You can see from the market cap in 2011-12 compared to FCF/debt levels to see that GCS management have not been great at allocating capital in the past. A company generating $40m+ of FCF as well as adding $30m+ of debt shouldn't be destroying shareholders capital like they have.
That said, my optimism from a re-rate stems from the fact they seem to be more prudent lately, choosing to pay down debt with FCF instead of forcing acquisitions and the decision to pay a small dividend both look like smart moves.
Now, the potential for a re-rate likely comes from the ability to find EPS accretive acquisitions. If they can, we should hopefully get scenario A as you listed. If they can't I hope they maintain their discipline and use FCF to pay down debt and raise the dividend, which could lead to scenario B.
Of course, if they can do both, that's where we get the double whammy! I am looking for a 75-80c price target for scenarios A or B over FY17, and possibly over $1 if we get scenarios A and B.
GCS Price at posting:
46.0¢ Sentiment: Buy Disclosure: Held
