When markets get noisy, volatile or downright confusing, beginners often ask the same question: How do you know which companies are actually “quality”? In this episode, Richard Hemming from Under the Radar Report breaks down the numbers that matter most when analysing ASX small and mid‑cap stocks.

For Richard, quality starts with one thing: the balance sheet. In the small‑cap world, companies can’t simply tap investors for emergency capital when things go wrong. A strong balance sheet gives them the resilience to survive downturns, fund growth and avoid the kind of dilution that destroys long‑term returns. His keymetric isNet Debt to EBITDA, and anything above three times is a red flag for most businesses.

Richard explains why free cash flow is also essential, why a “margin of safety” in revenue helps smooth out volatility, and how understanding a company’s business model can reveal risks that aren’t obvious at first glance.

Retailers are a perfect example. They generate cash quickly, but they also carry heavy lease liabilities and can be crushed by a single season of unsold inventory. We explore the contrasting fortunes of KMD Brands, Kogan, and Myer, and why some retailers rebound while others spiral into capital raises and shareholder pain.

On the positive side, Richard highlights companies like Clover (CLV) and Tuas (TUA) — businesses with strong foundations, clear niches and the balance sheet strength to execute long‑term strategies.

For beginners, the message is simple: quality isn’t about hype t’s about resilience. Start with the balance sheet, understand the cash flows, and you’ll avoid many of the traps that catch new investors off guard.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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Disclosure: The links provided are affiliate links. I will be paid a commission if you use this link to make a purchase. You will receive a discount by using these links/coupon codes. I only recommend products and services that I use and trust myself or where I have interviewed and/or met the founders and have assured myself that they’re offering something of value.

EPISODE TRANSCRIPT

Phil: G' day and welcome back to Shares for Beginners. I'm Phil Muscatillo. Today I'm joined again by Richard Hemming, founder and CEO of Under the Radar, uh, Report. Richard specialises in, um, uncovering quality ASX small and mid cap stocks, the kind of companies most investors overlook until it's too late. Today we're talking, talking about what quality really means in the small cap world, why the balance sheet sits right at the top of Richard's checklist and why certain retailers are starting to look interesting. Some winners and some losers and some lessons arising. Hello, Richard.

Richard: Hi Phil. It's great to be back and great

Phil: to have you back. Okay, so in uh, the introduction I mentioned, and we discussed beforehand that what we were going to be talking about is how you look for quality. Now the balance sheet's a big part of it, but first of all, how do you actually define quality? I know we're getting a bit epistemological at the moment, but how do you know what quality actually is?

Richard: Well, I never hear the word epistemological enough and I guess you need something to hang onto at the moment with the markets kind of all over the shop. It is quite amazing the reverberations we've seen according to different pronouncements. And so when there's not much to hold onto, what you really need to know is what to look for. And what we look for is quality, which is what you're always trying to get at the core of your portfolio. You want to be owning quality companies. So what is a quality company?

Phil: Yeah, well that is the question that arises from what's a quality company? And it raises that important point that markets are going to go through ructions all the time. I mean, yeah, we've been through so many over the last century of issues that markets have had to deal with, but there's still companies that still manage to make money through all of that.

Richard: Yeah, well, sitting at the apex, as you said at the outset, is the balance sheet because you need firm foundations, but you don't really invest on the basis of that. But, uh, it's certainly where you start. Then you need, and I've learned this the hard way, you need really to be looking at cash flow because you need to be investing in companies where you can see that they're going to receiving more in cash than they're spending. So you need positive, what they call free cash flow. So operating cash flow minus their investment or capital expenditure, you really want to be investing in companies where they can invest in the future themselves. Beyond that, in small caps, I think we're more differentiated. Again, uh, you get to the P and L fill. We like to see a margin of safety and revenue because it's much easier to, I guess get profitability if you've got nice fat revenues coming through the front door and then it goes down from there. So then we look at, okay, what are the customers? What's the quality of the customer base? And then, you know, so what margins are they making? What on their income? And it just goes down from there. So every company's different. And I guess the implication being, especially in the balance sheet, a lot of it is about the business model.

