the market cap reflects the prospects of the company, not the...

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Just_a_guy

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05/03/19

08:32

Post #: 37652175
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Originally posted by Mallard McDuck: ↑

You may ask what does market cap got to do with anything?

From an investors perspective, plenty.

In October 2016 PMP entered into an agreement to acquire IPMG from Michael Hannan, Lindsay Hannan, Adrian and Richard O'Connor for approximately $120 million.

At the time of this announcement PMP had a market capitalisation of $443 million and was trading at 87 cps.

Today, Ovato has a market cap of about $46 million and is trading a 9 cps.

Not only has Ovato lost close to $400 million of market cap since October 2016, the total value of IPMG has been wiped out.

The CEO and Directors continue to sell the benefits of the merger of PMP and IPMG as it has greatly improved efficiencies across businesses however the merger resulted in the loss of a number of large customers that ultimately hurt the bottom line. These same customers took their business to the IVE Group, and unsurprisingly this has resulted in that company reporting a proforma net profit after tax and amortisation (NPATA) of $20.8m for the half year to December 2018, a 7.9% rise on the previous period.

So clearly market capitalisation can indicate the overall health of a company and can highlight when a company is being poorly managed regardless of the positive spin that a CEO puts on everything.

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the market cap reflects the prospects of the company, not the ‘health’. At a mc of 450mil the market was pricing in good prospects relative to a market cap of 50mil. The market got it wrong. Now the market is pricing in dire prospects - but we are yet to see what eventuates.

Unless specific financial covenants relate to the market cap which is extremely unusual, the market cap has no direct bearing on the financial outcomes for ovt.

OVT Price at posting: 9.0¢ Sentiment: Hold Disclosure: Held
2 Upvote

0 Great analysis

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