A40 (ASX) Significantly undervalued, CY20e EV/EBITDA of 1.2x

Originally posted by Sharpey: ↑

Not to become one of the miserable ghosts who have haunted these threads for months now, but looking 2-3 months into the future is exactly why I sold.

The quarterly gave no indication of new offtake by the end of the quarter, only that it would be "substantively complete". Based on the projected cash expenses they have provided for the next 2 months (current quarter), there is a high likelihood the company needs to start drawing down on that second tranche of debt from Tribeca.

Now that isn't a problem itself, in fact it's good the company has that facility, but it's not cheap to get. Every extra dollar drawn on there pushes back that first dividend payment. It also means either more prepayments/borrowing to pay for DMS2, remembering that DMS1 won't be repaid until after 2021 under the current plan.

And that's without considering the risk of a new offtake agreement not having the same $680/t floor price as the renegotiated deal.

I agree that the metrics look set to improve dramatically from October, and then it may quickly rise back above 30c. But first we have to see them:

1) stabilise production at the impressive levels that have been managed in January
2) sign deal(s) to sell the increased production
3) achieve 1 and 2 without borrowing considerably more money
4) deliver the fines upgrade on budget and schedule without affecting 1, 2 or 3

Relating it to the Canaccord valuation, it does indeed look cheap based on forecast earnings for all of 2020, but we've only just started 2019. They still have to demonstrate they can produce and sell the product this year before we can assume that next year's numbers will turn out that neatly.

Anyway, that's all I wanted to say. Still watching closely, and if they sign a killer deal with a Japanese or South Korean partner tomorrow that puts all of the above concerns to bed, then I will gladly admit I was wrong and jump back in.

Because if they can do those things, then bringing DMS2 to life in a few years would mean heaps of upside here.

Cheers

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Hi Sharpey,

...."but looking 2-3 months into the future is exactly why I sold"...

I really think you misjudged the situation and I am only saying that because I think it's a shame you sold out at the bottom as I thought your analytical skills are pretty good...I'm still standing by my prediction:

A40 will be the 1st to pay dividends.

All IMO

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