Looks like a really low share price. Underlying EBIT was $7.5m...

Looks like a really low share price. Underlying EBIT was $7.5m during 2H16 (FY16 EBIT $13.7m less 1H16 EBIT of $6.1m) - they had a loss on sale of assets of $3.1m booked in 2H16 (non-cash) so their reported EBIT is 'only' $10.6m.

In other words their EBIT showed growth, because their underling EBIT increased from $6.1m in 1H16 to $7.5m in 2H16 (22% Half-on-half).

If they repeat their 2H16 in both halves during FY17 then they are looking at an EBIT of c.$15m for FY17.

Market Cap is around $15m and they have $13.2m cash so the market is valuing a business producing an EBIT of $15m (annualised) at $2m. That's an EV/EBIT of 0.13x i.e. an earnings yield of 750%.

The business is de-risked having eliminated their total $30m in debt during 2H16 - perhaps this was holding a lot of investors back. They went from having a net cash position of $7.4m at 31 Dec 15 to $13.2m at 30 June 16 - nice to see.

I personally think that given their investors relations is virtually non-existent (and hence the market doesn't really know much about the business) a P/E of 5x would be a pretty reasonably multiple in the absence of concrete information regarding contracts, pipeline, etc.

If we apply a 30% tax rate to their $15m (2H16 annualised) EBIT we get an NPAT of $10.5m (remember they have no interest to pay in FY17 so EBIT=EBT). Applying a 5x multiple we get a pre-cash equity value of $52.5m. Adding back their $13m cash we get a value of c.$65m., which equates to a share value of around 10 cents.

Key assumptions:
- the EBIT they achieved in 2H16 is repeated in 1H17 and 2H17 (i.e. assuming no growth)
- the market pays a 5x P/E multiple for the earnings and attributes $13m to the cash on their books
- they remain ungeared


Henry Emmett