bergo, I would go along with most of that. Although, I'm not convinced a CR will be down the track unless the company has stabilised for a year or two and a lucrative acquisition pop up. I can't see CR just to wipe out remaining debt.
No question SGH is currently over-leveraged. A problem for investors, as I see it is, intense focus on the current debt situation can detract from basic finance. Leverage is good.
In simple terms if a business is to grow it needs cash. Cash can come from three (broadly speaking) sources the business itself, debt, equity. If the business can only grow at 3% with retained cash (cash less dividend) but can grow at 10% using debt at interest 5%. Then debt is obviously good (5-3 = 2% benefit for debt). A very simplistic argument I know but sufficient to make a point.
Provided the business gets on a level footing and growth potential is there then there should not be a point in time when we have no debt, continual re-finance. Arguably 30% debt 70% equity is good. One proviso is that debt markets do not explode upwards to horrendous 10%+ levels.
SGH Price at posting:
48.5¢ Sentiment: Buy Disclosure: Held
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