FYs 19 and 20, page-4

I have mooted a $2.00 SP for NWH in various posts since late calendar year 2017. I started thinking of a new target price (TP) early this week. Also, on Friday I also gave a yet-to-be-announced contract with RIO some thought, and it turned out likely to be smaller than the $600M+ that I had, without much thought, expected. Consequently, I thought that, lest my current thoughts on RIO impacted what I wrote in the kick-off to this thread, that I would revisit my post of 24/08/2018. Also, I did not use the most recent information on the share count in that earlier post, so I decided to correct that point in my per-share calculations. In this post I have used a larger share count, by rounding up the count in the Annual Report to 371 million.

As I have written my thoughts on the possible RIO contracts, I'll paste the information here, although it serves little purpose, other than giving some support for metrics I factor into my FY20 revenue expectations. I have reduced my original TP of $2.40 to $2.30. I''ll also now venture that the SP will reach $2.30 before 30 June 2019 – that is, when most investors and analysts would have shifted to considering FY20 forward estimates, rather than FY19 estimates now available. The SP could hit $2.30 much earlier than 30 June 2019, and when it does, I'll concoct a new TP.

RIO contract

The November 2013 $630m Samsung contract was for the construction of approximately 330 kilometres of main line heavy haul rail formation together with sidings, level crossing and associated works. The April 2014 circa $200M Concrete Package (~800’000m³ of backfill/excavations, ~15km of underground piping and 5km of Rail works for the Stackers and Reclaimers) was added to bring the total to circa $830 million. RIO's Koodaiderie mine extension requires 180 kilometres of railway line, plus what I'll call a Concrete Package, so for the want of a number, we can say that a contract value of $100m is too low, and $1,000m is too high, giving $550M as the middle point. Alternatively, we could run with about half of the two Samsung contracts, and guesstimate circa $415M. The average of these to guesstimates is $965/2 ≈ $480M. These numbers are simply random thoughts, and they are not used in my calculations below, but they may to a degree support the reasonableness of them, including the mood that would set the PER used on forward estimates to derive a target shareprice.

Guesstimate a Target Price

By late February 2019, the market will be informed by Management via the H1FY19 Announcements what the H1FY19 revenue then transpires to be, and what the H2FY19 revenue is forecast to be, so the sum of the two is what the FY19 Management forecast will be. The estimate for FY18 provided on 20 February 2018 was $705.3m, and the recently published actuals transpired to be $754.3M, nearly $50M higher. This is why in my calculations below, I added $50M to the current $1,100M forecast for FY19 to get $1,150M. The gap could be greater, but adding $50M is, I think, reasonable.

By late February 2020, Management's FY19 Revenue forecast will be Announced. If the Market thereafter expects the Revenue booked in FY19 to be $1,150M, and it expects FY20 Revenue to be loosely $400m more in FY20, and the NPAT margin to be 5.5%, then FY20's NPAT would be expected to be $1,550 x 5.5% = $85.25m, or an EPS of $85.25m ÷ 371M ≈ 23 cents.

I'll presume that by June 2019, and probably four months earlier, the mood of the Market supports a PER of 10 on the FY20 forward EPS estimate. The SP could hence be about $23 x 10 ≈ $2.30.

As you should appreciate, my guesstimates are fraught with subjectivity, and woefully devoid of detailed bottom-up calculations. They are not individually going to match reality. Variances of individual factors can compound to give a larger variance of the conclusion, a target price of $2.30. However, they are more likely to offset each other to reasonably support the conclusion, or put another way, in my opinion the upside is more likely than the downside. Also, I have given my guesstimated TP four months leeway, by saying that is what I think the price should be before 30 June, whereas it could hit that mark four months earlier. When analysts provide their TPs, they usually do so as a within-12-months window, which for new analyses could be until about 30/08/2019, whereas this opinion of mine hints that it could hit that $2.30 target by 30/02/2019, and by 30/08/2019 it probably would be generously higher than $2.30.

Do you own postulating and arithmetic, and see what you get.