Gatekeeper Share Discussion Threads

[serratia] 21/8/2006 19:41

Arturly-received thanks.I used to work with someone with your name. You didn't work for a multinational as a buyer some years back did you?

[stegrego] 21/8/2006 19:20

Arthurly - if you would be so kind


Ta

[masurenguy] 21/8/2006 18:38

Cheers Arthurly - incidentally I've been in this stock since Feb.

[e-mail]

[serratia] 21/8/2006 18:31

Thanks Arthurly

[arthurly] 21/8/2006 17:28

Masurenguy/serratia - have you got a copy of brokers research stuff from last December ? Very detailed research into likely size of market, listing numbers of stores GKR are in etc. For instance, in UK they are in around 250 Tesco's (from memory). I reckon Carttronics were probably in a few early on but have been blown away by GKR. Average spend by stores is around $18k but for much bigger Wal-Marts its around $50k. Again, Carttronics may have been in Liddl's early on but GKR now have a big contract with them (see final accounts last year). Brokers note also mentions barriers to entry.

If you left your email address on this board I could email it this evening.

[masurenguy] 21/8/2006 14:07

Arthurly - Apart from the internal RFID patent what are the 'big barriers' to entry ?

[serratia] 21/8/2006 13:53

Their web site says they are already in Asda Tesco,LIDL,Sainsburys and Waitrose so we don't have first mover advantage.So now we have to win on cost reliability service etc.

[serratia] 21/8/2006 13:45

Found a set of minutes from Boldon council in 2004 .They were having a go at Asda for dumped trolleys. Asda told them they spend £4m/yr on trolley purchases (assume they meant losses not general expansion) and they cost £100 each(seems too high).They said they had trialed the carttronics system and it was not foolproof and expensive.If you take Asdas claim of £4m /yr as correct their market share in 2004 was 16.9% so the market was £23.7m for replacement trolleys.Any idea what GKR charge / trolley? £4m at £100 implies they lose 40000/yr and hence the uk total is 236686 losses / yr.If I could find the total no of trollies Asda have in operation I could work out how much they could pay for each GKR system. Breakeven would be total trolleys/4m.Goodwill and the cost of going out collecting searching not included.

[arthurly] 21/8/2006 13:14

Yep they have patents re the GS/GS2 wheels. I believe there's a crucial one - something to do with the RFID control being inside the wheel casing wheras Carttronics have to have it outside ??

[serratia] 21/8/2006 13:05

Thanks Arthurly I'll have a look at Carrtronics.Do GKR have any IPR?

[arthurly] 21/8/2006 13:03

serratia -the only real competition (in supermarket trolley control) is from another Californian company, Carttronics. I think Carttronics did hold the number one spot but GKR may have overtaken them now. There are quite big barriers to entry in this business and its not the sort of business that some Taiwanese company is going to enter. You need Field Service Engineers appointed for each region etc.
PS They're quite an accounting minded lot. The CEO is a CPA qualified accountant as is the Co Sec. They're also wanting to appoint a CPA qualified Corporate Controller so they ought to be good at controlling costs.

[serratia] 20/8/2006 22:48

Thanks for the input.My thoughts exactly,can they control the costs and increase the sales? The costs are largely under their control and sales potential is high.There are lots of opportunities-supermarkets have the incentive to reduce theft and loss of trolleys.In addition the new development allowing supermarkets to monitor trolley movements is important.They design the isles to force customers to travel slowly in a zig-zag to encourage additional unplanned purchases on which the margins are higher.They place high margin products at levels which catch the eye, they know customers will search out regular items so they don't need to be highly visible. A tracking device which monitors movemements allows them to strategicly position high margin products.Outside the supermarkets,trolleys in airports,hospital wheelchairs etc etc will all benefit from location identification. I'm not well up on the competition and have not seen anything relating to international standards. You can be sure the big supermarkets will not want to be single sourced if this takes off as it seems to be doing but GKR have first mover advantage.The question is top up now or wait to confirm H2 results?

