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The New Criterion: technology stocks

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By Tim Boreham

FASTBRICK ROBOTICS (FBR) 14.5c

The robotics innovator is on the noblest of human quests: to eliminate the scourge of brickie’s crack from building sites globally.

Come to think of it, if Fastbrick succeeds in automating the ancient art there will be no brickies at all to wolf whistle at eligible female passers-by, or to down hods when the wet bulb temperature hits 31.5 degrees.

The Perth-based Fastbrick’s endeavours enjoyed an enormous boost this month, with US machinery giant Caterpillar signing a memorandum of understanding after a year of talks between the parties.

The deal, which also involved Caterpillar signing up for $US2m ($2.6m) Fastbrick shares in a placement at 10c apiece, sent Fastbrick shares soaring 50% on enormous volumes.

The idea is that Caterpillar will make and distribute Fastbrick’s Hadrian X machines, which are capable of laying 1000 bricks and hour to an accuracy of half a millimetre. A good brickie at full clip can manage around 200 an hour.

Caterpillar would pay royalties – possibly on a per-brick basis – to Fastbrick.

“They bring 90 years of machinery manufacturing know-how to the table,’’ says chuffed Fastbrick chief Mike Pivac. Like other machinery makers, Caterpillar has also invested heavily in 3D robotics technology over the last decade.

Hadrian X is Fastbrick’s second iteration of an automated bricklaying gizmo and is in factory testing phase ahead of field testing early next year. The Hadrians, which are expected to sell for around $2m, are the size of a garbage truck with a 30 metre robotic arm.

Your columnist’s earlier aspersions on hard working brickies aside, bricklaying is an arduous trade carried out in dangerous conditions. With pampered millennials not exactly queing to learn the craft, brickies are in short supply.

Initially at least, Hadrians would be used under the guidance of brickies who would still use their skills without having to do the dangerous manual stuff.

But the units are quite capable of working alone and if autonomous vehicles take off they may even drive themselves to the site.

Having backdoor listed in late 2015 after raising $5.75m at 2c a share, Fastbrick looks like being the runaway techie-speccie story of 2017-18.

It’s worth remembering the MOU is just that – an MOU –and both parties can withdraw at any time. But the fact that Caterpillar is bothering with a small investment relative to its $US64bn market cap shows the boys from Illinois are serious.

“These guys don’t have failure in their DNA,” Pivac says.

Fastbrick has attracted the institutional support of Regal Funds Management, which holds 10% after taking half of a stake divested by Pengana Capital and originally owned by Hunter Hall. Pengana acquired Hunter Hall after Hunter chief fundie Peter Hall’s exit, but Pengana’s mandate only covers investing in revenue-generating microcaps.

The ASX listed Brickworks, a foundation shareholder since 2005, retains 2.5%.

Caterpillar has an option to subscribe for $US8m more shares, but at 20c apiece and subject to investor approval.

Should Fastbrick need more cash – which it doesn’t – there are plenty of brokers and instos scrambling to throw some its way.

In addition to its 764m ordinary shares on issue, Fastbrick has 77.6m options on issue. Most of the options have a 2c strike price so are heavily in the money.

Key management figures also hold 503.7m performance shares, which evenly vest when Hadrian builds a three-bedroom, two-bathroom home; when Hadrian completes it stent house under a commercial contract; and when the company achieves $10m of annual revenue.

So if Fastbrick succeeds, there will be far more shares on issue to dilute existing holders.

It’s possible that Caterpillar will acquire Fastbrick – now valued at around $100m – outright. But the history of innovation shows the minnows are much better at inventing stuff than the multinationals.

1st GROUP (1ST) 2.7c

First Group chief Klaus Bartosch says the health services portal’s share price “does not remotely reflect our performance.”

You’re no Robinson Crusoe there, Klaus. But he’s got a point given the group’s subscription based revenue has been building, with the shares languishing well below their June 2015 IPO price of 35c.

While ostensibly oversubscribed, the raising turned into a damp squib after one institution pulled out at the last moment, causing a conga line of others to follow.

Having targeted $5m to $12m, the backers scrambled together $5.3m.

But 1st Group is not exactly friendless: the Gandels (Australia’s fifth richest family) own 15%, having bought into a subsequent $2.9m raise last July.

John Plummer, who founded and then sold the recruiter Chandler McLeod, accounts for 30%.

1st Group is an online search and appointment service for health and beauty care professionals. A similar product, PetYeti, provides a similar service for vet practices and has 500 practices signed up.

Blue-chip customers include Primary Healthcare, Ramsay Healthcare, the Pacific Smiles dental chain, Bupa Optical and Australian Unity.

In December, the company inked a deal with Alphapharm, a subsidiary of global drug company Mylan, to provide online bookings through 320 chemists and 90 retail stores (Priceline).

Customers will be able to book services such as flu shots, diabetes checks and make-up appointments. All up, the company claims a 50% share of the pharmacy market and 25% of the optometry market.

But there’s another reason for the share price malaise: “We haven’t grown as fast as we would have liked in the early days. Stuff took longer than expected.”

You’re no Robinson Crusoe there either, Klaus, but “stuff” is happening.

The company this month reported monthly recurring revenue (MRR) of $261,000 for the June quarter, up 20% from the March quarter tally of $218,000.

MRR measures recurring subscription sales and excludes fees from products such as the company’s appointments reminder app, EasyRecalls.

Bartosch says there’s a time lag of some months between customers deploying the portal and revenue flowing through.

As with so many other ambitious minnows, 1ST Group faces the dilemma of requiring more funds on the back of a trashed share price. 

But at least it has deep pockets to turn to and that could mean the difference between surviving and thriving or withering away like a dog-eared waiting room gossip mag.

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). 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.

Published: Tuesday, July 11, 2017


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