Expert tips: How to use 4C filings to your advantage during quarterlies season
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The end of January is a busy time on the ASX small-cap calendar, as companies submit their 4C filings for the December quarter.
And it can often be a make-or-break period for stock prices, where positive results can give rise to outsized gains while unexpected obstacles result in sharp selloff.
For investors, the 4C requirements offer a great opportunity to gather information on that most critical of small-cap metrics: cash flow.
Firstly, how much cash a company has in the bank; and second, whether its generating any momentum in its core business (customer receipts less operating expenses).
For Adam Dawes, senior investment adviser at Shaw & Partners, quarterlies season is important for both investors and advisors.
“It gives us a clearer indication on how companies are going; first with cashflow, and secondly if there’s any issue around the outlook,” he told Stockhead.
“If one of your clients says ‘what about this stock?’, a good place to start is by checking the quarterly to see how much cash they’ve got on the balance sheet.
“And on the other side, good corporate advisors are always watching the 4Cs and understanding what’s going on in a company and whether they might need help raising capital.”
Among the many tech companies that posted their December numbers last week was HR-tech platform Xref (ASX:XF1), whose 4C made for interesting reading when applied against the metrics of cashflow and the broader outlook.
The company has been laying the groundwork in recent years to establish a global presence for online recruitment services, which focuses on high-speed employee reference checks.
Xref booked $2.44m of cash receipts from customers in the quarter, which brought the half-year total to $6m as at December 31.
Over the same timeframe, corresponding operating expenses still exceeded that amount by $4.9m. But CEO Lee Martin Seymour said the company’s efforts to establish a global footprint would continue to put downward pressure on customer acquisition costs.
In turn, Seymour is confident Xref can achieve that all-important benchmark for tech scale-ups — cashflow breakeven — by the middle of this year.
Looking at the latest quarterly season more broadly, Dawes said many ASX companies presented their results amid broader economic headwinds caused by the bushfire crisis and the coronavirus outbreak.
But those major scares take the headlines away “from where we should be looking”, he said. While those macro factors influence market sentiment, analysing company metrics on a case-by-base basis is still important.
Dawes said when he assessed a 4C, the first thing he looked at was how much cash a company had in the bank.
“The next thing I focus on is company expenses — particularly administrative costs on a quarter-on-quarter or year-on-year basis,” he said.
“You want to see how the business is travelling with admin and there’s a few lines you can compare across periods, to get a sense of the trends.
“For example, if they’re employing more staff those line-item costs go up, but it needs to be consistent with growth in sales. Any anomalies you find in those different line items might raise a red flag.
“In that sense, it’s a good idea to use 4C data to do comparative analysis, especially when you’re watching a company closely. It’s usually a great way to get a bit of insight into the business.”