Hi Guys,
A quick note about the QIN valuation vs. a business such as Xero whose main assets are intangible.
Whilst intangible assets can very valuable, if superseded, can come close to a zero valuation. One example was a software company that was designing an integrated IT system for the UK Health System. It was abandoned and the IT platform was written off - hundreds of millions of pounds worth in assets gone "poof" and the company designing it folded.
In QIN's case, there is an intangible component of assets, being the valuations of the R&D/ pharma business unit, however the remainder of the business is tangible in nature:
(1) Land owned by QIN
(2) Trees that have an end value (regardless of the quantity of heartwood or price of end products)
In addition, QIN has the profitable business unit, Mt Romance, that has been profitable for a number of years marketing and selling Australian Sandalwood products which also has value as a going concern and has just secured a decade long State contract for Australian Sandalwood processing and marketing.
In terms of this tangible asset valuation, there are uncertainties around yield and price for end products, but those trees still have a valuation and the land certainly does.
On the flip side, each and every day the value of these trees is increasing as they grow.
From a financial valuation perspective, QIN have used a very high discount rate to value the plantations of between 12-14% cost of capital depending upon the age of the trees. Many familiar with the mining sector will be more used to a discount rate of between 5-10%.
Having such a high discount rate has a huge impact on the valuation of these plantations (to the downside), thus potentially offsetting any actual downgrade in heartwood yields from harvested plantations.
All hypothetical at this stage (until harvests are made and cash banked) but this is in no way a one-way argument and, at this point, investors shouldn't be irrationally disheartened.
There are lots of parties wanting a lower QIN share price including Glaucus and other shorters, but also in the ST likely KKR or other potential bidders and FW ... so I wouldn't watch the SP too closely in the ST. Just watch for the announcements from the Company.
Cheers
John
Expand
