I’ve run some numbers on what ECL probably looks like after completion of the sale to IPD Group.
Headline sale price is $92m.
The contingent sale consideration is $8.9m. In the cap raise pitch today IPD’s CEO said he’s confident they’ll have to pay that, and frankly to me that seems very likely indeed. Conservatively we’ll call the contingent sale consideration, risk adjusted, $6.5m.
ECL has its existing “investment portfolio” – at last quoted NTA that’s a shade over $25m.
ECL will make cash from CMI this FY, before the same completes – in very, very round numbers let’s say that post tax that ends up being $7m.
ECL will spend some money on lawyers etc getting the deal closed – call that effect minus$500k.
What this all adds up to is $130m.
It is possible, though not necessarily likely, that ECL will pay some tax on the sale. ECL has $34m in losses it can offset, plus CMI will have an existing cost base, though it’s unclear what that cost base is. Notably at ECL’s AGM a couple of weeks ago they said enthusiastically that if they ever sold CMI it would be *very* tax efficient. It could be nil, but I’ll call the tax effect minus $5m.
So after all that, ECL will have something like $125m in cash. ECL has 28.994m shares on issue, so that per-share cash balance would be $4.31. ECL’s last trade of $3.20 is more than a 25% discount to that.
But wait, there’s more, much more. ECL’s franking credit balance is currently over $31m and ECL will probably add close to $2m to that between EOY and sale close based on tax on operating income, plus there’s the $5m I’ve assumed they’re paying on the sale. So call that $38m in franking credits – which could support payment of $3.05/share (!!) in FF dividends.
Based on these numbers it seems to me that at $3.20 ECL is still wildly cheap.
Delighted to hear others’ thoughts, particularly from anyone who disagrees.
