1 - Is it really valid? The customer contract is with itself, so shouldn't the intangible purely be in the books of the Fenix/Newhaul subsidiary, but be eliminated for group accounting, like almost every other source of intercompany transaction?
2 - The intangibles WILL be amortised. It even says so in the interim statements, so even if 1 is ticked off by the auditors, what have they essentially done? They have ACCELERATED profit into the H1 2023 accounts, and this will be amortised over the next 5 years, ie this will reduce EBIT by $3.2m / annum.
That will be almost all of the anticipated profit of Fenix Newhaul (which made $9.6m in FY22 on a 100% basis, so FEX bought $4.8m but because of accelerating the accounting profit will only realise about a gain of $1.6m / annum over and above what they would have had they retained it at a 50/50 JV). Ie. $9.6m, less the original 50% (they would have earned that anyway) of $4.8m, and less the $3.2m amortisation gets them $1.6m.
The other thing to remember out of this is cashflow. Pre acquisition, FEX's capex was very low, enabling them to pay out a higher rate of EPS as dividends. Acquiring Fenix / Newhaul, means that FEX now has to front up capex for new vehicles, and this is already occurring. Thats $5.5m of additions in the quarter (I don't think they were fully paid for as capex is shown at much less than this in the CF statement) so that has to be paid for and there are $7.7m of loans on the vehicles (chattel mortgages) now recognised as current liabilities, and part of that will at least be eaten up in balloon payments you would think at the end of the lease.
They have acquired a much heavier capex business than the current mine which may impact upon their ability to pay dividends. I only bought the shares for dividends and IMO the business looks worse off with the acquisition in being able to continue to pay dividends at the rate that they were.
FEX Price at posting:
23.5¢ Sentiment: None Disclosure: Not Held
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