Ann: GUD Holdings Limited - Key Dates, page-21

"prospective ev/ebit approaching 10.
For a company like this, where would you see a fair range in valuation?
Ev/ebit of 13-16? "

@Just_a_guy,

I do like EV/EBIT as a measure of valuation, although it is not part of the common investing world vernacular.

The reason I like it is because it is a proxy for Pre-Tax Free Cash Flow Yield on Enterprise Value (akin to a private equity-style buyout multiple).

As you say, GUD's current EV/EBIT is a little over 10x currently, which corresponds to FCF Yield of around 10%. That's around 800bps to 900bps in excess of the available average returns from risk-free investments.

Given the company's above-average financial pedigree and long successful financial history of GUD, the resonance of its brands, the quality of its management and the growth optionality via acquisitions, I'd happily consider fair value to be represented by a FCF Yield of 500bp or 600bp above a risk-free rate, i.e. a 6% or 7% FCF Yield.

Which equates to an EV/EBIT multiple starting at 14x.
And corresponds to a share price of $13.50.

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