To be honest I was spooked by the the drop in SP in the last few days, I bought at 42.5c and immediately after that it went down hill.
SP seems to have calmed down a little, and I thought it was good to review my investment decisions, I looked back at the Financials, and again, I am quite confident that SGH will survive and go way above current SP. Some points that came to me in my review of the December 15 Financials include:
1. If you look at the current asset side, total current asset (receivables, and WIP) amount to approx $1,174m, total current liability (i.e the payables, and loans falling due) is only $664m, with just the 1st half, which was so terrible, the current net current asset in 1yr's time will be $410m, which when receivables and WIP are received will = cash. If second half replicates the current account movements, then we have another $400m receivable at 30/6/16, which can be used to pay down the 800m loan... very easily (400 in first half, another 400 from second half... why not?)
2. If results above is so good, how did SGH end up with a loss in 1st half? I suspect the expense side were paid down quicker than the speed revenues were received in cash, hence the payables are lower than receivables, but still P&L was a loss. Such speedy payment of expenses will impact cash, which was at 50m at the end of the first half.
3. 1st Half cash burn was $60m, if things didn't turn positive, then SGH will already by in trouble as they only had $50m left in cash, and will conflict EY's signoff of going concern, and makes no sense for banks to not impairing their loan, as they will be out of cash by June 16. Hence, I suspect by March 16, there was already sufficient and very strong evidence to show they will be cash positive. Linking back to point 1, I suspect they were be significant cashflow by either August ANN or by December 16, as the current assets are to be received within 12 months.
4. Even if SGH manage to just break even this year, the remaining significant asset is Good Will, which is calculated using net realizable value. I assume this is usable figure and symbolic of the present value of minimum net profit expected from the business going forward. And dividing 380m Good Will by shares outstanding gives you $1 valuation of the SP. Yes, it's an over simplified method, as it ignores repayment of debt, and the Good Will is worth nothing when you sell all your assets. But look at the Balance Sheet, SGH can pay off the long term and short term debt simply by liquidating, and finishing off their current WIP and Receivables. Not to mention, there is a second half, and I am assuming better because of completion of office moves.
Ok, I think it's good to have that kind of perspective, when market is going hay wire, no?
Good luck investing.
Regards
Jack
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