Originally posted by sabine
Hello pb..... I hope you don’t give up star gazing ( yours was one of the best {non-navigator*} charts ever !)
(*I have to use code words so those concerned don’t realise I’m a secret admirer) .
In crunching your numbers in regards the interim report and looking for ‘glass half empty’ scenarios you say maybe big institutional investors will be sour if they don’t like the cashflow....
Does capex impact cash flow or does cash flow happen before expenses?
I ask because I had the impression that not so much needed to be spent in 2018 ( bar the big Leibherr machine for Curragh coal mine and trucks for Gascoyne?), but NRW has already flagged new machines are required for the initial works at Koodaideri which I presume means all new contracts will also need new machines, plus there is possible machinery expenses if there is ongoing refurbishment of the Hughes drills, and RCR might need some spending too seeing as the previous ‘let’s-run-this-company-into-the-ground, milk it then debunk’ management were clearly running on empty?
As far as equipment NRW already has on standby, on Facebook it says it has demobilised at Carrapateena ..and the trial restoration earthworks at Argyle Diamond Mine for Rio were completed ( both ‘fleets’ possibly gone to Fortescue bar an extra excavator sent up to Gascoyne) but I don’t know what else has finished or is due to finish (South Flank won’t be done until December).
I would think the big time investors already know all this so why should they see cracks?
Also in regards any impact on cashflow from Gascoyne, didn’t NRW loan it $12million to ensure it would be able to meet it’s payment schedule to NRW and pay back the mines or else give us the mine?
Also I have another question which I hope someone can help with ;
The cash holdings were $58.8 million as of the 2018 Annual Report.
Then NRW restructured it’s debt and used “some of it’s own” cash to reduce the new loan with BankWest to something under $38 million.
Then it loaned Gascoyne $12million
Then bought RCR for $10 million
If it paid (random number) $3 million off the BankWest loan that means it has spent $25 million of it’s $58M leaving it with $33 million in hand plus whatever it has saved.
. I know I am mathematically incorrigible, but in the 2018 annual report it says the debt was
less than $38 million ?
“
New work secured across the group circa $1.7B; Order book: $2.2B as at July 2018 (3).
• Net Debt at June 18 $34.4M –
– Strong commitment to debt repayments - $31.3M repaid in FY18.”
Why should this be so? ....
Cheers
Hi Sabine,
The thing for me with investing is that the hard (but necessary) bit is working out what is the right
question to ask for a company at a point in time. I probably read this somewhere but it has stuck with me. There are lots of unknowns but we need to look at the information we already have (or are about to get) through the filter of the most question that effects the medium/longer term value. When everything appears to be going well, this is more important than ever I think.
The question for NRW is not "is there work?" or "will NRW win it?" since we can be fairly sure about those and everyone knows the likely answer etc.
I think the question might be: "Is NRW booking any revenues that might not turn up?" or maybe "Is FAL a potential surprise loss maker in a year or so?". I'm ignoring FAL for now because I have no idea other than to watch the overall cashflow and the profit booked by the accountants.
The reason I mentioned Cashflows is that Fund Managers like to see Cashflow more or less in sync with the Income Statement as a sanity check and confirmation the company is not tweaking the books to look good.
You mentioned Capex etc (on that the Cashflows will show actual cash leaving the bank for lease payments, or repairs to equipment or buying equipment for Cash). The Income statement might show deprecation which may not be quite the same. An example is disposals for 2018 shows a big reduction in equipment value writing off a largish residual value but the cashflows showed a small cash inflow because the old equipment was sold for almost nothing. I don't think NRW has had a surge in new equipment FWIW, just have to expect the surplus unused equipment is rolling off over the next few years and these are capex heavy businesses in BAU.
A reason that Cashflows might be bad while eps is good is that payment terms to clients might expand (I think that's what's happening with GCY). No cash in the bank but we have accrued income for work done. Will that cash ever turn up?
The obvious reason to care is that cash is king and income statements are sort of irrelevant if they are very different or if money is tight. If you have no money in the bank you can't buy stuff (simplistically) or pay dividends.
Just to be clear, I'm not pessimistic about NRW at all.
I'm just saying I'll guess a battle hardened Fund Manager will flick to the cashflow statement as a good barometer of how the business is really travelling. Revenue is expanding, requiring investment which sometimes causes cash issues. You get a no-BS view of what's in the bank.
With respect to dividends and RCR investment I'll guess the Fund Managers will support lower dividends for low risk bolt-ons or even larger strategic acquisitions (like Golding) given the company believes we are still relatively early cycle and the better returns and lower risk for a larger more diversified business. It probably means our dividend will be slightly lower but all good with me (and the FMs I think).
One other thing - JP said he was really happy how the company is going operationally. To me this means some of the issues with ADB utilisation after the Hughes acquisition have been solved and we can expect that division to make a profit - hopefully in H1 but if not then in H2 for sure.
Cheers
pb
(20min delay)
