “flexible office solutions” sector at $960m, with serviced offices accounting for 51% ($488m) and the go-go co-working sector accounting for 18% ($169m).

Victory reckons flexible workspaces still only account for 1.6% of office space in Melbourne and 2.6% in Sydney, compared with 4% in London, 3.9% in Singapore and 8% in Shanghai.

Citing various industry reports, Victory expects also 30% of Australia’s total office space to be classed as ‘flexible’ by 2030: 8.5 million square metres compared with 505,000 sq m now.

Then there’s the “buts”: competition from deep-pocketed global entrants is intensifying and there are concerns the challengers are pushing for market share at the expense of sustainable earnings.

The London based Regus has 83 centres here, while the aggressive Singapore-based JustCo plans to open six sites by the end of the year.

One of the world’s biggest privately owned companies, equally aggressive US giant WeWork has 17 sites here and reportedly is mulling its own $50 billion plus IPO in the US.

Servcorp is also a formidable player (see below) while other entrants include the home-grown HUB Australia, which has seven locations across 21,000 sq m, including Melbourne’s venerable Georges building.

If that’s not competition enough, traditional landlords are joining the ‘cult’ by carving up space into sub 1000 sq m tenancies. For instance GPT has established Space & Co at 580 George St in Sydney, while Dexus has unveiled similar facilities under the SuiteX banner.

There’s a fundamental weakness in the co-working business model which may become apparent in an economic downturn.

As Victory notes, there’s a “potential asymmetry” between the long-term nature of its own leases - a weighted average of seven years — compared with the short term arrangements of its coworking tenants.

In other words, if the economy has a nervy turn it faces lower occupancies but its own rental overheads are fixed.

Investors should also be cognisant of whether they are investing in a leasehold business, or the underlying property.

Victory leases its space from third party landlords and also has some tenancy arrangements with related parties.

Blackwall owns and controls ten of WOTSO’s properties. The idea is that Blackwall’s 1200 shareholders receive WOTSO shares pro rata, so they will still be involved with property ownership as well as collecting rent.

The timing of the WOTSO spin off hasn’t been specified, as the transaction is subject to shareholder approval and a favourable tax office ruling.

In the meantime Victory is valued at $83m and trades on a defensible earnings multiple of around nine times.

Servcorp (SRV) $3.95

Paradoxically, the flexible workspace pioneer hasn’t benefited from the sector’s growth valuation wise, with Servcorp shares more than halving over the last three years amid claims of uncommercial behaviour by the upstarts.

Founded by CEO and Liberal Party stalwart Alf Moufarrige in 1978 and listed since 1999, Servcorp operates across 160 locations in 54 cities and 23 countries.

With a focus on serviced offices, Servcorp if anything has been disrupted by the more casual coworking models that don’t involve all the support (such as shared receptionists answering the phone in your company name) being laid on.

Not surprisingly, Servcorp has responded by re-doing swathes of space for co-working: so far, 83 locations have been converted at a cost of $15m, with a further $10-12m of expenditure to come.

The headwinds were felt in the first (June) half that saw Servcorp boosting revenue by 5 per cent to $164 million, but posting a statutory loss of $12.8m after writing off $17.7m of leasehold improvements (mainly in New York and Abu Dhabi).

“There are early indications we are countering the pressure from other recent market entrants, who are focused on market share and not profitability or cash flow,” the company said.

As far back as 2016, Mr Moufarrige described co-working hubs as “growing again in plague-like proportions.”

Despite the pressures, Servcorp left its interim div unmolested, at 13c a share (partly franked). At the company’s February 23 full year results investors should expect another 8c/sh, implying a roomy yield of 5.7%.

Servcorp has cash of $71m and no external net debt.

Like Flexigroup in the 'buy now pay later' sector, Servcorp looks like a well-established enterprise overlooked by investors in favour of new trinkets on offer.

Servcorp got chucked out of the ASX300 index in March, which didn’t help

Servcorp, by the way boasts former PM Mark Vaile on the board, while erstwhile Victorian premier Steve Bracks is a Victory director.

We’re not sure why the sector appeals to the pollies, but they sure know about the need for flexible office arrangements come election time.

tim@independentresearch.com.au

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

Everyone’s talking medical marijuana but what about hemp?

