trading in voc, page-11

Stonemason thats a pretty stinging critisism. I would love to meet any six year old that has even the slightest conceptual understanding of Enterprise Value. There a professional investors out there that dont have a full understanding of the intricacies of the valuation tool. Whilst I dont necessarily agree with the final results of microequities the practice of taking an average of a various valuations derived by using various valuation techniques is not an umcommon approach within the industry. Also industry peer comparisons are commonly employed to assist in determining value. That is of course why differnt companies in certain industries trade on different multiples to companies in other industries. I.e. healthcare trades on a higher multiple than capital goods. At the end of the day any valuation is highly dependent on the assumptions and variables used. The EV/EBITDA technique is supposed to enable a peer comparison technique for value by taking into account the capital structure however the assumptions adopted by ME highlight the problems inherent in having to make assumptions. For instance the IRU liability has been recognised as debt and used to derive the EV for VOC (thereby pumping up the EV and therefore the multiple). I am not entirely sure that this liability should be treated as debt, rather a large payable, which would arguably exclude it from the EV calculation. If it was excluded the EV/EBITDA multiple would suggest a valuation much higher than $1. Also I am a little confused as to why a PER comparison was not adopted. The market appears to be prepared to pay up for growth in the telco sector - i.e. MTU and MAQ and that should be reflected in the valuation for VOC given its potential growth profile.

I also think that ME has been pretty conservative in terms of their OPEX assumptions which results potentially in an understatement of future year NPAT. This obviosuly understates their DCF which was close to $3 incidentally.

I was abit suprised by the sell recommendation at first given market price at time of publishing was only 3% over their val target. However in reveiwing the report and considering it further, the analyst makes it clear that there is room for further valuation upgrade if their conservative assumptions are to be updated on further acquisition, or traction with cross sales through new product development etc. Moreover at the end of the day if you develop an arbitrary basis for buy, hold and sell recommendations based upon divergence between market price and valuation, i.e. if valuation is 20% higher than market price then its a buy, and so on and so forth, then I suppose you have to stick to your framework, i.e. if market price is over valuation then its a sell.

In any event I have got my position and happy to build over medium term so I welcome any selling pressure. Not trying to stick up for ME just thought your critism was a little harsh and perhaps personal.