Phil: So when you sound like you start with the balance sheet, I mean look at P and L obviously to start with, but this is where you start the balance sheet. And is that to actually see, is that the foundation where the strength of a company is?

Richard: Yeah. Well, if you don't have a solid foundation and you're building a house, doesn't matter what you do up the top, sometimes it's, you're vulnerable to any form of disruption. And that's really why, you know, like a lot of the stocks we're going to, uh, talk about, well, but for the balance sheet, sometimes they wouldn't exist in the small cap world. They can't just get an emergency capital raise. I mean, you really do need to have an understanding that the valuation of the stock is underpinned by the balance sheet. Because like a PE can go from 35 to 25 in the blink of an eye, you might never see that value again. Whereas a balance sheet, there's more solidity. So it's not the answer, but it's certainly something with which to build on.

Phil: Phil, so what are the particular numbers that you look for in a balance sheet?

Richard: Well, I guess at the get go, you look at the long term liabilities, don't you? You look to see what the trend is with the long term liabilities. Basically like people in the past have used all different sorts of metrics, but I think a reliable one is probably net debt divided by operating earnings or ebitda. If you're looking, all things being equal,

00:05:00

Richard: I. E. If you've got stable earnings, you really don't want net debt to EBITDA to be above three times normally for normal sort of profit making companies. And this, as I say, is so reliant on the business model because, like, some companies can handle a lot more debt, like Transurban than a retailer where there's a lot more fluctuations on the demand side and on the, you know, consumer sentiment side, which is demand. So, yeah, there are different business model is at the heart of how confident you are with those metrics.

Phil: Bill, can you just highlight that again, what that number is three times.

Richard: Sorry, you want EBITDA three times divided by ebitda. If it's over three times, you're in the position, Phil, where you're probably paying too much out for your debt concern and you're not going to be able to invest in replacing the capital, so you're not going to be able to invest in growth. So if you're paying too much out in terms of fixed obligations, you're going to be stuck when it comes to trying to grow the company. This is very much a generalized situation because obviously some companies can handle a lot more debt than others. And it's a lot of. It's how much of that debt secured by existing assets. There's so many variables here. So what I'm talking is a very basic number.

Phil: Okay, so let's turn to some companies and specifically retailers. Now, there's a lot of people who think that the Australian economy, I mean, you hear pundits all over the place, and this is part of the noise of being in markets, as you hear pundits saying we're about to head into a recession, which you would presume is not going to bode well for retailers. But what are you finding interesting about them?

Richard: Oh, well, far be it for me to criticize pundits, Phil, but I guess what I find interesting about retailers is the business model. They get sales from day one, so they get the money from the customer day one, then 30, um, 40 days later, you know, they pay their supplier so often it's a bit confusing as to what their financial, what their actual, how strong their balance sheet is. And also you've got huge operating leverage with lease liabilities and labor costs being very heavy. So while that can be positive, as we see in situations where it doesn't go right, it can be a huge negative and can result in disastrous consequences for companies whose products don't prove to be the flavor of the month at any given time, then you've got that like even kind of a moderate amount of debt can prove to be catastrophic.

Phil: And so hence the balance sheet when you're looking at these companies.

Richard: Well, hence you have to Be very careful about how much debt they can hold. Because a classic example, Phil, recently was Kathmandu, RIP Curl owner, uh, KMD Brands. I mean, they saw a run on their stock where really investors said, we're not going to raise equity because we don't have as much confidence in the business model. So we saw the stock go from sort of close to 20 cents to 5 cents. I think it's 5 or 6 cents. And that's where they had to raise money. So we saw a classic case of a feeding of investors saying, well, we're not going to give you the money unless we get a substantial stake in the company. Because that capital raising was only 60 million, but it was done at, uh, like 150. It resulted in 150% increase in the shares on issue, so from 700 million shares on issue to well over a billion. So we saw a, uh, you know, and the kind of. The stock was in a very much an existential situation and that they didn't have that much debt. Like they had $94 million of debt. And this is a company that's made like 100 million in earnings before interest in EBITDA in the past few years, and that was well over that. So all companies go through difficult times, cyclical times. But with retailers, Phil, it can be quite unique in the collapse of sentiment. Like they had inventory that they couldn't shift. And we've seen that happen before. And, um, when that happens, you get a huge dilution. And in some cases the company just goes out of business. You know, it's really buyer beware. You have to be very careful. So that's why we kind of gave KMD or Kathmandu a kind of a wide berth because we, we thought, well, you know, they've got some debt, but we're not confident that that can always be repaid. And because it did look good value. But sometimes there's a reason for things looking really better, really good value, isn't there? The fact that they're so vulnerable to those.

