A popular writer who often enourages short positions yesterday announced BELL had “horrific cashburn” and invited people to “Do the maths” and something about “Stevie Wonder” and “the States losses” ?! - either a typo or some unrelated comment on US Federal debt which makes no sense to this writer.
But I did do the maths. Did he? (Pay his subscription to find out if he did, or will he want to show you his workings as I’ve shown mine)
Based on my prior P&L forecast I’ve put together this cashflow analysis. These are just my estimates based on the evidence I’ve read and what the company have announced. I have no inside knowledge and this is just my opinion - just as others have stated theirs.
My best guess? It’ll be a close run thing. But is there room for optimism? You bet.
I’ve used the H1 numbers and then used my P&L forecasts and let the numbers do the talking.
The key elements will depend on:
1. What, if any, further investment occurs. The $2.2m relates to development of X-Plor and Discov-R. It is entirely normal to capitalise development costs. It’s strange to think this is strange. But to a non-financial audience it sounds like that writer could be on to something. There are accountancy rules as to what you can and can’t capitalise and what then happens is you expense the capitalised costs through something called “Amortisation”. Entirely normal.
There’s nothing explicit about needing to carry out further investment and, not being funny, if you’re running short of cash - you’d focus on sales and hold back on development - wouldn’t you?
Working capital - or W/C - nothing to do with toilets. Everything to do with cash.
2a. We know there’s plenty of inventory which can be run down (this is in the H1 Results RNS). So that will turn into cash. Over $8m of inventory.
2b. We know that there are $15m of orders - of people queueing up. Is it not reasonable that buyers who can pay pro forma can jump the queue???!! I’m assuming $1.5m in Q3 and Q4 - and I think that is conservative. That’s 20% of existing orders paid up front and/or less than 40% reduction in inventory.
2c. Or if Pro Forma ain’t going to work BELL can look at Trade Finance - you sell your debtors to a finance company for cash - factoring. Entirely normal.
A further assumption are my sales figures. I’ve assumed zero royalties in Q3 and zero Profit Share - but we know Innomax are up and running so that might be too pessimistic (and at least profit share could occur even if royalties only begin in Q4). I’ve used numbers based on Dowgate’s analysis but revised according my own views of product mix.
I’ve not attempted to guess at FX effects - the dollar has weakened slightly in Q3 so that’s potentially adverse for translation purposes.
So what if I’m wrong? By my own admission cash drops to nearly zero before recovering in 2024.
Not being funny but if you’ve got $15m of orders, a $55m royalty agreement (plus profit share), an award winning device that urinates on the competition frankly, and a forecast profitable business with great growth prospects (as I believe BELL has) you’re going to be able to find finance at reasonable terms, and at a reasonably small discount…. if you need to.
We’ve been here before. 6 months ago doom mongers at 20p said this share was toast. They were wrong. Post finance it more than doubled.
You’ve got to be Stevie Wonder to ignore the news flow and the implications of that news.
My posts are written for my benefit, to set out my investment rationale. I state facts and source them where possible. I also use words like “infer” and “think” which means it’s a (reasoned) opinion based on a fact. Investment requires filling in the gaps with inferences and thinking about the facts to form forecasts. I hope you enjoy what I write and find it useful in forming your own investment rationale.