Jsarge makes a good point - why invite a penalty by publishing a provision for one. For all we know Management may have hidden $50K or $100K, or whatever, into the $3.1m provided to be returned to customers affected by the lapse in credit provision vigilance. I used to negotiate contracts as a significant component of a cost-reduction consultancy, and I can assure you that millions of dollars are often lost by would-be customers communicating high-price expectations to suppliers.
On analyst valuations, in my opinion Scott Murdoch of Morgans understands TGA well. If he sticks to his past pattern, we should see an updated analysis within a few days. All he has to do is tinker with his existing template. I have not attempted to understand the arithmetic behind the DCF component that constitutes 50% of Scott's 28 April valuation of $2.82, but by its nature a DCF implies NPAT projections, and hence the $3.1m provision is significant.
The other 50% of Scott's $1.82 valuation sprang from a PER-based calculation using a multiplier of 8.5, and in my opinion that too should recognise that the $3.1m provision is unique to H1, hence it should impact the FY17 EPS estimate, the multiplicand. Further, multiplying the EPS by a single multiplier to get a TP does not make sense if there is a significant one-off component in its make-up. If one varies the calculation to accommodate this consideration, then the multiplier is PER-like, but it is by definition not a PER. One could derive a TP via a PER-like multiplier, and then retrofit a PER to the resultant TP, but that sacrifices communicative value for communicative simplicity.
Below are two sets of PER-style TP calculations using multipliers of 8.5 and 9 respectively, and each has an alternative that recognises the value of the $3.1m as being 1.4c per share after tax.
8.5*(2*9.8c) = $1.666
8.5 *(2*(9.8c + 1.4c) – 1.4c = $1.89
9*(2*9.8c) = $1.764
9*(2*(9.8c + 1.4c) – 1.4c = $2.02
A reasonable TP should, IMO, lie between $1.666 and $2.02, depending on the mood of Mr Market. A buyer looking for a fat margin of safety could well set a buy price lower than $1.666. What a long-term holder may value the shares at may be something like twenty times the dividend, which is something like $2.30. Twenty is the reciprocal of 5%, so an election of 6% for that type of calculation would give a reciprocal of 1/6% = 16.67.
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