Ann: Market Guidance, page-91

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02/02/16

17:59

Post #: 16924701
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Originally posted by Disagree ↑

WIP = future cash flow for the firm but at the same time change in WIP is also responsible for large chunk of current year earnings. Not discounting future cash flows is equivalent to not putting a lime in your corona

WIP is only a problem because it doesn't come back as cash flow until several years later and there is a degree of uncertainty over the amount. No matter how you want to slice it $1 dollar of WIP is not equal to $1 dollar of cash in the bank.

So if we take the time to do a valuation (instead of looking at one metric that already supports our pre- conceived idea about whether or not SHJ is a good buy) we will see that valuations based on earnings are completely different to ones calculated using cash flow;

I estimate intrinsic value of 72c with a typical unlevered cash flow dcf model but if I had used earnings my intrinsic value would be much much higher

So if I think SHJ is worth 72c and the share price is 55c why don't I buy?

1. Still thinking about long SHJ short SGH trade but suspending the dividend and poor guidance leads me to believe there is more bad news to come.
2. Cash flow projections are based on current WIP yet recoverability % is not set in stone. The historical rate was 85-90% but the recent write down tells us that this percentage is no longer accurate (thus my model will probably be off as its based on historic data).
3. The costs to produce WIP are incurred years before the company see any real value created for shareholders (this adds another dimension of risk).
4. There are better value propositions out there.

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Will you post which stocks you think are better value propositions?

SHJ Price at posting: 55.0¢ Sentiment: Buy Disclosure: Held
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0 Great analysis

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(20min delay)
Last 91.0¢		Change 0.060(7.06%)		Mkt cap ! $157.6M

Open	High	Low	Value	Volume
85.0¢	91.0¢	85.0¢	$24.96K	29.17K

Buyers (Bids)

No.	Vol.	Price($)
1	10000	85.0¢

Sellers (Offers)

Price($)	Vol.	No.
91.0¢	4680	1

View Market Depth

No.	Vol.	Price($)
1	10000	0.850
1	10000	0.810
1	2849	0.800
1	948	0.740
1	715	0.700

Price($)	Vol.	No.
0.910	4680	1
0.950	2000	1
0.955	1045	1
1.000	25288	3
1.090	56000	1

Last trade - 16.10pm 06/11/2024 (20 minute delay)

SHJ (ASX) Chart

Ann: Market Guidance, page-91

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Ann: Market Guidance, page-91

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