From media statements, investor days, reports to the ASX and so on, this is what we know:
- Phase 1 is 1020 hectares of ponds
- The revenue from phase 1 is going to pay for the rest of the build
- Full build-out is 10,000 hectares of ponds and is expected to cost a total of $2bln
- Phase 1 is expected to cost about 15% of the entire project ($300mln)
- The company intends to hold about 70% of the completed project
- Full build-out will produce about $700mln EBITA each year (about $490mln attributable to SFG - Bell Potter claims that the complete EBITA of PSD will be more than $1bln per year)
- Therefore the company will get about $490mln EBITA of the completed project
- Today there is about 1,400 million shares outstanding, about 130 million options outstanding
- The off-take partners/investors are expected to buy about 30% of the project itself - with the money being used to build the project
- NSK (subject to Foreign Investment Review Board approval) has bought about 247 million shares and 30 million options for $25 million
- The NSK deal requires PSD to sell off CO2A - meaning that the prawn business is all we have
- The company intends for PSD phase 1 to complete by 2020/2021
So now it's time to do some scenario analysis and see how we go.
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
| 1 |
|
Optimistic |
Likely |
Conservative |
| 2 |
Completed PSD EBITA (projected) |
$700mln |
$600mln |
$500mln |
| 3 |
Optimistic PE 12:1 |
$8.4bln |
$7.2bln |
$6bln |
| 4 |
Realistic PE 8:1 |
$5.6bln |
$4.8bln |
$4bln |
| 5 |
Pessimistic PE 4:1 |
$2.8bln |
$2.4bln |
$2bln |
For my purposes, I've assumed that the company's revenue projections for PSD are optimistic. I've found a range of PE for Australian agribusinesses. This gives us an enterprise value of $2bln to $8.4bln for project sea dragon.
The company is intending to own 70% of PSD going forward. But I'm not so sure, so let's assume that PSD is the company's only asset and what this would mean for SFG's value going forward:
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
| 1 |
|
70% stake |
60% stake |
50% stake |
| 2 |
Optimistic Optimistic |
$5.88bln |
$5bln |
$4.2bln |
| 3 |
Realistic Likely |
$3.4bln |
$2.9bln |
$2.4bln |
| 4 |
Pessimistic Conservative |
$1.4bln |
$1.2bln |
$1bln |
This would value SFG between $1bln and $6bln. If this is accurate, then we have a long-term share value of 50 cents, and $2.94. On account of my own financial circumstances, I'd need to start "risking off" in phases around $0.75
If completed, I believe we're likely to see SFG worth as a company around $4bln when PSD is completed - I have nothing to base that on, but a bunch of comparisons.
Points of concern:
- FIRB approval for the NSK investment
- Divestment of CO2A
- "Construction" announcement still hasn't been made
- Building can only occur in dry season
- Dry Season runs from April to November
This is what I would expect to happen:
- Within the next 60 days FIRB grants approval
- 30 days after approval, SFG will get payment from NSK
- "Construction" starts in September - but they will be basic site-works things - powerlines and such
- A bunch of funding is found over the next year, construction proper happens in the dry season of 2019 and 2020 (April to November)
- Prawns grow in 2020-2021
- There is some kind of issue with yield in 2021 (guess - but something always goes wrong somewhere)
- Phase 2 starts circa 2025.
Obviously the further along this list we get, the deeper into speculation we go.
Remember - this post is more about me getting my thoughts straight than giving anyone advice. DYOR and good luck.
