The PDP-valuation issue may not be the correctness of the valuation, but rather an issue of either a) when taxation is paid, or b) the appearance of the P&L accounts and the Balance Sheet.
Tax
If two valuation scenarios had equal liquidation receipts (that is, cash collected and their timing), then after six years the total tax paid would be the same for both valuation options, but the timing of tax payments could be different. However, statutory accounts are not the same as the returns submitted to the ATO. A significant reason for this is the tax treatment of depreciation, because the ATO allows depreciation rates to be high. This may also be the case for amortisation of PDPs – I am unsure though.
Appearance
Even if the tax paid were equal, as a matter of accounting conservatism, many firms prefer to include accelerated depreciation/amortisation in their statutory accounts, if auditors agree. It gives firms more wriggle room to handle the vicissitudes of commercial life. There are reasons of appearance for going down either path, just as there are reasons to don good suits, and reasons to don overalls – its a question of Management's agenda, IMO.
The different treatment of PDL valuations means that when comparing similar companies, valuation differences and different Management agenda's have to be factored into one's considerations.
PNC Price at posting:
$2.40 Sentiment: None Disclosure: Not Held
(20min delay)