Monday, August 12, 2019

Ecofibre (EOF) $3; Elixinol Global (EXL) $3.04; ECS Botanics (ECS) 6.7 cents

The fastest route to the pot sector is not the medicinal or recreational sectors; rather, it’s the burgeoning market for hemp-based nutraceuticals since the US Hemp Farming Act Bill fully legalised hemp last year.

Ecofibre shares have tripled since listing at $1 apiece earlier this year, with a market cap approaching $1 billion. Ecofibre is also profitable, which affords it unicorn status in the ASX cannabis corner.

In the US, Ecofibre supplies hemp products under the Ananda Health banner to 3,200 pharmacies, while locally it produces grown and processed protein powders, de-hulled hemp seeds and hemp oil.

In 2016, the company abandoned its original remit of developing medical marijuana - a strategy shift that has paid off in spades.

Ecofibre posted $12.3 million of revenue in the June (fourth) quarter and generated cash of $3.2 million, taking the 2018-19 tally to $35.6 million of revenue (up 519%) and a $6 million profit (compared with a previous $8.6 million loss).

Elixinol sells hemp skincare and food products in 40 countries. Its Colorado-based business in the US is the country’s third biggest seller of hemp dietary products.

Here, Elixinol operates the Hemp Foods Australia brand. Through its subsidiary Nunyara, the company is also seeking an Australian medical cannabis cultivation and manufacturing licence.

In June, Elixinol raised $50 million in an institutional placement at $3.90 apiece. The funds will support the company’s plans to double the size of its Colorado facility.

The company reported June quarter revenue of $9.9 million, up 19% and a $19.3 million loss, reflecting an $11.5 million splurge on raw hemp inventories ahead of its US expansion.

The US Farm Act Bill is monumental not just for the legalisation aspect, but because hemp growers now should be able to access finance and insurance on the same basis as other agricultural producers.

Finally, industrial hemp play ECS Botanics quietly debuted last month in a $6.5 million compliance listing and despite this week’s market rout, investors have almost doubled their dough.

Hemp by the way is recognised as a rich source of proteins (amino acids), unsaturated fats, fibre and vitamins and minerals.

ECS chief Alex Keach says: “Everybody has been talking medical marijuana, but in our view the future is hemp and being ‘healthy but not high’”. 

tim@independentresearch.com.au

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

How high can pot stocks go?

Friday, August 09, 2019

Hampered to date by a lack of doctor awareness, perception issues and a dearth of approved treatments, the local medicinal cannabis sector is showing the first buds of meaningful growth.

According to the Therapeutic Goods Administration, the country’s medical gatekeeper, the number of special-access patient approvals for medicinal cannabis increased by 15% in the month of June, to 1576. That’s a 980% year-on-year increase.

Cumulatively, 9,335 patients (equivalent to 0.04% of the population) have been approved. “On this basis, we continue to see 20,000 patients approvals by the end of 2019 as very achievable,” says broker Cannacord’s cannabis watchers.

The uptick is benefiting the ASX-listed pot stocks directly exposed to the local medicinal sector. For instance Althea (AGH, 97 cents) shares have run hard since reporting its 1000th patient prescription in mid June – a figure that has grown to 1,334 as of late July.

Althea plans to build a cultivation and manufacturing facility at Skye, near Frankston. Intriguingly, the council objection process spurred a few complaints about tree removal, but none about the facility itself (which might say something about the locals’ familiarity with the product).

Althea is also eyeing the UK market, where it has been selected to provide material for an upcoming medicinal cannabis national pilot scheme. The program aims to enrol 20,000 patients with pain, post traumatic stress disorder, multiple sclerosis and anxiety possibly about Brexit).

As with other pot plays, Althea is also hedging its bets in the recreational market, last month acquiring Canada’s Peak Processing Solutions in a cash-scrip deal worth around $5.8 million.

Funded via an oversubscribed $30 million capital raising, the deal gives Althea an entrée into the booming market for “cannabis infused” beverages, edibles and nutraceuticals.

A potpourri of interests, one might say.

Althea chief Josh Fegan reckons 250,000 Australians will be using medical cannabis in a few years’ time, while the company itself expects to sign up 20,000-30,000 patients here and in the UK.

