Ann: BWX FY22 Financial Results Release, page-15

"Any guesses on opening SP tomorrow?"

@essentialscutty,

I'm always game to do so, on an all-care-and-no-responsibility basis.

Starting with the what the valuation looks like at the last-traded price:

Mkt Cap = $128m
Net Debt = $107m
=> EV = $235m

EBITDA = $27.5m (using the mid-point of the guidance provided today)

So, EV/EBITDA = 8.5x.


I don't believe for a minute that the stock will hold that level, for a number of reasons (disappointment, lost trust in management, execution risk, elevated non-debt financial liabilities, notably leases ($43m) and a large Put Option ($59m).)

[For context, including the Lease and Put Option liabilities as borrowing proxies, the EV becomes $337m , and the ensuing EV/EBITDA multiple is 12.3x. So the non-debt liabilities clearly represent very meaningful shadow debt.]

So how to navigate this challenged balance sheet when valuing the company?

As anyone will know, in these sorts of near-death circumstances it's not easy (and therefore impossible to be definitive).

Because there are so many moving parts it is important to isolate the most important variables - i.e., the ones that are the most influential determinants of where the stock will settle once it resumes trading.

Using this Occam's Razor approach, the two variables I identify as being the most influential are:

1.) Self evidently, the valuation multiple the market will apply (for ease, I'm looking at EV/EBITDA),

and

2.) To what extent the market will view the Lease and Put Option Liabilities as part of the indebtedness of the company (ordinarily, this wouldn't occur, but when those quantities are highly material in the context of the company's earnings and market value, the market does implicitly "look" at them as part of the valuation).


In this exercise - because I'm not sure to exactly what extent the market will incorporate these non-debt liabilities into the Enterprise Value - I've looked at a range of proportions, ranging from zero to 25% (I doubt very much the market will be so punishing as to bring more than that proportion of the Leases and Put Option into the EV).

And for the EV multiples, here I'm also unsure of exactly where it will land, so I've again considered a range, between 6.0x and 8.0x (I don't see the stock trading outside of those parameters).

So, ranges of two independent variables calls for a matrix solution to solve for an array of target prices under various scenarios:



If pressed, I'd say the stock settles at an EV/EBITDA multiple of around 7.0x (I suspect it will trade lower than that at the open as certain nauseated shareholders vomit out their shares indiscriminately, but I think that 7.0x is a fair and reasonable valuation for this business and the challenges it is facing).

And I think the market will say, "We need to account for at least more than zero of those non-debt liabilities", so I've guessed - and it is literally a seat-of-the-pants guess - around 10% to 15%, so $15m "additional" net debt.

From the matrix these assumptions spit out a price somewhere around $0.35 to $0.37 (the blue shaded bit), but I would not be surprised if the stock closes on Christmas eve as high as $0.46 or as low as $0.25 (denoted by the the yellow shading).

[I would certainly be a buyer close to that lower level.]


Not sure any of this is grounded in the much analytical rigour, and it is clearly indicative, rather than prescriptive; but the circumstances clearly don't facilitate rigour and prescription.

Feel free to critique.

.