Ann: Full Year Results Announcement NCK, page-44

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2sigma

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01/09/23

07:37

Post #: 69677880
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Originally posted by madamswer: ↑

"When a company like NCK is about to post -30% declines in NPAT...you will find that the board have a disclosure obligation. I'll see you at the profit downgrade and when the share price is $9 again. Until then, stay bold and grumpy (when others talk against your long position)."

@2sigma,

30% profit NPAT decline in DH2023?

I doubt it, but maybe.

If it happens, it is only because the DH2023 result will be cycling the ridiculously high DH2022 number (viz., $60.6m NPAT, depicted by the dark grey column):

View attachment 5561944

But let's give you the benefit of the doubt and say that transpires (so DH2023 NPAT comes in at around $42m, as shown by the blue column), and the let's and combine that with what the JH2024 half might look like.

Unlike DH2023, JH2024 will be cycling a weak pcp (JH2023 was down on JH2022), so the consumer slowdown is already manifest in the JH2023 number ($40.5m), meaning JH2024 should be starting to show an improvement on the interest rate shock impacted JH2023, or possibly the two half years should be on par with one another.

So I think that is a reasonable expectation of what is likely to happen, but for the sake of this discussion let's assume even further deterioration in JH2024 by, say, 15% on the already sluggish JH2023.

So, objectively, decidedly bearish assumptions for both upcoming half years, with NPAT that would look as follows:

DH2022: $60.6m
JH2023: $40.5m
DH2023 (f): $42.3m (down 30% on pcp)
JH2024 (f): $34.5m (down 15% on pcp)

So, that suggests FY2023 NPAT of $76.8m, equivalent to EPS of 95 cps

Which implies a P/E multiple of a mere 12.9x.

12.9x P/E for a 45% ROE business with a long track record of excellent operating and financial performance.

Viewed any way, that's way too cheap; not just intuitively, but also compared to the stock's history: NCK's P/E multiple over time has averaged around 14-15 times.

The conclusion is that the stock is already more than pricing in a very gloomy performance for FY2024 (one which I happen to think is highly unlikely to occur).

The above exercise means it comes as no surprise to me that the stock going up, instead of down.

Viewed inductively, I think it is conceivable that FY2024 ends up being down only 10% on FY2023, so EPS of 108cps (FY2023: 124.8cps)

Applying the long-term average P/E multiple of 15 times, yields a share price outcome of ~$16.50

Conclusion:

I think the share price has an inordinately greater chance of reaching $16.00 than it has of falling to the $9.00 figure you quoted.

.

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Except that you were not buying it hand over fist at $8-9 claiming you didn't have unlimited attempts at picking up money from the floor, when I was advocating it a SCREAMING buy.

The share price and hence valuation is significantly higher at $12.

Nonetheless, based on your DH2023 and JH2024 figures, a profit downgrade will have to be announced.

Last edited by 2sigma: 01/09/23

NCK Price at posting: $12.51 Sentiment: Sell Disclosure: Not Held
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0 Great analysis

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