1.   MMJ Group Holdings (MMJ) 26 cents

The dilemma for cannabis investors is there are so many stocks purporting to be pot players – some only peripherally so in reality -- that the ASX marijuana menu has become downright confusing.

Recognising this, ASX pioneer MMJ has emerged as an investment vehicle with holdings in other listed and unlisted pot plays globally.

The private-equity approach is the latest iteration for MMJ, which listed as Phytotech Medical in January 2015 and then merged with Canada’s MMJ Bioscience.

Putting a new slant on the term ‘seed capital’, MMJ recently signed up Toronto based venture capitalist Embark Ventures to manage the MMJ portfolio, which consists of 12 stocks with a book value of $94.7 million.

The biggest exposure by far is its 26% stake in Canada’s Harvest One, worth $44 million.

In May MMJ paid $2.2 million for a 7% stake in Volero Brands, which makes ‘vape’ pens and cartridges. It has also sunk a similar amount into a private Polish hemp provider, Sequoya Cannabis.

Embark and MMJ director Michael Curtis co-founded Dosecann which was then sold to Cannabis Wheaton for a 660% return (MMJ also had a $2.2 million investment in Dosecann).

The Embark/MMJ approach clearly is not to fall in love with its stocks and so far has made eight divestments. “We would like to see 70 per cent of those companies going public or chasing liquidity events in the near term (with 18 months),” Curtis says.

MMJ has already partly exited most of its $5 million position in Medipharm Labs, for a 450% gain.

Embark also has a mandate to ‘short’ stocks that are likely to, well, go to pot.

“It's become more of a stock picker's market,” Curtis says. “There will be dead money stocks that do nothing for a while.”

Not surprisingly, Embark/MMJ’s activities are centred in the cannabis epicentre of Canada, where recreational dope was legalised last October. Medical cannabis has been legal there since 2001.

While MMJ’s material highlights involvement in the sector from seed to shelf, Curtis is not so enamored with the heavily-competed ‘growing’ part of the chain, which involves mainly cannabis leaf rather than cannabis oils for more bespoke purposes.

“The recreation market is great but it will be only 10-20 per cent of the hemp market globally,” he says.

“A lot of people are becoming farmers but the farming is not the exciting part. It’s about what you put in the ground and making sure it’s special.”

MMJ shares trade at a 26% discount to the value of the portfolio, despite management’s efforts to close the gap with a share buyback program,

Given the stock’s low liquidity, MMJ may be both the first stock to list on the ASX and the first one to leave. Low liquidity means the company is seeking an alternative exchange, possibly Canada’s TSX.

In the meantime, the Canadian sector has not been without its teething troubles.

The TSX-listed CannTrust is in danger of losing its licence after Health Canada slapping a non-compliance notice on its facilities, leaving a 5,200 kilogram stash in limbo.

Also, the $16 billion market cap gorilla Canopy Growth was rocked after founder and CEO Bruce Linton stepped down (Linton claimed he was sacked). Controlled by the drinks maker Constellation Brands, Canopy lost a thumping $C323 million ($293 million) in the third quarter.

tim@independentresearch.com.au 

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

Damn, I’ve been booked

Thursday, August 01, 2019

Speeding motorists and errant parkers hope they will never do business with Smart Parking and Redflex. But should investors?

In what’s bad news for British motorists, good news for investors: the parking enforcement and technology group Smart Parking (SPZ, 12c) is regaining its verve after a torrid period marked by the loss of customer contracts and management problems within its core UK business.

At the core of the turnaround is automated number plate recognition (ANPR), which is greatly reducing the odds of errant motorists getting away with overstaying.

ANPR and other efficiencies means that a motorist nabbed in a Smart Parking-operated lot can expect a ticket within five days rather than a month – and that greatly increases their propensity to pay.

“If it gets to 30 days or later, they are more likely to complain,” says CEO Paul Gillespie. “If they infringe on Monday and get it by Friday it’s more a case of ‘fair cop, guv’.”

Smart Parking derives 80% of its revenue from issuing tickets in the UK, where laws are more supportive towards private operators than most other countries (including Australia).

The operators have the right to access the owner’s address via the registration authority, the Driver Vehicle Licensing Agency (DVLA).  Court decisions have also endorsed the legitimacy of the ‘fines’.

