Mr Market is providing an opportunity to buy the stock on the...

Mr Market is providing an opportunity to buy the stock on the cheap today.

I'd estimate VTG will generate $60m EBITDA in FY18 - this is well above broker estimates published in the last few weeks. (Workings: $65m EBITDA in FY17. VTG guidance is for rem cuts of $25m which flows directly through to lower gross profit. This will however be offset by (i) lower staff incentive fees on sales (empoloyee expense is 55% of GP, so should offset c$14m of the $25m cut in rem) and (ii) lower support office costs of $4-5m. So, the rem changes alone suggest EBITDA falls from $65m to c$57-$58m. Keep in mind however that VTG is rapidly growing its enterprise business, could easily add a few $m, so $60m seems a reasonable estimate.

Valuation should now be straight forward. Apply a 6x EBITDA multiple to FY18 ($60m), and we get an enterprise value of $360m. VTG had net cash of $18m so equity value = $360m + $18m =$378m / 156m shares = $2.50 per share.