Buying SGH, page-162

1. It made close to $1 billion revenue last year and is going to make less, but still very significant amount.
F16 revenue was $908M, well shy of the $1B figure you mentioned and well below what SGH had itself been forecatsing throughout F16.

Last year, it made $487M in H16. In 2H16, it made $421M and in H17, it made $322M. 2H17 might track a bit better but unlikely to scale much above $350M (even given SGH's own comments on the matter). So, for the full year, somewhere between $672M - $700M, give or take a bit.

2. Its UK acquisition has failed, but now a proud holder of a large UK market share. This will worth billions in years to come.
Maybe, maybe not. Likely not so however if the challenge, risk or attack is there. Regardless, the UK business has performed dismally to date whilst SGS has fallen well short of even the most modest of targets.

3. Banks know that there is no way of getting their money back until this company starts making profits again. They will extend the term of the loan.
Why? They don't generally do this elsewhere, so why will they do it here? In any event, extending loans only usually occurs when (*) there is no further call on the banks to provide further funding, (*) there are asset sales etc happening in the form of a controlled liquidation, if only to reduce the bank's exposure, (*) all the nasty surprises have come out, (*) serious inroads into OPEX are continually being made with serious progress being achieved, rather than in taking the easiest options only, and (*) there are no other major trade creditors either by name, grouping or amount, lurking about. None of these outcomes presently reflect SGH's position.

The banks have already been overly generous by providing funds at rates well below comparable business rates elsewhere for a business which is right on the edge. Imagine then if SGH actually had to pay a "true" interest rate of 8-10% on the funds borrowed? It can't.

4. If the term is extended, there will be no dilution to current holders.
If terms are extended and nothing else, then perhaps so. But SGH also needs new working capital. Who is going to provide this? And there is no way that the banks will continue to provide the existing loans on near on comical interest rates. If the loans are indeed extended, you will have to start considering interets rates of 8-10% on the SFA extension + even higher rate son the working capital. That, and no dividends until all of the banks' facilities have been repaid in 202......?

5. Banks can see that company has made progress and they seem happy and have not requested change in management.
This is entirely an unknown, but equally if this was the case why did another director quit earlier this week? More likely, the resistance to any deal perhaps being done is the very continued existence of the "billion dollar wonders". Not too many directors /management can be proud of losing their shareholders, their banks and their companies that sort of money.

6. Directors own about 12 million shares, which was valued close to $100 million once, but they never sold them.
Read SGH's own rules and the shareholders agreement from 2007 which is still active. It was published at the time. They can't sell them. Especially Grech and Fowlie (ex-director), for so long as they remain employed with SGH. As for the directors themselves (including Grech), the total shareholdings are circa 7M shares.

7. Company currently has big cases (VW, Manus Island etc ) that could bring $billions, if successful.
No they wont. Even the largest CA cases of recent times have only brought in fees of circa $30-40M. There is much confusion between the headline value of any claim /settlement and the amount that the CA lawyers might actually get, especially if it is litigation funded along the way.

8. Company says that debt covenants have not been broken and they expect to sign a deal before the end of May.
Yes, they were. Twice now the banks have agreed to SFA amendments at the 11th hour (just before the financial year deadlines have hit) in order to either shift the goal posts or change the rules in order to then achieve technical (artificial) compliance. But for those changes having been made, the breaches would have existed as at each of the reporting dates so therefore would likely have triggered immediate market disclosures.

As for signing of any deals, the same Company also said that they would be a $1.2B company in F16. In November last year, they said that the first quarter's trading had held up. They also said similar to this at the 2015 AGM before literally days afterward then abandoning guidance altogether for the future. They might therefore want to sign a deal of some sort but they are not in control of the Ponderosa. The banks are.