Originally posted by dannyboyLIAC
Good will for SHJ is the price it pays for businesses not its Actual Goodwill and it is selective manipulation of a situation used to avoid tax and keep dividends from shareholders and people should be ripping into Simon about it. I think this is the second write-down of this one division, they paid overs for a business in a specific niche that turned when the economy did, so be it, it does not mean its a closed/failed business operation, knowledge and connections are still there its just not as much revenue as expected has arrived yet. SHJ buys 8 businesses in in 3 years one of them is a dog but the great ones don't increase the goodwill to offset the losses, it is a strange provision easily manipulated by smart people. Like the provisions. It's all just accounting. Using Insurance matrixs the Actual Goodwill, as in if someone wanted to buy the company would be about $200-$300M. That is for a Huge Company like NAB or Westfarmers to acquire SHJ it would go something like this.
Gross Profit - $40m X 5 = $200Mill of Goodwill, 40 in book $160M to be added on.
Outstanding Work Done - $410M Less Provision $40M ( argued down by lawyers to normal 10) Less fees due out (? guess $70) Less Tax of about $100M ( minus already provisioned 70M) which is 410 - 40 - 70 - 30 = 270M
Sale Price would be roughly $400M plus change - All these tricks they use are holding back true value and really the ASX does not care as they're over provisioned but they've secreted away so much through write-off and over provisioning its not fair, this is Simons Super Superannuation and you just have to be here when the decision to sell is made because it will rain gold, and in the meantime pressure needs to mount on these guys to look after their shareholders ( owners) better with true valuations and true dividends.
The impairment is effectively recognition that Shine over paid for Emanate (based on 20-20 hindsight). Of course this is based on the assumption that the market conditions for mining and resources will remain the same. On a long enough timescale its likely this sector will eventually pick up again, after all mining is a large part of the Australian economy.
A few additional points:
- I joined the analyst call this morning. It was mostly a verbatim read of the presentation pack. One point of interest was regarding acquisitions - they're in no hurry. I'd consider that a positive. Also the priority for acquisition is confirmed to be in family law.
- Having has some more time to absorb the numbers it's of note that while financial costs (cash) have doubled, they have significantly paid down debt. The have paid down 11% of borrowings since the 2018 full year report. This is in spite of Carr and Co purchase being funded from debt. Notably ACA acquisition was paid from working capital and NOT debt - which is great and was not my expectation.
- Despite revenue being down current WIP assets are up by 12% (non-current WIP is flat)
- While the dividend has (technically) increased from last year note that it is unfranked, whereas last year's dividend was franked. As a result in real terms (depending on the impact of franking credits on your tax) the dividend may actually be seen as flat (i.e. not an increase) from the perspective of the shareholder.
That said -contrary to DannyBoyLIAC - my preference is for Shine to retain capital and not increase the dividend; at least until the borrowings are further reduced and dependent on capital reinvestment opportunities available to Shine.
