Risks/Mitigants
1. Too Good to Be True: 95% of SAS businesses never get to $1m ARR, here they are adding that, at least on gross basis, each month. And yet only trading at 4x ARR. It does look a bit too good to be true. I think it's a genuine story though. I do keep an eye out for inconsistencies, hence the table above roughly reconciling ARR add and reported ARR. Also take comfort from Tim Crowns involvement at multiple levels, and ongoing investment - he converted his notes and took his share of both recent equity issues. I just think no natural buyers of micro caps in NZ. A few in Australia but not in kiwi land. The fund managers don't get interested until around NZX 50 level, approaching $400m ish. They will pile in and overvalue BPG when it gets up there, bless them.
2. Liquidity: Definitely liquidity risk in the shares. There's been no liquidity on bid side since the original listing so no way out for those who need to sell. Also some balance sheet liquidity risk. As above post, expected to reach cash flow neutral mid-year with just a few million of cash. Main risk here is further dilution. They were listed to improve access to equity and with the intention of being a technology investment business. They also have a product pipeline and they are pretty ambitious. In mitigation, they can use script for acquisitions as they did with New Old Stamp. There is also debt available from a couple of sources in NZ for SAS with path to profits. But, sadly, I still think reasonable chance they issue again potentially moderating any share price rally.
3. Early-stage Business: Main business Pearl Diver is only a year old. Hard to know if can maintain monthly sales momentum. Also churn rates still a bit uncertain. Churn did pick up 1.3 points YOY to 3.7% at the half year. I think that was probably due to some of the onboarding issues that are now resolved (see lower net adds in Nov/Dec in table above). Overall churn looks ok for now. They use 5pc in their path to profitability table, so well below that.