Phil: That's where we make some, um. Yeah, that's where we often make mistakes, isn't it? Where we think, oh, it's cheap, can't get any cheaper.

00:10:00

Richard: Uh, yeah. And debt proves that. Yes, it can. And you can. It can prove existential.

Phil: This podcast is obviously aimed at beginners. Can we have a chat about the capital raise about Kathmandu and what actually happened in the process of this? Because the price of the share has a direct bearing on the amount of capital they can raise. So just explain a little bit to a beginner about how that works.

Richard: Oh, uh, well, they had about 600 million shares on issue and then they had something close to 100 million in New Zealand or 94 million in debt. And then what they have, I, look, I don't know all the situation because we didn't invest in Kathmandu, but they had like, they normally have covenants because when debt isn't secured by assets, often the bankers, in order to lend them, require them to meet these metrics. Like one of which is the net debt to earnings. So clearly the net, like what I was saying before, the net debt to earnings was fine at one times when the, when the earnings held up. But what they did was they had this inventory that was last seasons or like, I don't know all the details, Phil, but they couldn't shift the inventory. And this has happened before with retailers like, you know, with City Chic. If you have a lot of inventory sitting on your books and you can't shift it, you have to discount hard then that, you know, the earnings went from like 100 million to underlying earnings of 11 million for the half or 12 million. So then your ratios look completely skewed. And the debt, you know, issuers, the banks.

Phil: Let me, yeah, let me just jump in here. Is this like a bit having a loan against your house, then your income drops because you lose your job and then the bank's going to revisit about your ability to repay that loan. Is it a little bit like that?

Richard: Yeah, it's a bit like that. Like, yeah, with banks they have a loan to value ratio. So basically if your house falls to a certain level, it's more like you've got the numerator, which is the amount that they lend you and the denominator, which is the value. So if the value of the equity falls, then your repayments look a lot steeper. And like what happened in this situation was the value of the debt remains the same, but the ability to repay is under a lot more scrutiny because their earnings have fallen through the floor. So yeah, the banks say, well, you know, in order to get our equity back, we need you to raise money. We need you to raise equity so that we have.

Phil: And hence, hence the capital raise that took place and where they go to the market. Yeah, and the capital raise process happens and there's a dilution as well. So just. Yeah, let's talk about that.

Richard: Well then, uh, the people who are looking to invest in that capital raise, they're saying, well, we're not confident about the business model anymore. We, we're not going to just give you the money. We want a bigger share of the assets. And so it takes more and more the share price to go down and down more and more. So that means the new investors now own a lot, uh, like so basically about half the company or something, because they went from 600 million shares on issue to 1.1 billion shares on issue. So those new shareholders now own a lot of the company because that's the price. That's the price that, that Kathmandu had to pay for getting into trouble for, for not being able to pay a fixed obligation, a debt. So that, that's the consequence is that they have a lot more shareholders and those shareholders have, uh, a, uh, are in at a much lower price. So it's diluted the shareholders that were in there before. So instead of owning 10% before the capital rise, if you didn't invest, if you didn't put more money up you, you'll own like 5% now. So you're holding, you've got the same number of shares, but the shares on issue have increased a lot. So your holding in the company is a lot lower. So that's why it's been so hard for shareholders to swallow and that, that's happened in retail quite a number of times.

Phil: Take control of your investments. Sharesite has you covered. It's Investopedia's number one tracking tool for DIY investors get four months free on an annual premium plan at sharesite.com SL shares for beginners. Yeah, I hope we didn't get too lost in the weeds there, but I think it's so important, Richard, to understand these concepts. You know, like when you're a beginner coming into the market, you know, it's like, uh, being a deer in the headlights sometimes, and an oncoming investment is ready to knock you down.

