Read it all , ( twice?) and then focus on the Earnings per share projections table at the beginning.
EPS is useful since we can compare net performance before and after the issue of new shares.
I think Edison got it wrong , timing wise. I think some of the profits they point top in the year to June 16
will pop up in the following year. That is good because Edison points at 62% rise in EPS in year to June 16 ( 6 months)
Their projection for June 17 is 87% ahead of June 2015 EPS. If SGH progress is slower to nail than Edison and SGH
suggest .....it will in my view be better for the company & Edison to reduce projections and point to 60% growth in EPS
rather than 87%. If they write up provisions they can hide profitso it would be good to tuck 27% in a provision and actualy book 30 % in the year to June 16 and June 17. Then when ( and if) the provision is found to be not needed , the 27% would be added to profits after June 17 ( unwind the provision). 30% EPS growth in 2 years would be pretty darned good.
Then assume Edison EPS projections overoptimistic by 50%. With the same exercise on that assumption, which shareholder in battered SGH would be unhappy if they KNEW for certain there was only 15% GROWTH EPS in years to June 16 and again in June 17?
I am sticking my colours on the mast and, after trying to follow the QPP tale in detail for a year , I think the truth is somewhere in between and I am a dutchman if the growth in EPS does not exceed 20% in each of the yrs to June 16 & 17.
We know SGH is likely to build in more prudence into WIP valuation, ( higher provisions no bead thing) and we know you can not actually argue with actual fees invoiced. SGH shareholders should all have know SGH was going to have to pour money at WIP to get to the fees. We know too that after the placings there would be an equity overhang and that institution as and brokers would loan shares to shorters. We know too that the shorters would try to sell fear on the boards.
The only real fly in the ointment is the quantum of debt arrangement to cover the preknown cash negative period. The UK Chancellors announcement may delay cash receipts but the company and the lenders know that is not the fault of management,
The lenders best route out is to keep backing SGH . 50-80% EPS growth coning in 18 months.
The shorts want you to capitulate. Dont.I am more and more convinced that cash good times are soon and that the second half of 2016 will see the psychology around SGH change.
Mel
PS Edison may have got it wrong at the margin.....but reading their research report is interesting and my bet is they are not far away from the mark
SGH Price at posting:
82.5¢ Sentiment: Hold Disclosure: Not Held