Serratia

[boadicea] 20/8/2006 22:20

Hope it helped. The H2 is always much greater than H1. The difficulty is guessing whether the difference will always be a similar per cent, or a similar absolute differential. In particular, was the brilliant 05H2 increase a fluke or a lead to what 06 will do?
Incidentally, the figures were derived from the 05 interims by subtracting 04H1 from 04FY. These days I find the interims often provide more relevant figures than the FY reports for a seasonal company like this.
Compared with others, my guesstimate above looks very conservative on 06H2 turnover forecast - so at least I shouldn't be disappointed.
The only factor which makes me at all nervous with this company is the steadily climbing Admin+Sales expenses. It does make the turnover increase essential.

Wrt the rfid trolley tracking, I assume this is a must-have item for future success with the large retailers. Are they tied in with any particular system/international standard/Walmart etc on this?

[serratia] 20/8/2006 21:17

Boadicea,

Thanks for the comments.Sales + admin was 46.4% of sales in 04,41.1% in 05 and should fall on the sales increase so say a guess at 39%.I had gross margins at 50.9%,giving 11.9% 'income', so I can see up to 9c/share for the year.My conclusion is that as long as we get the H2 boost ( which from the history is likely) we'll be on a single figure P/E at 45p which gives room for further share price increases.

Regards

serratia

[boadicea] 20/8/2006 19:07

serratia - I have been looking through the accounts and came to look here to see if this board answered any question. One question I can answer (to an extent) is yours about the 2004 H1/H2 split -

. . . . . . . 2004H1 . . . H2
Turnover . . . 4178k . . . 7550k
Cost of sales. 1640k . . . 3442k
Admin+expenses 2319k . . . 3128k
PBT . . . . . . 219k. . . . 980k
EPS (taxed). . 0.65c . . . 2.78c

Be careful when interpreting these figures because the number of shares in issue has increased from 27M to 44M since then. The cost of sales and the admin figures are altered in the following year although in total they add to the the same.

2005H2 had extremely high admin and expenses (which I suspect might have been taken partly as extraordinary items by many UK companies) and we can only hope these will now stabilise.
If margins return to historic levels in H2, as they suggest, eps after tax of 5.8 cents or more on turnover of $18M for H2 alone looks quite possible making ~7.2c for the year as a whole. I allowed $5.6M for sales/admin expenses and 50% gross margin on turnover. Anything over 8c would be a bonus but easily achievable if turnover exceeds $18M as nearly 50% of any excess drops straight to the bottom line. Anyway, just $18M should make the shares shares look good value at 45p.
I haven't yet scanned through previous posts except Arthurly to see how this compares - so hope it's not a stupid suggestion!

PS: I have edited the above to eliminate a couple of errors I found on checking. I haven't been as optimistic on turnover as Arthurly.

[serratia] 18/8/2006 14:34

Yes thanks for reading it I've ammended my spreadsheet and edited my post.

Serratia

[unionhall] 18/8/2006 14:10

you are not mixing £ and $ in the last para are you ?

[serratia] 18/8/2006 13:34

Starting the analysis with sales.I agree they were far higher in H2 last year than H1.I couldn't find figures for H1/2 in 2004 to see if it's traditional or a one off. I'll accept the comment that it is biased 1/3 H1 2/3 H2.That would give $38m for the year.Just sustaining the % growth from 04 to 05 would give $35m,so we're looking for around $23m for H2.
Costs in 04 were 43.3% and 47.7% in 05 51.8% in H1 06. For reasons stated before I'm unhappy with the trend but they say they'll fall in H2 so I'll use 49.5% for the year overall.This would give a gross profit on $35m of $17.675m.
Admin I'm a little uncomfortable with reclassifying costs,you may be correct.They've spent $4.155m in H1 so unless they're changing the figures again which would make the COS even higher that figure probably stands.(They say COS will fall back in H2 which would argue against reclassifying)It looks to me like a min of 8.3m for the year possibly more.The trend would be ok though.
Sales - Costs were 6.5% in 04,9.7% in 05 and 9.9% in H1 06,I'm looking at 2.6m for the year.(I've just increased the H1 costs by 1.5% for H2,not sure if or when bonus payments are paid so could be higher).
This gives an PBT of 6.775m(They have 'other income' and little debt )Tax say 25%,leaves a net 4993k.This is an EPS of 11c for a P/E of 7.7 at 46p.If correct that would support a price of 70p. share price say 5.5c for this year and 8c for next year.Hopefully we will get some clarity on the costs.

Regards

Serratia

[scburbs] 18/8/2006 12:16

Afternoon Arthurly, That looks pretty similar to the H2 forecast I did. I went for 50% turnover growth. I will check when I am at home.

