Let me know if my figures are out, but this is what I pick out of this analysis:
- The author assumes 4.5 years to have 11% market share of the tam in order to have an “equivalent valuation” to a bank at that time on current valuations (as it matures). It admits this is possible, which I disagree, I think it’s “probable” as a minimum, probably more.
- They assume costs will be consistently 50% of ntm. I disagree vehemently, current costs of 300 mill are for rapid growth. I’ll be conservative and estimate costs in 4.5 years at 1 billion (but suspect no more than 500mill max, but purely a guess)
- 2.4% ntm of 264 billion slice of the pie gives 6 billion profit, 5 billion after 1 bill costs. Reasonable?
- Now, with 800 mill shares currently on offer, let’s round up to 1 billion by then, that’s a “potential” $5 dividend per share if they stopped growing and gave profit back to shareholders (which they will if they’re not growing at all!). At current $100 SP that’s a lovely 5% yield.
- Hence the “equivalent bank valuation” I think is actually spot on here, as banks, a mature non growing business, yield about that.
- But here’s the problem. I can’t see this with zero growth after 4.5 more years. Just like the banks and CC’s of the last 30-40 years, this is a minimum 10-15 year strong growth compan, once we get to that more sedate, but extremely good 20% growth yoy.”
- Sure, the 100% yoy is now, and a few more years yet. But then it will “slow” to 15-25% for 5 years then 10-15% fir 5 more. This is really important to keep in mind
- Lets “conservatively” say after 5 years it’s now growing at 20% only for another 5-10 years (out to 2035 from here). Current companies growing at less than that , 10-15%, are yeilding 1 - 1.5% (csl, rea, alu etc).
- Hence if yielding 1% equivalent at that point, because it’s still growing at 20% yoy (unlike banks which have zero growth), it’s SP will be $500.
IN 4.5 YEARS
- Now if it’s then more mature, investing less, but still growing at 20% fir a few years before slowing to 15%, the net profit is massively leveraged, meaning SP will grow more, say 30%. Remember, SP grows equivalent to profit increase once that’s settled in, not revenue increase (that’s for more mature slower growing companies, not the initial loss making but hyper growth these companies have in the first 5-7 years, before all the value “no profit” imbeciles start jumping up and down. When we actually make the big bucks before settling to a more mature steady 25% yoy nest egg).
However all the above assumes:
- No Asia, South America growth - No “add on” financial services already being set up - No “data IP” to sell
Any of the above can double or triple the numbers
in 15-20 years, as it “finally” grinds to a 3-4% or 0% growth company like a bank, I’ll happily then pocket a 5% dividend equivalent........
. OF A $3000 SHARE PRICE.
Let me know where ive gone wrong.
But seems severely under priced to me atm.
APT Price at posting:
$101.85 Sentiment: Buy Disclosure: Held
