My take on Q3 results... While it was encouraging to see a positive net income quarter given all the macro challenges related to COVID, my internal estimates were for better results. Excluding the non-cash amortization expense, EPS came in at about $0.053, which is a solid result. Iron ore prices are at relative highs and production activity in western australia iron ore in the company's Q4 appears to be near record levels.
The company's inventory balance increased through June 30 to $8.3 million, with $4.3 million in finished goods and $3.7 million in raw materials. For reference, in Q3 2019, the company finished the quarter with $7.1 million in inventory and proceeded to post sales of $9.9 million in Q4 of 2019 (14.4 million in australian dollars).
The elevated inventory figures at the end of Q3 to me indicate the potential for another strong Q4 sales result for the company. With the strengthening of the australian dollar, that same 14.4 million AUD sales would translate to $10.3 million USD in revenue. I realize its not a perfect correlation between inventory levels and future quarter sales, but in past, it has been a relatively good indicator of future activity/results. At that sales level, my model indicates a potential $0.12-0.15 in EPS for the quarter, excluding the impact of the non-cash amortization expense.
As a result, I have been placing bids at these levels to acquire more shares below $1.20 as I feel the potential for another strong Q4 is high. The increase in marketing activity at the company with its new website, increased social media activity and investment in smart liners is also a positive development, in my view.
The key question remains though, with the consolidation of family assets complete, what will the cash flow generated by the business be used for now?
