Deutsche Bank's now ridiculed $8 'target' set in May last year might would only give the more philosophical long term holders of SGH a good laugh. History is littered with predicted numbers going wrong. Looking back, where was the upside, taking risk into account, for holders at the price SGH's shares were trading in May last year? One of the main lessons to learn is never to trust so called ANAL-ysts, who these days are generally spotty youths whose qualifications to practice the subject they claim expertise in are zilch and their understanding of it even less. Aside from their general unfitness to give investment advice, my suspicion is that because a lot of them belong to investment banks, you would have to be insane to believe they have an ounce of morality or any other quality one normally associates with fundamentally decent human beings.
I'd round up as many investment bankers as I could find, load them onto as big a boat as I could find, tow it out to sea, scuttle it and call it a good start. 'Short only' hedge funds next, then take it from there in no particular order. Those who set out to mislead others on boards like this would be in there somewhere, not just those whose posts are intended to mislead, frighten the nervous and then benefit from the resulting panic. Out and out rampers are just as bad.
Looking dispassionately at the $8 SP target set back then in very different circumstances, in a more settled environment with stability re-established, what would it take for that target to be realistic?? In simple terms, if one assumes a P/E ratio of around 15 would be fair to attach to a stable professional services business with a strong and growing market position both in Au and the UK, then SGH would need to generate post tax profits of c.$190m pa to justify a market cap of $2.816bn - the result of multiplying 352m shares by $8.
In the year to 30 June 2015, with one month of consolidated UK numbers (which won't have come to much) and after adding back certain non-recurring acquisition costs, SGH recorded a 'normalised' EBITDA of $117m. Markets seem to use this profit measurement in P/E calculations in modern times (I much prefer post tax FRS numbers, but and I'm only looking at 'ballpark' numbers) so the $8 SP expectation must have been based on SGS (ex QPP) adding a fair bit of profit to bottom line (c. $70m). It isn't out of the question it will do so in the future and it might already have been 'turned around' and making a contribution, after the huge once-off write-offs in H1. One assumes the Au business continues to prosper.
If the above turns out to be the case, a SP of less than 50c would be a long way from fair and reasonable. Of course, we don't know what the numbers were in H2, or how the company will guide us as to the future. I am looking forward to finding out. I wonder how brave the short brigade will be this time around?
As an aside, the stupidity of MF's recent article ("why has SGH's SP gone ballistic") takes some beating, even by their standards. A reasonable investment strategy might be to listen to what their 'experts' have to say, then do the opposite. Should make you a fortune.
GLAL
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