Umm... no... sorry Krispy - even ignoring that 15% margin on $810M is unattainable at current run rate.
Business valuations are carried out on EBITDA (or EBITDAW for SGH) basis - i.e. PROFITABILITY, not REVENUE.
If you are making $1B a year on razor thin margins, your business is worth far less than a smaller company making $100M a year with healthy margins. Revenue is to some extent a "vanity" metric for a business. I digress.
810M @ 15% margin is $121.5M profit.
At 2.5x multiple, that only gets you to $303.75M
SGH paid 6.9x for Quindell and that was a premium to their normal acquisition multiple - quite high for a professional services firm.
Even at 6.9x multiple, you only get to $838M (and you haven't accounted / discounted for the $810M in debt yet! the "BI" in "EBIT" means BEFORE Interest - so $40M in interest payments has to be factored in).
To reach your valuation of 2.5 Billion dollars, you would need to get a multiple of 20.5x
You would have to ask yourself - does this seem likely?
Total lending debt right now is $810M. $738M original debt + $32M capitalised interest payment + $40M in fresh equity. We don't need to assume.
Best scenario for current shareholders maybe - but not best scenario for Anchorage.
What would motivate Anchorage to take a future-dated option that delivers them a lower return versus what they can simply just take today in a pure debt-for-equity swap?
They can make a 300%+ return on their investment by simply pushing the company into receivership tomorrow morning - converting $240M into $810M.
To convince them to keep the company going, they need a plan that delivers a BETTER return than this.
SGH Price at posting:
12.0¢ Sentiment: None Disclosure: Not Held
