not a valuation but a perspective on potential and sanity check on multiples.
Company has provided EBITDA guidance of $93M for FY09. It has reported first half of $50m (excluding abnormals) and $46m including abnormals. Having considered quarterly earnings increases and taking the percentage increases of last year I estimate a second half performance of $55m as the trajectory. Thus likely pre abnormals EBITDA of $105m for the year ( well in advance of the $93m guidance). Thus very likely, IMO, that in the course of the next month or so we will get an earnings upgrade announcement.
Assuming my earnings estimates are correct, and assuming debt at the full year end is $83m (given their stated debt reduction intentions), but excluding the dilution from DRP we get the following EV:EBITDA multiples at the corresponding share prices
To put this into context SOT paid 5.2 times TPG's forecast FY08 EBITDA when it acquired the business in April 2008. Thus the forecast was all but an actual. At the same time the Independent expert noted that the listed ISPs ranged from 5.8-8.3 times EBITDA with the most comparable being IIN at 7.5 and Amcom at 8.3 times.
Even if we were to take the 5.2 multiple, and assumed debt at $83m and say new DRP shares of 21 million (approx 80% participation) this transaltes to a share price of 66 cents!
Whilst the world has changed since April 2008 I do believe that in 2 years time more normal market multiples will return. By this time SOT earnings will have pushed higher, debt will be extinguished and a 5.2 times multiple may be very conservative.
There is still plenty of upside in this one.
DYOR
SOT Price at posting:
32.5¢ Sentiment: Hold Disclosure: Held