Richard: Yeah, well, the first thing that we look at is the, is the balance sheet. And one of the stocks in retail where we did back them with their balance sheet was Kogan, because they had a similar issue where they were stuck with a lot of inventory. But Kogan was really

00:15:00

Richard: hot property. During Kogan, they got a lot of sales in the door, but their shares, they had some inventory problems. They got down as low as $3 and they rebounded to $20. And so we took some profits. But the important thing is when they got down to $3 and there was trouble on the earnings front, they didn't. On the. They had, uh, excess of inventory. They didn't have to raise capital like Kathmandu had to raise capital. So we were Able to stay patient, to keep our head, and then see the share price run to, at one point over $20. Now, as it happens, is, you know, it's rebounded back to $3. I think it's now $4. But the point is, as an investor, you don't want to be putting your hand in your pocket, which is, uh, when you have to put your hand in the pocket to save a company, it's normally you're diluting, it's normally at a sort of exorbitant, at really bad prices. And that's what happened with Kathmandu. And that company's still living to fight another day. They've lost their chairman. You know, management's under a lot of pressure, but they've got some breathing space. But it's like not what you want to see as an investor, and it's a danger. And that's why we come back to why the balance sheet's the first place where we start looking. Because we don't want to be in the position of having to put our hand in our pocket for an emergency capital raise. And indeed, we don't want to be in the position of seeing the company go under, which has happened in the past. Like Oryton went under. It's unusual, but if you don't have a strong balance sheet, you're putting yourself at a lot more risk.

Phil: So Myer, asx, code myr. People have been waiting for a turnaround for years, haven't they? With Myer, it's been one of those stocks that has been unloved for a long time. What are you seeing in it at the moment?

Richard: Probably a trading opportunity, I would say, because, like, Myer's been through the ringer, hasn't it? I mean, when they floated back in 2009, it was like over $4. Luckily for me, we were, we were actually still living overseas. But so I didn't even have to look at it. But they did have like something like $3 billion of lease liabilities. So then you had that fixed obligation on top of some debt, and then what you had was a structural decline in retail. So you had this emergence of factors hitting them hard. And they really struggled, didn't they? You know, like, department stores are not what they once were.

Phil: I mean, look at, look at, look at David Jones now. I mean, it's just a real estate company.

Richard: Look, department stores have been through the ring up, and certainly Meijer has been one of them, but they've hung in there and they've changed their business model. And a guy, uh, Named Solomon Liu, where he was on the outside before looking in. Now he's on the inside having sold them apparel brands from his premier investments company. So basically he's on the inside looking out. So you're on the side of a really an Australian retail titan.

Phil: Plus he's the king of retail, isn't he?

Richard: The king of, one of the, one of the many kings. Over time there's been a few of them but basically they've got innovative agreements with him. They've got, they've reduced their stores from 80 to around 50. They've got innovative agreements with Topshop, Gap. So there's a lot more I guess reliance on others who own that inventory. So there is risk but uh, we would argue it's a lot lower risk and I guess the loyalty program has been really positive for them. So Olivia Wirth, who's come from Qantas and pioneered their loyalty program is now doing the same thing at Myer. So we have confidence there. It is very high risk because once again we come back to the balance sheet. It's net cash, Phil, but actually the current liabilities are higher than the current assets. So that means that what they owe within the next 12 months is, is bigger than what they can liquidate now, like their ah, cash. So there's still a lot of risk there. And the onus is upon the suppliers to sustain the business, to fund the inventories because it's on their balance sheets as well, like the top shops and the gaps of this world. But it's much more innovative and they have much better management, I would argue, than they had in the past. It's not just a private equity vehicle. So I think that there's quite a few complexities to the situation. But we've looked at it as a trading kind of opportunity. We bought at 50 cents, sold at 80 cents, now it's gone down below 30 cents. And we had a look at it and it looks interesting. There's lots of risks there and we wouldn't put it in, in the high quality companies when we, when I was going on before. But

00:20:00

Richard: sometimes with companies you can see trading opportunities and most importantly the balance sheet has been significantly de risked.

