cup and handle breakout - packer buys in, page-16

Hi Lost, while your enthusiasm would be appreciated by most Coffey shareholders, I think there might be one or two teeny flaws in your approach.

You refer to EPS for FY13 of 3.4c.

Not sure where you came by that figure, but pre-NRI NPAT was $6.2m (you need to tax effect the $10.2m restructure costs, and then add that back to the reported $1.0m loss after tax).

So that’s EPS of 2.42 cps.


Also, I think the market is always forward-looking, so it is best, I believe, to not look in the rear view mirror, as it were, but to look at prospective earnings.

And specifically, in COF’s case, one needs to focus on EV/EBITDA as the most salient valuation multiple, given the significant debt reduction underway, and the resulting “re-equisation” of the EV/EBITDA multiple.

Viewed this way, and assuming there is no EBITDA rebound in the next two years (unlikely, I would have thought, but anyway...), the Free Cash Flow generated by the company would see NIBD falling by some $20m, I expect. Assuming the EV/EBITDA multiple remains at the current undemanding level of just 4x, it means that the market cap would rise by $20m, which is 25% up on the current $77m.

Of course, one would reasonably expect that, as the debt falls, the lower financial risk means that the multiple would rise (a fundamental tenet of investing).

5x EV/EBITDA would yield a share price of 40cps
6x EV/EBITDA would result in a price of 50c

And all this ignores any recovery whatsoever in operating earnings.

Cam