Anyone here game to throw a few numbers around to see why anyone...

Anyone here game to throw a few numbers around to see why anyone would be interested in this company.

Trading update given on 20 May gives an EBIT of 6 million for half year to June 2009 (excluding non-recurring expenses).
The last half year had Depreciation and Amortisation expense of around 5 million.
The 20May trading update also says there are a further 12 million in cost reductions which will impact the 2010 results.

A very basic estimate(OK it's a guess) of EBITDA for this business: - double the half year EBIT of 6, add 10 million in DA and add the further 12 million cost reductions - this gives 34 million. Now if working capital stayed the same then this should give an indication of operating cashflow. The 20 may trading update suggests that cashflow should in the short term be even better because they are reducing working capital.

The 20 May trading update also indicated that they have reduced debt by 10 million in the 4 months to the end of April – this figure is consistent with the strong operating cashflow I have estimated although could possibly have been produced by major inventory reductions.

Now the current market cap is 39 million and they have around 60 million in debt. I think the debt will be reduced fairly quickly with such strong cashflow and a few property sales thrown in – the refinancing has scheduled in debt reduction of 22.5 million by the end of 22 september – that’s a lot of debt to repay if you don’t have strong cashflow. Actually, contrary to some of the media comments, Wattyl is not highly geared.

Now….if the revenue figures for Wattyl continue to fall substantially then the high fixed cost base will cause major problems and obviously the above analysis can be thrown out the window.

I would think Wattyl is a classic private equity investment in its current state. Take it over, make the hard decisions, gear it up and sell it back to the public when business picks up.
I don’t think Alco was in the paint business when they have a crack at it in 2005. When the figures add up there are plenty of potential buyers. The big money however is to be made from a turnaround of this business.