Phil: When you talk about the inventory is that like when you go into a department store now it's basically broken up into areas run by brands. So does that mean the inventory risk is carried by the brand itself rather than the department store? Is that how it works?

Richard: Sometimes with those top shops and gaps it is. And they've actually gone and reduced their own inventory. Myer uh, so that's been the strategy. So that's not wholly the case, Phil, but definitely they try to get as much off balance sheet as they can from like uh, I mean I don't cover the retail stocks actually my friend who works with us, Richard, does and he, he just loves all this debt management solvency. He's always looking for breakup situations. So it's very much his sort of area. But definitely that's where the trend has gone with department stores. Exactly. Because it's very expensive to hold inventory. And we've seen what can happen when inventory goes stale or when you can't shift it. With Kathmandu with City Chic. You see it all the time in retail. So to shift that risk on to someone else is what they try to do. Yeah.

Phil: Okay, let's move on to Clover. ASX code clv. I haven't heard about this company and I haven't done any research. So tell me exactly what it does and why it's interesting.

Richard: Well, you probably don't have Irish background, but Clover is actually got nothing to do with the four leaf Clover, but it's certainly been lucky for us. And what they do is encapsulation fills. So basically they turn fish oil, which is rich in omega 3. I can't remember the name of the chemical honestly, but it's rich in really positive omega 3 that babies need and they turn that into powder so that some big manufacturers of the world, they use Clover. So they're a classic case of a company with a great niche and a customer base that are really huge of really big operators, big manufacturers around the world, us, China, you name it. So what that means is they really need a strong balance sheet because it takes something like two years for these big manufacturers to integrate Clovers process their encapsulation technology into their own processes. And all that time Clover has to fund that, you know, they're not getting any money. So when it got to like the current assets being like around five or six times the current liabilities we thought, wow, this company can match its rhetoric with of uh, new products and going for new markets with a ah, business model that means they don't have to, you know, they've got, they've got a margin of safety. So what do you know, they went from 20 or uh, I don't know, from 10 new products to 20 or 30 new products within 12 months. So they've really accelerated their new product investment. That means bigger margins. So it's really a great story. But the key point is that you've got to get in early on these stories, but you can still surf them. But definitely, definitely. We think Clover's got further to go, definitely. But it's going to have ebbs and flows because their fortunes are very much tied to the manufacturer and how the sales of those products go. But they can handle those ebbs and flows, can't they? Because they've got no short term cash concerns.

Phil: So is it a situation where they've plowed profits back onto the balance sheet? Is that the case?

Richard: Well, they did some raisings. I think often we like companies that have done raisings because then we can come and look at them with fresh eyes. I think they did a raising and what they've also done is they've invested in supply, they've invested in this business. I think it's in Ecuador that does a lot of their own manufacturing. So there's the balance sheet also more solid because they have assets on it that actually mean they're not as reliant on suppliers for key inputs so they can actually do their own supply. So yeah, it's a combination of plowing your profits back into the business, raising capital and then with the assets you've got not being as exposed to the vagaries of a key supplier or because you're kind of what they call vertically integrating. So they've effectively vertically integrated. So the business, like I said up the top fill the balance sheet's one thing, but it's a business model that really dictates how comfortable you are with the balance sheet. And their business models improved a lot.

Phil: And what size is this company? I mean what's their market capitalization? Where do they sit in the asx, uh, universe?

Richard: They're not that big. I think they're about close to a dollar share price. So that probably puts them on a market capitalization of 150, 160 million. You

00:25:00

Richard: know they've got about 160 million shares. Yeah, yeah.

Phil: And how much are they? What's their EPS look like?

Richard: Well, the APS is probably about like it's sub 5 cents last year. But I think growth is. So that puts them on around a PE of 20 times. But we've got them growing with a lot of these contracts at fast rates. So they've got a lot of long term contracts that gives you more, more I guess, confidence that they can grow. So that's what a balance. So, so what they've done with that balance sheet security is increased the investors confidence that they can generate the kind of growth that we know that these small caps can. And that's what you're looking for is confidence. It's, it's what the share price is saying, but it's also your own feeling of belief that they can exceed what the share price is kind of implying. So yeah, like we got in at below $0.50, but we're, we're saying we, we still like the company and we still think it can go further because the momentum's on their side and they've got long term contracts. So there's a number of ticks when it comes to that quality criteria that I was talking about before.

