SFX Value Analysis

SFX Value Analysis

I want to acknowledge the time and effort by 2ic in preparation of his detailed summary and thank him for his efforts. 

It’s refreshing to see considered opinion as opposed to blatant up/down-ramping on Hotcopper forums.

As 2ic points out at the end of his summary however, it is important that readers of Hotcopper do their on research (DYOR) and do not rely exclusively on the analysis of others. It is often the case that some analysis may contain unreasonable assumptions and even calculation errors.

To quickly demonstrate this point, at the very beginning of the recent analysis a simple calculation error appears to have been made when adjusting the BFS post tax NPV  (620m - 80m = 520m). I assume the correct number should be 540m. Although only a small error of $20m it highlights to the reader that care needs to be taken when relying on the analysis of others to make your investment decisions.

To further emphasise this point a quick cursory glance of the recent 2ic analysis highlights an immediate reduction in SFX’s Thunderbird value of over $110 million due to another two small errors/assumptions:

• Reference is made to the Bridge Street Capital report theoretical  ’equity component to get finance underway’ of A$257m however in the next sentence there is a transposition error that results in an amount of A$275m being used for all subsequent calculations - Effect is $18m of value not included (deducted) let alone the dilutionary impact of additional shares unnecessarily being issued to raise the extra $18m in analysis.

• Given the updated ’theoretical equity component’ numbers from the Bridge Street report are being used in the analysis it would be reasonable to also use their updated post tax NPV of A$614.9m* which already considers the impact of increased capex announced in October 2018 instead of trying to make adjustment to the original estimates from the BFS released in March 2017 (2ic uses ‘adjusted for capex increase post tax NPV’ of A$520m) - Effect is A$94.9m of value not included 

* note that the Bridge Street updated post tax NPV applies a 10% discount rate - by using the 8% rate of BFS/2ic the NPV will further increase, adding greater value to project economics.

So as shown above from two relatively small errors/assumptions over $110 million of project value has been slashed from the analysis.

Again, I welcome considered opinion and commend 2ic and all others that make the effort to share information on this forum. 

I only make this post to ensure readers understand that such information is still only the opinion of others and requires rigorous scrutiny when used in their assessment of companies for investment decision making purposes.