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Okay, I’ve completed an analysis of every stock on the ASX within “Consumer Staples”. It is clear that Companies are valued based upon revenues before they become profitable and then likely a combination of the two for some time before moving to a sole EBITDA multiple.
Attached are two scatter charts of the the majority of Companies in this category (4 or 5 removed due to suspensions, too early and no revenues etc). I have based financials in most cases on the most recent annual report (or half yearly to which I have annualised). For KTD I have based on the latest 4C annualised. I understand that there may be more recent information available on the other Companies but don’t have time to sift through 70+ Companies to find it.
You can see from the bottom chart (above) that KTD is currently trading on a revenue multiple of 0.97x compared to some of its peers which are much higher and it is also low compared to an average of
3.7x across the sector.
From this comparative perspective and also when I actually started looking through the businesses appearing in the current MC vicinity of KTD it appears KTD is clearly undervalued at its current SP.
The top chart shows MC as a multiple of EBITDA. As we are on the cusp of turning profitable (or possibly already are) this will start to come into play in the coming years. In other words, I don’t believe a Company would suddenly be valued on the basis of a multiple of its first year EBITDA. If so, the multiple afforded would be much higher on the basis of the inflection point (opportunity) and future revenue/EBITDA growth.
As noted above, based on the average revenue multiples I believe we should be trading much higher, however we aren’t due to a number of factors discussed endlessly such as the divestment creating supply.
Another factor may be the market needing to hear things like “cash generation” and “positive EBITDA” both of which are here or very nearly here. Another tick.
Based on the higher end of my forecast of a $7m EBITDA next year (which is still very much based upon reasonably conservative assumptions - no improvement in margins etc) if we apply an EBITDA multiple of 15x which seems reasonable given the above (Note: FNP was trading much higher before their recent revelation) this gives us a MC of $105m or 41 cents per share. As the market if always forward looking I don’t think it’s unreasonable to think we could be trading above 40c again in the next 6-12 months.
I hope this is useful for anyone out there and I would welcome any alternative views or thoughts.
Cheers,
TT
