Chart Update, page-840

Sabine - more mumbo-jumbo to stump your mind.

If one looks at Morningstar EPS forecasts one reads:
.......... 2018 .. 2019 .. 2020 .. 2021
EPS .. 12.2 ... 22.5 ... 26.5 ... 20.8

Other EPS estimates I have seen suggest about 16c for FY19 – perhaps too low. I suggest that if one pokes 16.5c into FY19, and 21c into FY21, and something in between for FY20, we end up with a reasonable spectrum of EPS numbers for those three years.

The Morningstar numbers do not seem credible. I suspect that this comes from a single source, maybe Euroz, and if I could access the current analysis of whomever came up with the Morningstar EPS numbers, I would expect to find something with which I would disagree. Why would FY3021 be lower than the two earlier years? One answer is that the analyst has FY19 and FY20 too high because he has viewed tax from the perspective of what had to be paid to the ATO, whereas I would not do that – I would use 30%. An old (July 2018) analysis at https://www.lucapa.com.au/sites/default/files/Weekly Informer 26 July 2018 - Euroz.pdf seems to support the foregoing.

The tax-loss asset sits in the balance sheet, and even if not fully recognised there, it would end up there if it looked like NWH would end up generating sufficient profit to claim the total tax loss. Subsequently, when gross profit is made, the accounting entries to derive NPAT are to apply the tax rate with the debit going to the tax expense as is normal, and the credit goes to the tax-loss asset, thus reducing that asset. When one extends EPS by some spooky process to divine a share valuation, one does not want to inflate the valuation, so the normal tax should be in that EPS. If you want to recognise the value of the tax-loss assets, reduce it to a cents per share, and add it to the previously divined share (apply a DCV calculation if you want to be cute). Sticking with the spooky theme, the verb divine is derived from the Latin word meaning “of a god”.

Of course, amortisation of intangible assets also comes into the EPS story, but I did that to death in my previous post.