Spotless Chart, page-174

The dividend will be lower though - as stated a few times on this thread their earnings are going to be lower than last year. The company has said this in the AR/comments. I'm starting to think it will be a lot lower based on the tid bits of information coming out, none of which is positive.

With a payout ratio linked to falling earnings it means a cut to dividend. Add to that the high debt position and it could be material.

I would just make two comments on Bug1's analysis which compared SPO to international peers (which was very interesting btw).

Firstly, the higher margins of SPO are a risk as much as a strength - they stem partly from cost out under private equity ownership. As stated just this week, PE stripped out key functions which SPO are now having to put back in. Who knows how many functions this applies to? They've only pointed to business development but there may be more. I previously wrote about the margins being OK and sustainable, but the info this week proved me wrong. Add to the point just made that they are losing contracts because others are pricing below, and that points to margin erosion if they want to win/retain contracts going forward in what is clearly a competitive environment.

Secondly, overseas valuation multiples can be wildly different to Australia and the gap may never close. This happens ALL the time. Markets are not 100% efficient, capital doesn't flow unimpeded across borders, investors in different markets face different decisions (e.g. interest rate environments, different investment opportunities etc), so the spread can be wide and sustained permanently. Cross-border M&A is challenging and whilst buying a 10x business when you're at 20x is prima facie accretive, if it's a declining business you are buying then it won't be well received by investors.

Personally I held SPO most of the year and would like to believe it can deliver what I previously thought - I just think it will be 1-2 years from now. So I wouldn't be a buyer or a seller right now. The yield is still good even with a lower dividend (it's likely to be >6%) so if you're already in, it's not going to send you bankrupt holding it. But there's no catalyst to buy and unfortunately Feb 2017 might be the earliest that a proper decision can be made.