Ann: FY17 Update, page-16

"It is a significant downgrade, but you would have thought the P/E accounts for it already."

@thunderhead1,

Be careful of focusing too much on the P/E as a valuation signal.

The capital structure of this company means that an Enterprise Value based approach is what's required to give a more reliable valuation metric.

And on that basis, based on today's update, the company is trading on an EV/EBITDA multiple around 8.0x.

Which, for what this company is, the somewhat opaqueness of its arrangements with its franchises, the manner it has "grown" and the growing perception of its lack of organic earnings growth and, therefore, future earnings risk, appears to me to still be bit of a generous multiple.

Personally, I would be disinclined to pay anything over 7x EV/EBITDA.

In my experience, when roll-up stories reach the end of their financial capacity to keep acquiring, the de-rating can be quite severe. Multiples of 6x, or even 5x EV/EBITDA are not uncommon.