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Phil: M. Yeah, presumably be hard for um, someone who's manufacturing and retailing fish oil to change suppliers. It's not something you can turn on a dime.

Richard: Well, exactly. They're long term contracts that have been hard fought and that gives you a lot more security, a lot more confidence that their earnings are not only sustainable but that it can grow. So the new products adds to that confidence. So it's a virtuous circle.

Phil: Okay, well, let's move on, um, to Tuis. The ASX code is tua. Now we've covered this company a couple of times on the podcast. It's an interesting company. It's to do with that they've moved into the mobile market but they've been something else up until now. Tell us about TUIS from your point of view.

Richard: Well, up until now they're a cashbox. I mean we got interested in this company in 2020 when no one else was, when it was like 50 cents. And it was just like my partner had made a lot of money. He really backed uh, David Teo to the hill. And David Teo is this. David and Vicky Tio come from Malaysia and they founded TPG and these guys as a low cost telco experts. These guys are the best of the best in our humble, in our humble view we're big fans of David and Vicky Tio. They don't talk much. They do so that, you know, they're what you want in a businessman, I guess and woman. And basically it came out of, I guess they Vodafone tpg. So then as part of that deal, look, I can't remember exactly, but they spun TPG Singapore out, right? So they gave their shareholders, here's some shares at a certain percentage and now you own TPG Singapore and they had like $200 million to play with, so. But they had nothing else but that. So all we had was our belief in David and Vicky Teo, 200 million and a belief that he could execute the same sort of strategy in Singapore that he'd executed in Australia. So it's like all we had was a balance sheet and belief. And what happened was they used that money and bought Spectrum and they bought hardware and equipment and this is. They came and then they sold their product for nothing. So they just built market share. So that takes a lot of guts and a lot of belief in your business to do that, as we, you know, as is intuitive, as we'd all recognize. And now I think the fourth biggest, right, they're the fourth biggest in Singapore in mobile telecoms, and they want to take over, I think the third biggest, M1. But that's going to be a huge deal. They announced a deal, then they raised $400 million. But then subsequently, Singapore's Competition Authority has delayed the deal. I'm not sure of the ins and outs, but we're all sort of watching with bated breath on how that goes, because if it does go ahead, they're going to have to get a lot more debt on their balance sheet to fund the whole acquisition. So it's going to be big. But on the other hand, this business, telecoms, is notoriously strong in cash flow. A, uh, strong cash business when it works, when you've got it going. I mean, we did the same thing with Superloop, but on the other hand, if they don't get it, well, it's not existential, but it's not going to be good. But the point is that they'll live to fight another day, Phil. So a balance sheet doesn't mean everything, but it does mean that

00:30:00

Richard: they can afford hiccups like this. And so, you know, we're not buyers. There's a lot of uncertainty there, but it's certainly, it's certainly we're happy holders. I mean, it's around $6.20 now, the shares, and we got in at 50 cents. We took profits, though.

Phil: Why are they listed in Australia rather than in Singapore?

Richard: Well, lots of companies are listed everywhere. It doesn't. You don't have to be based somewhere to, because, um. Well, they probably, I don't know whether they're listed as well in Singapore, but Australia is where David Teo knows he's based here and he's good at raising capital here. And so there's a lot more knowledge of what David Teo can do here probably than in Singapore. So probably when it came to raising money, Australia was a better market and Australia's a better big. I mean, years and years ago they were going to merge the ASX with the Singapore Exchange. Probably would have been a good thing. But, but I think that he just looked at where he got the best bang for his buck in terms of the cheapest, the best share price that he could get. And, and, and the fact that it was spun out of TPG after they bought Vodafone or Hutcherson, I think it was called then, Vodafone Hutchison. So it just made sense for existing shareholders here to get shares in another entity on the ASX rather than to have shares in another companies in another country where it'd be a different currency. So probably I would, I would imagine simplicity and, you know, the least problems for those investors that seeded it, which were the, uh, TPG investors.

