Taking a sip at Keytone Dairy, page-89

@MarsC,

I'm afraid I'm not going to be of much help here.

Until I have some idea of how liberally or conservatively the accounts will be struck I can't say to which extend expenditure will be capitalised.

It normally takes me 3 or 4 sets of successive financial reports to get a feel for the accounting interrelationships between PP&E, D&A and Capex.

So what I tend to do in these sorts of cases where I'm dealing with a "new"company, such as this one where there is no history of financials, is I value them on a pure "cash earnings" basis (basically using the Appendix 4Cs as the building block and then taking a few stabs at projecting Cash Receipts vs Payments in order to get a sense of what the Free Cash Flow profile, if it exists, might look like and comparing that to the prevailing Market Cap or EV.

For this specific company, my investment is predicated on an asset and a cost base that is capable of supporting Revenues a lot higher than the current level.

KTD's distribution pipeline is truly fat and wide, and the infrastructure which has been/is being installed is still idling.

My sense is that what is being put in place in terms of business model and architecture is able to support Cash Receipts approaching $100m pa which, if that transpired, would translate into $8m pa to $10m pa in FCF.

Which makes the current $50m EV appear decidedly too small.

Of course, anyone can punch some numbers into a spreadsheet and get an answer of that is to their liking, so getting from where they are now (some $55m pa of Cash ~Receipts) to $100m does not come with zero execution risk, so there's that to consider.

If this sounds like "Investing By Feel", then that's because it is:

25% - driven by some numbers in a spreadsheet
75% - based on a feeling in my bones


KTD "feels"to me like a business that will be valued meaningfully higher than it is currently.

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