Debt is part of the problem, but the bigger problem is profitability - they have had good revenue growth this year, but it has been outstripped by growth in costs leaving NPAT flat at a miserly $107m.
$107m NPAT on a market cap of $940m is 11%. Diluted EPS of 10.5cents on a SP of $1 is 9.5 PER. These numbers seem about right to me given PRN's risk profile ie - size, debt level, exposure to one commodity, operations in Africa.
Therefore, if you accept this, what they need to do is lift NPAT.
They have a turnover of $3.3bn and staff in excess of 10,000 people, so surely they can lift NPAT from $107m - a pathetic 3.2% of turnover. If they double NPAT to $214m the share price doubles...doesn't seem like a huge ask to me.
Each $1m increase in NPAT is 1cent on the share price.
To do this, management needs to focus on profitability of operations and be ruthless on corporate costs. For example - "other expenses" grew from $260m LY to $333m (ie by 28%) this year and included travel and accommodation $58m and consulting $24m.
After a few years of some good work - de-risking Africa ops and some meaningful acquisitions, I would like to see real evidence that costs and profitability are now the focus. They have had a habit of reporting dubious "underlying" profitability numbers...these only serve to muddy the waters and to leave the market questioning management's intentions. They need to forget this stuff and knuckle down on costs.
If they do this, I believe the share price will respond positively.
PRN Price at posting:
$1.00 Sentiment: Hold Disclosure: Held
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