Despite these favourable regulatory settings, Smart Parking has been struggling to regain lost ground after last year’s sacking of its UK CEO and CFO over allegations of inappropriate (but not illegal) behaviour.

Three years ago the company lost a major client, the supermarket chain ASDA and more customers followed.

In February this year, the company reported a $600,000 interim loss compared with a $2.2 million surplus previously, with revenue declining 17% to $14.1 million.

Management attributed the off-colour result to the customer losses and improved motorist compliance (tickets issued fell by 8% to 187,309).

During the December half, Smart Parking won 77 more customers, but lost 12. But by February this year the company had won 23 without any losses, taking the tally to 324 with a target of 400 by June.

“We have added some sales people and changed the structure,” Gillespie says. “They are delivering some great numbers and sales are growing month by month.”

But investors -- including chairman and Computershare founder – still require patience. “While you won’t see it in the numbers this year over the next 12 to 24 months, you will see a real change in the company’s performance.” Gillespie says.

Gillespie estimates there are 44,000 off-street parking lots across Britain’s not-so-broad expanses, but of these 15,000 to 20,000 are suitable for ANPR and are thus the company’s addressable market.

In between squabbling about Brexit, the British Parliament late last year introduced the Parking Bill, which imposed stricter rules on the fragmented sector, mid revelations of  a tenfold increase in private ‘fines’ over the last decade.

Penalties are set at a maximum £100 ($178), with a mandatory 40% discount for paying up within 14 days.

As a British Parking Association member, Smart Parking is audited every quarter and also gets scrunitised by the DVLA twice a year. “The level of scrutiny is good because it shows we are not there like Dick Turpin,” he says.

“Too many private companies don’t follow the rules. So anything you can do to raise the profile of the industry and treat customers fairly is a good thing.”

The paradox of Smart Parking’s business model is that the better it does its job, the more compliant drivers become and the less revenue the company receives. To grow its revenue, the company therefore needs more customers.

Gillespie says while the company strives for 100% compliance, in reality it will never happen. The infringement rate has been consistent at 0.5% – one driver for every 200 parkers.

Half of these don’t pay and need to be pursued by debt collectors.

Meanwhile, Smart Parking’s technology division is pursuing a platform called Smart City, which crunches car park usage data for retailers and other users.

Locally, the division installs sensors to detect overstays for customers including Coles and Telstra and numerous local councils.

“(The division) had a really big year last year and got close to profitability but the last few months have been quiet,” Gillespie says.

Smart Parking’s $41 million market cap pales into comparison with the $420 million price tag for ParkingEye, the UK’s biggest car park operator, sold last year to a consortium led by Macquarie Group.

Redflex (RDF) 42 cents

While Australian motorists grumble about copping a speeding or red-light camera fines, they generally pay up without further remonstration. But not so in the US, where camera citations are viewed as unAmerican and increasingly are being banned by governments or subject to adverse court judgments.

The backlash has been an increasing headache for traffic camera maker and operator Redflex, which derives close to half of its revenue from the US.

In May, the Texan government in effect banned traffic cameras. Redflex said the Lone Star state accounted for 13% of its total half-year revenue in the first (December) half – which implies $7.4 million - adding the ban would “materially” affect financial performance.

In July, Arizona’s El Mirage city council turned off its speed cameras, in favour of employing extra cops to dish out the fines personally.

Given the solid evidence that traffic cameras save lives, the authorities’ actions seem retrograde. But a big difference between here and the US is that police chief are elected and thus behoven to popular opinion.

While further US camera programme wind backs seem inevitable, Redflex has had its wins as well. Two days after the Texan ban, the company said Pennsylvanian traffic authorities had awarded an $US30 million ($42 million) multi-year contract to enforce automated speed enforcement on highway work zones.

Canada is also proving more receptive to the ‘cameras save lives’ message. This month the company won a deal from Toronto Council to install and operate automated speed enforcement technology. The five year deal (with a five year) option is worth up to $25 million.

Locally, the Victorian Government this week renewed a contract for Redflex to service 150 cameras, in a three year deal with two one-year extension options (the initial three-year period is worth $15 million of revenue).

