PGR Full Year Results & Next Steps, page-2

Here's some more detail to support my strong buy recommendation - the more I dig into this the better the investment case gets. Here is the information we know:

- FY18 EBITDA is forecast at $10m-$13m;
- H1 EBITDA includes $1m of one-off takeover costs;
- H2 EBITDA will include $0.8m of upfront investment for the new brand acquisition;
- The new brand acquisition will generate $35m-$40m of sales. PGR's wholesale businesses typically generate ~10.5% EBITDA margins, so we can conservatively assume this will generate at least $3.5m annualised EBITDA;

If we add back the one offs and incorporate the annualised impact of the new brand acquisitions, we are looking at an EBITDA range of $15.3m-$18.3m. At 32c, this equates to a P/E of 5.8x-8.1x, and a fully franked dividend yield of 7.4%-10.3% (or 9.6%-13.4% grossed up). This is also arguably at a cyclical low in retail sales, so significant upside exists from here. Obviously the FY numbers they report won't clearly show this (and they would have no incentive to do so), but it is clearly cheap (BTW, they have also been investing for future growth in additional marketing, online etc, but I'll ignore the impacts of this for now). Although you may question why the share price is so low given these numbers, remember that the true free float of PGR is only ~18% or <$8m at current prices, which is not large enough to justify investment attention from professional investors. In my view, there is substantial upside from here as long as investors hold on and Kestelman holds his 10.1% stake.