In a recent screening in the microcap space I've come across Quickstep Holdings.

It ticks a number of boxes for me:

1) P/E below 10x

2) Strong unbroken track record of revenue growth over the last five years (pre CoVid)

3) Had experienced minimal CoVid impact as evidenced by company announcements, year to June financials and broker outlook

4) Operates in a sector supported by tailwinds (Australia is ramping up defence expenditure, and government is pushing for more domestically produced inputs)

5) reasonable conceptual business moat (highly specialised manufacturing requiring labour and materials that are difficult to procure, revenue backed by contracts that will be slow to turn over)

On that basis I have been accumulating a position through October. Planning to hold for 12 months or so as believe if the business achieves another year of good growth and profitability there is a potential for it to receive greater recognition and rerate.

What do you think?

27-Oct-2020 update:

Yesterday Quickstep released a quarterly update for the first quarter of 2021. This release continues to support my enthusiasm. my key takeaways:

  • Strong cashflow — $1.9m of cashflow before cost of redundancies, $1.4m post redundancy payments; bank debt falls 12.5% since 30-June-20 to $5.6m
  • F35, C130J and Micro-X related production continues at full rate (i.e. no CoVid-related impact)
  • No red flags around BD: "we have seen a marked increase in customer enquiries and requests for quotation"
  • Outlook reconfirmed - FY21 customer revenues expected to be up 5-10% vs FY20 excluding any new major contract wins

Worthwhile comparing this quarter to the previous corresponding period in terms of cashflow:

Receipts from customers15,052k22,75151% increase
Total operating cashflow-5,2091,389Now positive
Total investing cashflow-2,312-31187% reduction in burn
Total financing cashflow2,000-240CF not supported by financing
Total net cash-5521+838Now positive

Also the company notes that revenue was up 16% compared to same quarter last year.

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