[arthurly] 18/8/2006 12:14

Here's another estimate (only a bit of fun) for H2 :

Turnover $21m (up about 45% on last year)
COS $10.3m
GP $10.7m

Admin costs $4.8m
Selling costs $1.6m

Operating Profit $4.3m
Interest $0.1m

Profit before Tax $4.4m
PBT for year $5.2m

[arthurly] 18/8/2006 10:09

By the way I think H1 2005 figures are tosh. About $4m admin and very high GP%. The full year figures only give around $6m admin. So it seems that quite a few expenses, originally classified as admin in H1 were moved to COS in the year end accounts.

PS I see they've restated the 2005 interim figures.

[arthurly] 18/8/2006 08:53

serratia- as schurbs said, supermarkets tend to do most of their spending in H2. - They have quoted a 'normal' figure, I believe of 2:1. I reckon it may reduce a bit this year but probably H2 turnover well over $20m.
Trouble is that many of their admin costs are relatively fixed. They've been taking on a lot of Field Service Engineers it seems, from their website. Also R and D costs likely to be increasing as it gets closer to release of new products.
Sales costs may also be not much more in H2 than H1. I think they did two big exhibitions in H1 and only 1 coming up in H2.

So I think you have to look at the year as a whole. Likely to be looking at $4m plus pretax for H2 in my opinion.

[serratia] 17/8/2006 23:29

Thanks for the reply Scburbs.I'll look into it again tomorrow it's a bit late this evening.

Regards

Serratia

[scburbs] 17/8/2006 23:01

Evening Serratia,

I think comparing H2 with H1 is a bit difficult as the business is very seasonal. G&A percentage will certainly be much lower in H2 than H1 as it has a high fixed cost component and the fall is a natural consequence of the seasonality. Sales percentage probably won't fall so much.

If you start with your gross margin of 51% then knock of say 19% for G&A (up from H2 last year despite the increase in turnover as H2 looked particularly low for some reason) and 10% for sales then you have an operating profit margin of 22%.

Based on your sales forecast of $25.5m this would give an operating profit of $5.6m. PBT will be marginally higher than operating profit due to net cash.

Not at all sure why you think they need $31m sales to make $3.1m in H2. Doesn't look right to me. I think you are not reflecting the natural fall of G&A as a percentage of sales due to the seasonality of the business.

[serratia] 17/8/2006 22:43

Arthurly,

An interesting question and I'm not sure we have the figures to easily project forwards.

Sales should be more than double H1 i.e. more than $25.5m. Sales grew 117% from H1 2005 to H1 2006 if this continued 2006 would be $44.1m. So that's the range.
Cost of sales was 43.3% in 2004,47.7% in 2005 and 51.8% in H1 2006. This should be going the other way as volume increases, they admit to reducing selling prices for volume but have not obtained the equivalent cost reductions for volume. GKR say margins will increase in H2 so lets assume 51% for the year,up from 48.2% in H1 and below the 52.3% for 2005.
G&A costs as they say fell compared with H1 2005 but at 32.7% are above full year 2005 figures of 31.4%. H2 2005 was only 15.3%! Saying the figures are falling as a % sales is not really fair.When sales jump 117% admin costs should tumble as a % sales.On the other hand they have expanded their european infrastructure. So what figure for full year 2006 ? The range is 24% sales ( assuming 15.3% in H2)or 32.7% (if H2 same as H1).
Sales costs were 5.5% in H1 2005,11.3% in H2 2005 giving 9.7% overall. In H1 2006 they were 9.9%. So sales costs are rising faster than sales!Again should be the opposite.
So where does this leave income? Well they will lose all credability if the EPS falls after a large sales increase so it's got to be above $2.6m. In H2 2005 they made $3.3m pre tax,in H1 2006 they made 0.894m. Doubling H1 would give them $1.79m not enough by far. We need $4m+ for the year which calls for $3.1m in H2.That implies H2 sales of $31m giving $43m sales for the year.
All a bit in the air but a first pass says costs are not controlled sufficiently and sales will really need to motor if costs say at H1 levels as % sales. Hence my interest in broker reports. I was keen to add to my holding but without a clearer picture I'm going to have to hold until clarity emerges.

Serratia