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Our ASX Semiconductors Conference is on again: Investor Webinar 26 October 2022

November 17, 2022

Our 4th ASX Semiconductors Conference on 15 November 2022

In this investor webinar we talked about Objective Corp and Pioneer Credit. And about our ASX Semiconductors Conference on 15 November where Weebit Nano, Archer, BluGlass and BlueChiip were presenting.

See full transcription below.


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Mark: Good morning. It’s the 26th of October, and we’ve got a couple of things to talk about, two companies, and we’ve got our Semiconductor Conference coming up. But Stuart, we’ll start with Objective Corporation, that we wrote about last week.

Stuart: Yeah. So, one of the things that Mark and I have gotten pretty excited about, coming out of the bear market of 2022 and looking forward to what we think will be a good year in 2023, is software companies where the model is SaaS, software as a service. There’s a number of plays that we’re pushing on that angle. One interesting story that we wrote about in “Stocks Down Under” just recently is Objective Corp. Let’s talk about that top 200 company. So, what’s Objective? You can read about the company in our 17th of October, 2022 article of “Stocks Down Under.” This is an organization that helps public sector companies go digital. So, taking that mass of paper-based records that governments need to maintain, and then digitizing it all, making it easy to search and get information out of.

Military-approved levels of security. That’s pretty important, given the data breach we’ve seen recently at Optus and at Medibank. CEO is Tony Walls. Still mostly an Australia and New Zealand story, but with a growth profile from various other countries around the world. So, interesting company, that is probably the biggest company that you’ve never heard of in this SaaS space. A hundred million in revenue, of which about $86 million is annualized recurring, and growing at double digits, and pretty good margins. EBITDA of $30.7 million in FY ’22, up 20%. Plenty of cash, no debt, and a heck of a lot of the revenue base plowed back into the business, in the form of R&D. So, like any software company worth its salt, it’s busy digging a moat around what it does, to make sure that no one can come in and steal the castle.

Market likes this one. There’s some good growth ahead for the next couple of years, at least, and probably beyond, in terms of where the company can go. Companies that are involved in SaaS are generally pretty good at scaling. And so the issue is pretty much how many business development people do you deploy to make sure that large government departments and enterprises are comfortable with the various software on offer. But as you can see, it’s well north of 20% growth for the next couple of years, slowing down to maybe 18% in 2025, but we’ll see where that goes. Meantime, you can get this thing on a, I won’t say modest EV to EBITDA multiple, but in accordance with the rough growth in the company. And it kind of flags a potentially good number in terms of EV to revenue, which is often how these SaaS companies get based. So, we think this one’s got a good future coming into FY ’23.

Mark: All right. Good stuff. And then, something that I’m very excited about personally, which is our Semiconductor Conference. So, as most viewers will know, we’ve had this one on for, basically every year, for the last four years. But of course, with COVID interrupting things, this will be the first one that’s coming up that will be in person again. And that’s what I really like, because there’s no substitute for meeting management of these listed companies in person. So, on the 15th of November, so, roughly in about 3 weeks, we’ve got our 4th ASX Semiconductor Conference on. This one is in Barangaroo, in Sydney, at Baker McKenzie’s offices. Or, if you don’t wanna come over, or it’s just too far away for you, if you’re not in Sydney, for instance, you can join online as well. Who’s presenting? Well, we’ve got Weebit Nano, which is one that we’ve been following for a long time. So, needs no introduction, I think. Archer Materials, which is a bit less known than Weebit. Archer is working on quantum computing at room temperature. And that’s the holy grail in semiconductor land. So, it will take a while for them to get there, but if they can crack that, it will be a game-changer.

Stuart: And this is your chance to ask the company any questions you like, and see how credible they are in terms of that journey. So, this is a great opportunity to discover potentially a world-beating development opportunity.

Mark: Yeah, definitely. And then we’ve got BluGlass, working on laser diodes, and we did a big report on that with Pitt Street Research just three weeks ago. And BlueChiip. And BlueChiip, they develop and manufacture, basically, temperature sensors for the medical industry. So, these are sensors that go on, say, a pack of blood or anything medical-related that goes into the deep freezer for prolonged periods of time. And the chips around that need, have a specific requirements. That’s what BlueChiip does.

Stuart: So, what you need to do is buy this stock when the blood is running in the freezer, right?

Mark: Exactly. Yeah. It’s gonna be a bit messy, but yeah. So, these four companies, we’ve limited it to four this time around, because it will give a bit more time for each company to talk about themselves, and for Q and A. In the past three editions, we had six companies plus a keynote speaker, which turned out to be a bit lengthy, all in all, but… So, four companies. More, you know, specific time to chat with these people afterwards as well, by the way. So, if you’re coming in person, stick around afterwards, and you can have a chat with management of these companies.

