A big increase today and it will be interesting to see if the...

A big increase today and it will be interesting to see if the current momentum is maintained.

With some of the positive news included the stock price looks fully priced to me still and just over a range I can personally justify. If the trend runs who knows, but I still can't see the value much in excess of the current price given what I see as longer term cash flow projections.

There is also the potential issue of an inflated balance sheet through slow amortization with amortization rates that still don't seem supported by the longer term cash collections. Personally I am of the view a number of metrics point to this as a real possibility and I have elaborated on this in more detail in previous posts.

While not suggesting the above is 100% the case, in this instance a bit of accounting trickery is really quite easy to increase revenues and earnings over a period of time by being overly optimistic of future cash flows and in effect slowing amortization rates. In this scenario it is really a bit of robbing Peter to pay Paul, which leaves an inflated asset value that must unwind through the income statement and earnings in the future. The current carrying value equates to just over 2 x the past 12 months of cash flows. That means that without purchasing anymore debt there needs to be 2 years of cash collections the same as the prior year, before there is a net return on those assets on balance sheet. Add in time value of money and the asset value seems to get quite stretched. Also on average those assets would be close 2 years old (the carrying amount equals approximately 4 years of cash paid for debts) and the pace of collections is much quicker in the first two years compared to the next 4-5, which can clearly be seen by the proportion of cash flows coming from years one and two and then slows down from year 3 onwards.

Given the recent rise in price I have continued to question and be skeptical around my valuation estimates and assumptions but I'm still not reaching a wildly different conclusion, albeit I feel there has been some news that may put a bit of a floor on the downside for the time being, assuming no nasty shocks (like me being correct on the above which would slow earnings while it washes through or result in a one time write-down).

DYOR