iCar's race against time

We spoke to iCar Asia chief executive Hamish Stone yesterday and he confirmed the guidance the company has previously given (initially at the time of last year's capital raising), of Malaysia and Thailand being positive in terms of earnings before interest, tax, depreciation and amortisation (EBITDA) by the end of this month (Malaysia having already hit that target in September), the group by December 2019 and Indonesia in the first half of 2020.

Stone reported 'great take-up' for listing fees introduced in Indonesia in September and as a result expect 'drastically reduced' losses in that business in 2019.

Unfortunately, the market isn't taking his word for it, and the stock has almost halved since we updated on its third-quarter cash flow numbers in October. Crucially that takes it below the 20 cent exercise price of its unlisted options and, if it remains below that level at the June 2019 exercise date, it will miss out on an additional $11m in cash from their exercise.

However, if the company does meet its guidance of being EBITDA positive by the end of 2019, then it should be able to avoid having to draw on the Catcha loan facility or raise equity, even without the $11m proceeds from the options.

It remains touch and go, though. An extra one or two per cent on the quarter-on-quarter revenue growth rate (running at a very lumpy average of about 10% per quarter) and a per cent or two less on the cost growth rate (running at about zero on a slightly less bumpy basis) is the difference between making or missing the numbers and the company not needing or needing additional finance.

Although Stone wouldn't be drawn on the particulars, he clearly felt there were potential areas for cost cuts - such as in technology headcount and by reducing brand marketing in favour of a more targeted marketing strategy.

Stone understands as well as anyone, though, that it's not just a simple matter of pulling on a few cost levers. These costs directly support revenue growth, so any reductions could do more harm than good.

It's a delicate balance. Management still thinks it can make it, but the market at the moment is clearly taking a different view.

We'll have a better idea of how things are travelling when the company reports its fourth quarter cash flow numbers (expected in the second week of January) and its full-year results (expected on 22 February).

We emphasise our 'very high' risk ratings for the stock and our recommended maximum portfolio weighting of 2%, and our recommendation remains HOLD.

Disclosure: The author owns shares in iCar Asia.

Note: Our Model Growth portfolio owns shares in iCar Asia.