 Given the US backlash, Redflex’s mantra is more about “intelligent motorways solutions”: tools to monitor traffic and detect incidents. It is also in Smart Parking’s game of deploying number plate recognition for parking management, such as at Melbourne’s Chadstone mega shopping complex.

In a business update, Redflex reported new business orders of $41.5 million in the year to June 2019, up 42%, with a rolling total contract value of $300 million.

In the first (December) half, Redflex reported revenue of $57 million (up 7%) and underlying earnings before interest tax and depreciation of $9.1 million (up 63%).

But a steep depreciation charge on the cameras resulted in a $945,000 net loss, an improvement on the previous $10.8 million deficit.

Investors slashed the value of Redflex shares by 25% after the Texan revolt, but the strong flow of new orders suggests Redflex isn’t doing everything wrong. If the accident-prone company can avoid further US pot holes and hone its focus on broader traffic management, performance finally might switch to the fast lane.

tim@independentresearch.com.au

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

Gold’s bonanza run

Thursday, July 25, 2019

Globally gold again is living up to its status as a safe harbour and a store of value in troubled times, even though in economic and geopolitical terms, the ‘troubled’ bit is not exactly new.

The plunge in global bond yields – with expectations of more interest rate cuts to come – has forced investors’ quivering hands as they seek an asset that performs reliably in a downturn the central banks seem to be anticipating.

According to the Perth Royal Mint, since 1971 gold has outperformed both stocks and bonds in periods when Australian interest rates have been below 2%.

And in the five worst calendar years for shares, gold rose 9%, while equities fell an average 12%.

In $US terms, the lustrous metal has gained 10% year-to-date and 16% over the last 12 months. But at around $US1400 an ounce, gold is still well below the peak of just over $U1,800 an ounce attained in September 2011.

In $A terms, gold has increased 11% since January and almost 20% over the last year.

According RBC Capital Markets, the average share price for the producers (both small and large) gained 20% in the June quarter. That’s despite producers Gascoyne Resources and Coolgardie Minerals falling into administration and other production whoopsies elsewhere.

For investors, the purest proxy to having a gold bar under the bed is an established producer such as Newcrest Mining (NCM, $33.77), the biggest ASX-listed gold stock with a $24 billion valuation.

Newcrest should have produced just over 2.4 million ounces in 2018-19, with broker Morgans forecasting an $US564m ($805m) profit on $US3.719 billion of revenue.

But two of Newcrest’s key mines (Telfer and Gosowong) look tired and it will be a while before its offshore growth projects (Wafi-Golpu in Indonesia and Red Chris in Canada) are advanced.

The other sectoral big bananas Northern Star Resources (NST, $13.97) and Evolution Mining (EVN, $5.01) are enjoying robust production, but their shares have run hard and arguably they are fully valued (if not overvalued).

What about the emerging producers and the up and comers?

Gold Road (GOR, $1.40) recently cracked the $1 billion market cap barrier and an entrée into the ASX300 index, after pouring the first three gold bars (1138 ounces worth a handy $2.27m) from its $620m Gruyere project near Kalgoorlie.

A joint venture with South African giant Gold Fields Ltd, the open-cut mine is slated for substantive output of 300,000 ounces over a 12-year mine life.

With a 3.92 million ounce resource, Gruyere is one of the country’s biggest mines. Yet the deposit – unearthed only six years ago – remained undeveloped for decades because it was buried under a thick overlay of sand.

Prudently, Gold Road has hedged (forward sold) 130,000 ounces – 30% of output attributable to the company for the next three years – but CEO Duncan Gibbs isn’t making any rash predictions about the gold price.

“What’s to say gold won’t go to $2500 an ounce or back to $1500 an ounce,” he says. “I just don’t know”.

In the mid-tier, the market has re-rated WA producer Ramelius Resources (RMS, 84c) since the company fended off a rival bidder to acquire listed counterpart Explaurum Ltd in a scrip offer. But arguably Ramelius is still undervalued relative to its peers.

The Explauram takeover added the 485,000 ounce Tampia Hill project to the Ramelius portfolio, which includes the producing Mt Magnet and Edna May mines and the Marda project (picked up from the administrators of Black Oak Minerals for $10m).

