Sorry for the late reply but a new thread started that took over this discussion.
You are right about the small ratio indicating an overvalued position. RSG and NST were the most overvalued of the 7 companies included in this plot by this ratio/measure. The difference being that RSG's major asset (Syama) was in a deep development phase during this period (a period described by the managing director of RSG as aggressive care and maintenance for Syama) whilst all of NST's major assets were fully operational barring possibly their 100% Kundana project developments and Paulsens which was being wound down or had finished producing (I can't remember the timing and details of this wind down from memory....would need to check).
The point of my post is based on simple empirical evidence. Once RSG's FCF to market cap percentage ratio falls in the range between 5 to 13% it has a strong likelhood of having a market capitalisation of between $2 and $3 billion as per the three distinct vertical divisions in that plot. SBM included RSG with SAR, RRL, OGC and NST/EVN for a reason. They are in the same peer group. Over time any of these companies can move up or down the x-axis of this plot. Currently these 7 companies form 3 distinct vertical groups (with RSG being in a group of its own). The plot would actually make more sense if the y-axis was the MC and the x-axis was the FCF /MC (yield) as the FCF is the independent variable.
Interestingly and despite RSG being in an aggressive period of care and maintenance at Syama, RSG was the second best performer on a NPAT vs MC value basis behind SBM for FY2018. These two companies were the most undervalued on this basis over that period. What the two charts are saying together is that despite RSG having the lowest FCF yield vs MC it had the second best NPAT yield vs MC. Predictably SBM comes out as the most undervalued on these two measures as all companies are going to present measures that makes them look the most undervalued to the market. You are hardly going to employ the guy that gives you charts showing that your company is overvalued.
Notably NST is the most overvalued on the NPAT measure and second most overvalued on the FCF measure. Confirms what I've been saying about it's bubble status. Esh
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