I have spent some time over the last couple of days going over the 2 Independemt Expert Reports (IER) that have been provided to Realm.
The first one was released as part of the Targets statement (ASX announcement 29/3/18), with the second one released a couple of days ago, within the 5th supplementary Targets statement
I was extremely surprised to see the valuation (on a control basis) of a Realm share in the 2nd IER report remain exactly the same as that contained in the original IER report (done 4.5 months ago) of $1.62 to $1.92.
This prompted me to study those reports.
I apologise in advance for the lack of my copy and paste skills. If someone wants to post them they can.
In the first report there is a table (called Table 2, about page 65 of the announcement) where the IE value Realm on a 'sum of the parts' basis.
This table shows the IE values the non cash assets of a Realm to be be worth in the range of $342m to $417m.
Table 3 (next page) details the cash on hand Realm has.
The report states Realm held cash on hand of $93.7m as at 28/2/18.
The report states Realm have a tax liability of approx $25m that is due in June (not yet paid).
The report then states 'adjusted cash' is $69m ($94m - $25m).
My research indicates this $25m tax liability has not been paid prior to June 30.
Each cash figure I list going forward will be called 'adjusted cash', and will be $25m lower than the figures quoted by the company in various reports since.
In their Valuation of a Realm share calculation they add $69m, stating they are using the cash at book value.
Adding the figures in Table 2 and Table 3 give Realm a value of between $411m to $486m.
This is the equivalent to $1.62 to $1.92 per Realm share.
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In early July Deliotte are appointed to produce a Supplementary IER and to provide an updated valuation of Realm shares.
Appendix 2 in the updated report advises there is effectively no change to their valuation of the 'sum of the parts' valuation for Realm ($342m to $417m), including the valuation of Foxleigh mine.
This Appendix also states they have reviewed the Opening Balance sheet of Realm as at 31/5/18.
This Appendix also effectively advises it has reviewed management accounts and other data, and is of the opinion there has been no changes to previous valuations here.
What this means is that they used 'adjusted cash' at book value as at 28/2/18 of $69m in this new report.
A simply staggering fact in my opinion.
We know, just by looking at ASX announcements, that 'adjusted cash', at book value, was
$76m on 31/3/18 (as per ASX quarterly report released 16/4/18)
$111m as at 30/6/18 (as per ASX announcement within the quarterly released earlier this week).
Deloitte also state themselves they had access to the Opening Balance Sheet of Realm as at 31/5/18.
I'm no expert on balance sheets, but I suspect opening cash will be listed on that balance sheet.
But they think it appropriate, in their initial report, to use book value as at 28/2/18. And then they think it appropriate to use the same figure in the Supplementary report issued 4.5 months later. This is despite the facts listed above.
If you are wondering, the 'adjusted cash' of Realm (remembering the $25m listed above) has gone from $69m to $111m in the time between when the 2 reports were created.
This is the equivalent of just over 16 cents per share.
If the updated cash was fed in to the valuation of the IE, we would get an updated valuation of $1.79 to $2.08 (even though we, and Taurus, know it's all worth a lot more than this).
Add in the discount (as stated in the updated report, minority interest) and I get a range of $1.38-$1.60.
Given the current offer is $1.35, would that make it NEITHER FAIR, NOR REASONABLE?
Yesterday I emailed Deliotte to question why they continue to use 'adjusted cash' on hand as at 28/2/18 in their updated valuation figures issued earlier this week.
It's going to take a lot to convince me there has no been a significant increase in the cash balance (and therefore adjusted cash balance) of Realm since between 28/2/18 and 5/7/18 when they were commissioned to provide a Supplementary IER.
I have yet to receive a response from Deliotte.
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