TNE Short attack, page-47

I bought TNE in Feb 20 with little research because they seemed to have a sound history. My plan was to do more thorough analysis soon after but as Covid 19 hit my attention was distracted until recently. I have only just read some threads here & felt it worth a contribution.

In the thread "TNE Results 19th Nov" & also this thread there has been quite a bit of discussion around what I will call the "Underlying" profit result of FY19. So, I thought my findings may be useful.

There is one stand out issue that concerns me greatly in TNE's financial reporting. That is, the temporary effect on reported profit due to changing from expensing development costs to capitalising them. We need to always know how companys are traveling & trending & this change made comparisons hard.

Referring to the FY19 results Presentation, on pg 9 the results summary shows Capitalised Costs- Development were $M31.59. If this had been instead expensed like in previous years the NPBT would have been $M44.799. The last few years TNE tax rate seems about 23% making NPAT = $M34.5. It's important to acknowledge: 1/. there has been some Revenue that would have been recognized in FY19 if not changed to AASB15, that is delayed; 2/. a whisker of the newly capitalised development was depreciated. To compare to the past, we need to account for these, &, by my calculations (which took hours & are too convoluted to include) brings "underlying" NPAT for FY19 up to about $M47 or only 80% of reported $M58.5. For comparison, the previous 7 years NPATs are on pg 11, for eg. FY18 = $M51 making FY19 down 7.5%. My profit calculation using cashflow produced a much worse result. After checking my calcs thoroughly, I sold. My underlying NPAT of $M47 over 319M shares = EPS = 14.7 cps making the PER at today's price of $8.33 = 57. Seems way over valued.

There is no doubt the coy has been successful for many years & growth may rise again in future but at present I am convinced FY19 (& also HY20) show growth has dropped away for now. It seems a very convenient time for the company to have decided to capitalise these product development costs but it may have been purely co-incidence. The forced move to AASB15 made things muddy enough without adding to it with extra changes.

Hopefully my contribution is of use to some. (1st ever post by the way - hope it's clear enough.)