Ramelius produced 196,000 ounces in the 2018-19 year at an all-in cost of $1175-1225 an ounce, with forecast output of 205,000 to 225,000 ounces in the current year.

The company is currently valued at $460m, including $104m of cash and gold inventories.

Another mid level play with an interesting valuation is Dacian Gold (DCN, 64c), which lost three quarters of its value after slashing June quarter production guidance and increasing its per-ounce cost estimates.

The shares have strongly recovered since after the company released a revised mine plan for the next eight years.

Dacian’s mainstay Mt Morgan operation is slated to produce an average 170,000 ounces a year over the first five years of the plan, with 150,000-170,000 ounces forecast for the current year.

Broker Citi forecasts a small loss for the 2019-20 year, rebounding to a $63m profit for the current year. On these numbers, the stock is trading on an earnings multiple of a little over two times.

To capitalise on the buoyant gold price, Dacian has hedged 147,000 ounces – 13% of its expected life-of-mine output, at an average $1,810 an ounce.

Dacian’s current valuation stands at $246m with its cash kitty of $45m comfortably servicing $105 million of debt.

At the exploration end of the market, Chalice Gold Mines (CHN, 16c) is the talk around the saloons because of its capacious cash that’s being put to good use at its Pyramid Hill prospect in Victoria.

Chalice has also executed what looks like a handy deal to sell its tenements in Quebec  to O3 Mining, an offshoot of Osisko Mining.

The deal saw Chalice receive 3.092m shares in O3 and is also entitled to a 1% net smelter royalty.

While giving Chalice holders an ongoing exposure to the ground, the Canadian deal allows Chalice to focus on Pyramid Hill, where it is seeking to find out how far the historically fecund Bendigo Zone extends below Murray Basin sediments.

On July 8, the company said a 39,000 metre phase one aircore drilling program had identified three “strike-extensive mineralised trends” for further perusal.

Broker Patersons reckon Chalice has more than a “more than a fair chance of success” at Pyramid Hill, with the prospect (excuse the pun) of catching up with the more advanced Catalyst Metals (CYL) and Navarre Minerals (NML).

Valued at $170m, Catalyst is 14% owned by St Barbara Ltd and 11% by Gina Rinehart’s Hancock Prospecting.

Chalice has also acquired nickel prospects in WA’s Kimberley region. Yes, the ground is remote and hasn’t been worked, but isn’t the best chance of finding something to go where no one has looked?

Chalice’s cash of $21.7m compares with a miserly mark cap of $37m (14c a share). And don’t forget the O3 shares were worth around $11m last time we looked.

As with stories in New York, there are many ASX gold tales and these are just a few of them.

tim@independentresearch.com.au

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

The boom in egaming/esports

Thursday, July 18, 2019

For those who have never heard of Fortnite and are thus showing their advanced age, video gaming (egaming) has become a multi-billion dollar industry sector, which in its organised professional form is attracting serious sponsorship and advertising from mainstream consumer brands.

Egaming isn’t the preserve of vitamin D-deprived joystick jockeys in their dank bedrooms: it’s also a mass spectator sport with attendances at live tournaments eclipsing attendances at AFL football matches (the Adelaide and Essendon clubs have even acquired their own esports teams).

Professional esports teams tour the globe like rock stars, attracting a similar cult following as they pursue serious prize money. The site esportsearnings.com lists Germany’s Kuro Takhasomi as the sport’s biggest earner, having pocketed $6.2m in prize money from 98 tournaments.

Australia’s own Anathan Pham clocks in at number 11 on the esports rich list, reaping $4.15 million from 22 tournaments.

By the way, Fortnite is a Hunger Games style survival game that involves combatants dealing with adversaries such as zombies by, well, shooting them. While older game titles such as League of Legends and Dota2 remain popular, Fortnite’s popularity – especially among teenagers and even younger kids - is proving to be a game changer in heightening investor awareness.

While game developers such as Nintendo and Epic Games are global names, the ASX offers exposure to egaming and esports (including mobile gaming) via four small caps. Games developer Animoca Brands Corporation (AB1, 15 cents) is the most substantive in terms of revenue and market valuation.

Industry analytics house Newzoo forecasts esports (organised gaming at a professional level) to be worth $US1.1 billion in calendar 2019, rising to $US1.8 billion by 2022. The broader video games market is worth many billions more.

