News: SIV Silver Chef Posts FY Total Revenue Of $287.1 Million, page-15

Well - I can't see anything that suggests they are well priced. The sub debt could be at 15% interest. They paid roughly 6.4% in finance costs last year - this year probably will be at least 2% higher. So even imagining away the severe dilution risk, and worse admin risk, and applying 0% odds to that, their EBIT margins will probably be far lower in the hospitality div than previously. And worst news is that the lower their SP goes, the more difficult it is to sort out the businesses capital structure. Their Hosp segment PBT ratio was negative in half 2, and they are now further constrained, and that segment PBT leaves out about $27m pa in corporate overhead that will be expensive to trim.

On a full year basis - if you mormalise the impairments and BDDs down to 6% of revenues, and imagine away GG, you get a segment PBT of $36m, then subtract corp overhead of (lets say) $25m, then subtract an extra (say) $8m interest and you have a $3m PBT as the new normal. It really doesn't look like GG will realise any segment equity to me - but even if it does break even, you have a debt ratio of 82%, or a very skinny equity ratio of 18%. To get to 30% equity ratio target, they would need an extra 42m equity. Their market cap is about $80m, so to get that $42m will cause a lot of pain.

They need to restructure the business on top of all of that - for which the outcomes are always very uncertain. They are a long way from trading their way out of this IMO, as their profitability is too far away from their equity required to get back on track. Hence the cap raise seems very likely.

I can't see who is going to perceive this as a cheap stock, or a stock where the selling is overdone at around a $80m Market Cap. I bought in when I thought they might be able to trade out of it, and when I was also hoping for a pro rata crap raise to right the balance sheet, but to me the numbers just don't seem to make any case for that view any more.

The news in mid August completed flipped my point of view and was a very nasty surprise. The 4th of July announcement stated that they were confident they would deliver the groups historical level of growth (at 10%+) and returns over the next few years - so I not unreasonably assumed that their balance sheet could not be a massive problem - but it is! I further believe they could not have been in the dark about that at the time of making those statements, as the covenants and capital management targets make very clear in the FY report.

All IMO - DYOR, DROM etc