The acquisition of RCC for $10m is itself not a sufficient factor to effect things like NPAT, EPS, DPS, et cetera. Its value in an FA-style valuation falls into the realm of subjectivity from which an increased PER can emerge, or similar ratios like EBIT margin . This is more augury than commercial arithmetic. The acquisitions immediate-term effect is actually negative due the acquisition expenses and less cash to fund an increased near-term dividend increase. Any actual contribution to NPAT in FY 2020 and FY2021 would be a few million dollars, so if it were a generous $3 million a year, that that would hardly account for 1c of EPS.
However, it and other expected positive announcements, are going to uplift the mood of Mr Market, and a PER of say 14, is reasonably sustainable. From a trader's perspective, the PER could be higher at times, and this would effect the charts on which chartists focus.
Now we get to the scary bit. If the $45m NPAT for H1FY19 is extrapolated to FY19 on the basis of a revenue of $1.1b, then we are looking at $99m NPAT. Using $100m NPAT and a 400m share count for convenience, we get an EPS of 25c. A per of 14 would give a target share price of $3.50. This seems too good to be true, so all the quick-buck types will want to take profits off the table, so I am stuffed if I know where the SP is actually going to be. One of my fairly reliable gut-feel arithmetics is to pick the mid-point of a range of values, so using my long-held $2.30 and $3.50 as the range, one gets $5.80/2 = $2.90. This is within the 10% margin of error that allows for SPs circa $2.68, so it is not a heady number.
The reason why I stick with $2.30 is that I do not want to excite the horses, and I subscribe to the view that good enough is good enough. I am not in a position to buy more NWH shares, and I do not intend selling if I strongly believe that $2.30, or better, is likely to be seen soon, and so $2.30 suffices for me to continue to hold my shares, and sleep well at night. Also, to me it makes little difference if the SP hits $2.30 now, or later, or hits $3.50 this calendar year, or two years later.
Because funeral shrouds do not have pockets, my views on owning more or less capital is a smaller issue for me than it is for a younger investor. Further, for reasons that I cannot explain, my lifestyle and tastes are so simple, that I could live just as well on the old-age pension if my situation were I reduced to be able to get it. Drinking a bottle of wine that costs much more than $10 would hasten my need for that shroud, because I may well choke to death at the thought of the price of the wine.
The views and the reasons of other NWH shareholders would allow us to raise the level confidence of a new range of reasonably possible target prices.
NWH Price at posting:
$1.95 Sentiment: Hold Disclosure: Held
(20min delay)
