What is PRG worth? Somewhere between $4 now and $6 later. There...

What is PRG worth? Somewhere between $4 now and $6 later. There are many brokers' opinions on PRG, but I never know what time frame they use for their target SPs.

If you are in a negative mood you could value PRG at 10 times its diluted EPS of 31.3c for the year ended 31/3/2008, and you would get $3.13 per share. If you were kinder you would use the EPS before amortising intangibles of 36.5c and get $3.65, or you could use the 40.3c forecast EPS for the year ending 31/03/2009 and get $4.03, which is pretty close to the closing price of $3.90 on 5/9/2008. Of course, you could pick a different PER, and arrive at other numbers. I would be inclined to accept the valuation of about $4 as a reasonable starting number.

PRG carries a lot of debt - its interest cover is only something like 4. Because the balance sheet has high intangibles, the ratio of Liabilities to Net Tangible Assets is about .65, which is not all that bad for a services firm that has recently acquired other entities. This debt position suggests that the PER should be closer to 10 than 15. Also, its activities in the UK and NZ might struggle in 2008/2009.

What might the price be after the 31/3/2009 numbers become known? Let us assume the EPS for the year ending 31/3/2010 would be forecast as 45c, then at today’s bearish sentiment one could suggest 10 x 45c = $4.50. However, I assume that the debt position would have improved by then due to asset sales, and relative to now the overall market sentiment would have improved by 20% (that would only value the All Ords index at some 6,000). Consequently let us use a PER of 12.5 against an EPS of 45 to get $5.40 in 2009.

If Spotless were to offer $3 plus .825 of an SPT share (closed at $3.67 on 5/9/08) today, that would value PRG at $6.03. If UGL, SEEK or others were to make a bid today, it would probably be in the order of $6. PRG is a good business that would complement the offerings and the profiles of a number of potential suitors.

One could invent endless numbers and factors, but on balance I think that PRG is worth about $4 now and perhaps $6 in mid-2009, or earlier if a take-over offer were to pop out of the woodwork.

I bought $10K worth of PRG for the wrong reason a long time ago at $5.70 per share, so it has not been kind to me.