So, like I said, you can join us in person at Barangaroo in Sydney, or use a Zoom link, and you can sign up through the links that we’ve posted in today’s message for the webinar. And also in the webinar itself, on the page on the website. There’s two links, one for the online version and one for the in-person registration. So, check that out, and we hope to see you in a couple of weeks in-person, if possible.

Stuart: And a big shout out to the folks at Baker McKenzie, who’ve been a wonderful support for this event. As I say, Mark, you put the first one on in 2019, and it’s becoming an institution for folks involved in semiconductors to be able to talk about this sort of stuff with the geniuses who run Baker McKenzie’s tech practice.

Mark: Yeah, definitely. So, yeah, we’re very grateful that Baker is, again, you know, willing to give us some space on that day, and some coffee and tea, and yeah, really grateful for that. So, the last topic for today, Pioneer Credit. This could be an interesting one, given what might be around the corner in terms of potentially, you know, economic downturns, that sort of thing.

Stuart: I’m very bullish about Pioneer Credit, ASX:PNC. Again, we wrote about this one in “Stocks Down Under” not long ago. Last week, I was at a conference in Melbourne, where the company was presenting, and I came away thinking this company has a really good future ahead of it. So, let’s talk about Pioneer Credit. Keith John, founder and CEO, had the bright idea of an organization that would buy debt portfolios, mainly from off the banks, where those portfolios were in default. He would buy them at cents on the dollar, and then work collaboratively with the debtors to encourage repayment. So, we lay out our basic thesis on Pioneer Credit in “Stocks Down Under” on the 14th of October, 2022. Trust me, folks, this business model is sufficiently differentiated, I think, to make a real difference in the Australian financial landscape.

So, why do we like Pioneer Credit? Well, for a start, the business model is built on getting a bargain. They’re buying debts that are in default, from the banks, 10% to 20% of face value. So, if they manage to collect everything that’s owed, they make out reasonably well. It’s a cookie-cutter. Recently, they were unable to announce a relationship with CBA, where they would be the preferred buyer of debt portfolios from that bank. And here’s the point of difference. They work in a humane way with the debtors. Now, there’s two ways to collect money out of people who are in default. One involves rather large guys with baseball bats knocking on people’s doors. The other one involves a much more collaborative approach, where you talk with the debtor, listen to his or her story, and then work out some sort of a repayment plan in order to be able to collect on that.

Keith John’s a big believer in the humane way being the best way to create value out of that. And as we’ll see in a second, the result speaks for itself. They’re actually getting themselves ESD credentialed. But at the moment, they have what’s called a B Corp self-certification. So, B Corp is a body that rates the ability of not-for-profits to conform with certain ethical principles. And Pioneer reckons they do that. Now, here’s the good news. You can buy this company for about half its net tangible asset backing of 60 cents a share. So, if this business model is working like we think it’s working, it’s worth at least twice as much and then more, given the fact that this company’s on a growth tear at the moment.

Now, great FY ’22. The idea with this company is to watch the liquidations revenue line, about $100 million in liquidations revenue, which is debts being repaid back to Pioneer, EBITDA of $60 million. So, a pretty good margin once this business model worked as planned. Now, there’s something like $2 billion worth of debts sitting in the portfolio of this company. The performing part, where the debtor is actually paying what they’ve agreed to pay, is about $464 million. The other one and a half billion are where the deadbeats are not paying. And that is politely called “work in progress.” But every year, the company goes out and buys more purchased debt, and they bought about $300 million worth of debt at face value. Well, at amortized cost, you know, that you right off stuff that you just can’t collect, as it’s been handed over to you. But what that’s telling you is that the portfolio will continue to grow. They expect to buy at least $61 million worth of new debts in FY ’23. I suspect it will be a little more.

Mark: All right. So, this is a growth story then, going forward?

Stuart: Right. So, yeah. Why doesn’t the market like Pioneer? Well, it’s a little bit difficult to understand in terms of the accounting. But, to my mind, the opportunity is working collaboratively with debtors to collect the money. You’re not gonna be able to collect everything, but they’ve proven, over a number of cycles now, that a lot of debtors are perfectly willing, once their circumstances are properly understood, to pay their debts. They stay away from telco debt, and pretty much, it’s mainly consumer debt with the banks is where they go. Very much worth paying attention to this story.

Mark: Right. And so, should we expect a spike in activity, say, 12 or 18 months from now, on the back of the [crosstalk 00:11:25]

Stuart: I wouldn’t be surprised. If unemployment starts to edge up a little bit, and the economy slows down, you probably will see more opportunity available. Having said that, if you watched the federal budget last night, unemployment is expected to kick up a little bit, but not reach 5%. So, the economy is still gonna do very well in terms of not too many people hitting levels of stress. But, you know, there’s always gonna be some people getting into a mess with their banking relationships, and Pioneer’s opportunity.

Mark: All right. Good stuff. Well, don’t forget to sign up for the Semiconductor Conference, and we’ll see you next week.

Stuart: All right. See you later.