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31.0¢ valmec limited

edshann, a very thorough review. Well done. As a long time...

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Rikardo

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12/09/17

09:12

Post #: 27146385
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Originally posted by edshann ↑

Management in last year's profit announcement gave some guidance on this year's outlook. I have therefore tried to calculate likely profit this year using conservative assumptions based on the guidance given and conclude the shares still seem cheap.

I assume revenue of $86 million (double the revenue in the second half last year), though the only guidance was revenues would increase on last year, which presumably means more than the full year $72.9 million. My estimate seems reasonable as the order book appears from recent announcements to be about $72 million already including expected extensions, with the bulk expected to be completed this year.

The EBITDA margin was predicted to improve on the 7.5% margin in the second half given group overheads are expected to remain constant. I assume an 8% margin which seems conservative. This produces an EBITDA of $6.9 million. This compares with $4.1 million last year, of which $3 million was in the second half on the revenue of $43 million. The improvement comes from the better margin over a full year.

Depreciation and interest costs are expected to decline (there is a lower cost loan), but I assume only a small fall from $1.9 million to $1.8 million.

EBT is then $5.1 million and tax is $1.5 million at 30%. However there are net deferred tax assets of $3.5 million so I assume as this year no actual tax will be paid.

Taking the NPAT of $3.6 million and 81.8 million shares this is 4.4 cps. Even at the current share price this is a PE of only 5. Cash flow would be even stronger if no tax is paid.

There are 42.9 million listed options that expire in January 2018 and can be exercised at 25 cps. If all were converted that would raise $10.7 million and allow all used financing agreements of $10.8 million to be retired, reducing finance payments by $0.8 million.

On the expanded share base earnings would be 2.9cps and the PE would be 7.4 with a debt free company.

A key question is whether the share price will get over 25cps so that options are exercised. This may need a dividend. There are franking credits of $658000 available which would allow at least a partially franked dividend to be declared to encourage both a share price rise and option conversion. The company could also state it intends to distribute (say) 50% of NPAT in future (though not necessarily franked), which even on the expanded share base would be a yield of 7% (ignoring any franking) at the current share price and 6% at 25 cps. It would also be useful given the lack of share broker coverage if the company started to give profit ranges for the current year.

I conclude the shares seems cheap even after the recent rise. Any comments on these calculations welcome.

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edshann, a very thorough review. Well done. As a long time shareholder I am clearly patient. With some of the directors (founders) still having plenty of skin in the game (and adding) and I think Thorney or Tiga are/use to be a shareholder, I will stay on board. Your assessment further confirms my reason for remaining loyal. Thanks.

VMX Price at posting: 21.5¢ Sentiment: Buy Disclosure: Held
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0 Great analysis

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edshann, a very thorough review. Well done. As a long time...

Top Stories

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Dale Gillham's weekly wrap: Sigma-Chemist Warehouse merger creates pharma powerhouse

Scientific conference spotlights PYC's work on blindness disease treatment

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HotCopper Highlights: Your most watched stocks for Week 47, 2024

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Sales growth pushes Lovisa's fortunes (and shares) upwards

Pan Asia rebranding to 'clear confusion' after bagging $35M for Chile projects

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To make modern missiles, you need 3D Printing. And in that gold rush, Amaero is selling shovels