According to Esports Mogul (ESH, 1.3 cents) 20-25% of the broader population have played a mobile game. About half of 16-24s have watched esports and even in the crustier 45-65 year old bracket, 5% have done so.

 “It’s evident the investment community is really only just coming to the fore of how big this sector is,” says Esports Mogul CEO Gernot Abl.

There’s also a strong element of ‘co-opetition’, with the companies executing a number of intertwined deals.  “We all know each other and support what we are doing,” Abl says.

Esports Mogul’s core focus is on a tournament platform called mogul.gg, which enables amateur gamers to hook up and test their wits out on each other.

The company this month hosted the Australian Apex Open Tournament on its platform, with 3850 gamers slugging it out for $35,000 or prize money.

Esports Mogul was also the exclusive platform provider for the Australian Esports League’s Girl Gamer festival, a global jamboree held in Sydney last month.

Meanwhile the South Africa based Emerge Gaming (EM1, 2.3 cents) has announced a string of collaborations, including  May’s memorandum of understanding with US games developer Digital Circus media to launch its products in North America.

These products include its GameCloud game streaming platform.

In June, Emerge teamed with Viacom International Media networks Africa to develop a kids-focused esports tournament platform called NickX, using Viacom’s Nickelodeon gaming content.

The company believes that as the professional market grows, so too will the market for amateur games based around a central hub.

 “Monetisation will be through brand take-up, premium subscriptions, in app subscriptions and advertising across the platform,” the company says.

In March, Emerge Gaming also signed a mobile gaming deal with ASX counterpart iCandy International (ICI, 3.8 cents), to broaden Emerge’s ArcadeX tournament platform. ArcadeX has been dubbed the “Netflix of gaming” in that it allows instant streaming of hundreds of 3D video games.

 iCandy will promote the offering to its 350 million global users. Separately, iCandy also plans to set up its own esports division, with first revenue by the end of 2019.

iCandy has also partnered with Animoca and Alibaba subsidiary 9Games to expand iCandy’s mobile game Groove Planet into the $29 billion mainland China market.

Perhaps not surprisingly, there’s a blockchain theme to the sectoral wheeling and dealing as well. In late June, Animoca said it would buy the US company Gamma Innovations, which enables gamers’ idle processing power to be used to ‘mine’ the cryptocurrency ethereum. The users are rewarded with loyalty-style points that that can be used to play their favourite games.

Despite the hype, the three smaller the ASX proponents have a long way to posting meaningful revenue. In the March quarter, Esports Hero turned over $20,000, “mainly by experimenting with subscription and sponsorship models.”

 iCandy generated $289,000, including from digital advertising and merchandising as well as the games themselves. Emerge had no revenue for the quarter but managed $129,600 of turnover in the December half, mainly from sponsorships of its online tournaments.

Animoca posted revenue from ordinary activities of $13.46 million in calendar 2018, up 107% and reduced its loss to $2.58 million from $8.26 million previously.

According to Esports chief commercial officer Jamie Skella, most of the value of the sector resides in sponsorship, advertising and media rights.

A professional Counter Strike and Cyberathlete League player, Skella sees emerging opportunities are in hosting micro tournaments (including merchandise) and holding ticketed live events.

Skella says egaming used to be the preserve of industry-focused advertisers such as hardware providers Razer Incorporated and Gigabyte Technology; now it’s attracting the interest of mainstream brands such as McDonald’s, Burger King, Coca Cola and the telcos.

 “The 18-34 demographic is increasingly hard to reach but it’s a market segment of super high interest to advertisers,” he says.

All in all, the industry has gone a long way since the 1980s, when organised events for games such as Space Invaders, Pacman and Donkey Kong emerged. Online connectedness means combatants can play another competitor anywhere and at any time.

But for local investors, the reality is that the sector is in its infancy here.

At last glance, Esports Mogul, Emerge and iCandy had market capitalisations of $21 million, $15 million and $13 million respectively. Animoca is worth a less febrile $127 million and its shares have gained 75% since the start of the calendar year.

So while investors might be warming to the macro egaming story, it remains to be seen which stock will step up to the console with a serious winning manoeuvre.

tim@independentresearch.com.au

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

 

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