Phil: Okay. And moving on to Amplitude Energy, ASX code, AEL Energy stocks, um, they seem to be in a glowing place at the moment.

Richard: Unfortunately, amplitude doesn't really tick that box as much as we would have liked. And this is kind of an example of when, no matter how well prepared you are, the proverbial happens, Phil, the proverbial happens.

Phil: It hits the fan always, doesn't it?

Richard: Well, not always, but you never, you never want to. Like, the whole point of the balance sheet is saying that life isn't meant to be easy all the time. There are going to like, basically they've got this big exploration program outside the Otway Basin, which is in Victoria, South Australia, sort of offshore. And two of the wells thus far have come up dry. And that's, I mean, no one expected that. It's, uh, disappointing. But the point is that this company, they make about 100 million in what they call operating earnings, probably about 76 million. And that's in six months. So over two years they make a lot of money from a gas plant and gas that they're producing at the moment. So, and they've got a strong balance sheet having reduced net debt. So they make a, uh, two sort of 150 million operating cash flow. Net debt's been reduced markedly. So this company, okay, you know, we want the next well, I think there's two more wells to go and we're really hoping for something. But the point is that we're not forced into putting our hands in our pockets again, which is where we've come back to at where we started this program with. So that is the point of A balance sheet. Everything's not always going to be good, fine and hunky dory as Americans say. But a balance sheet means that you can handle the storm. And I think what all these events that we're going through at the moment, you need you, you need as much margin of safety as you can get

Phil: in license and presumably you need gas and oil as well and locally produced would be even better. So is it this like the um, the moment like in that movie Giant with James Dean where we're waiting for the gusher for the oil to come out of the ground or gas in this case?

Richard: Gas in this case, yeah. Much less cinematic isn't it? Gas.

Phil: Oh, it burns nicely when you see it burning off.

Richard: Yeah, yeah, that was a good film though. Um, anyway, we'll see what happens. But they definitely, they definitely got good management. They've done really well getting their Orbis gas plant up to nameplate capacity. So they've done really well. But sometimes if the gods aren't, the gods aren't on your side, they're not on your side. The point is that they can afford for the gods to be uh, a bit out of favor with them for a while. And we'll see what happens with the remaining two gas wells.

Phil: So that's what the bet is that one of these wells or both of these wells will produce abundantly.

Richard: Well that's the short term bet. But the point is that. And the stock fell a lot,

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Richard: uh, 30, 40% after the last one went dry because it was actually because it was coming off the back of the first one going dry. So it's just like how it goes. And generally with resource companies we tend to favor the bigger the better because like scale really means a lot with resources. So and that means you can have a balance sheet and be more aggressive like you know, like Evolution Mining, Northern Star. A lot of the big resources companies really use debt. Well because they can afford to at the smaller end it's much more dangerous. We're seeing companies go out of business that have debt and even some that don't because of, you know, you've got big fixed cost mining. So I guess ah, amplitude's a lesson in. Well also there's a lot of security when it comes to mining and owning bigger miners I guess amplitude certainly at the smaller end of what we support of what we like.

Phil: So Richard, let's wrap this all up with the deal that we're offering listeners for subscribing to under the Radar report where they can hear about these companies and many more opportunities. So under the Radar report uncovers quality small and mid caps and sometimes large caps before they hit the headlines. You can save 10% on a subscription with promo code SFB or shares for beginners or lowercase one word. Both of those will work, presumably. And that's@undertheradareport.com. anything else you wanted to add to upsell to listeners?

Richard: Oh no. I've just had such a good time talking to you Phil. And we're always available so you can email us any questions. What we do a lot of the time is we look at our uh, members, you know, their stocks and we give them a once over every so often in our uh, in our uh, publication like every month or so. So it's really good. The interaction that we get with our members between each other is, is what makes this business so, so one of the reasons we love this, doing what we do.

Phil: Richard Hemming, thanks very much for joining me today.

Richard: Thank you.

Chloe: Thanks for listening to Shares for Beginners. You can find more at sharesforbeginners. Com. If you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

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