Ann: Intention to Make Takeover Bid, page-58

"Anyone have any thoughts on what a realistic value for a revised bid would be (please- don't just respond with the number you want, just provide reasonable and commercial values: as many of us are trying to work out whether to sell and move on or whether to hold) GLTA."

@kdwc,

I have spent some time thinking about this in recent days and here, for what they are worth, are my thoughts:

Firstly, this takeover bid fundamentally under-values the company.
Unequivocally so.

The reason I say that is because on just about any valuation measure one might consider (P/E, EV/EBITDA, Free Cash Flow Yield, Revenue to EV, Market Cap-to-(Current Assets less Total Liabilities), the current valuation of the company' stock is at unprecedentedly low levels:







As can be seen from the above data of various valuation methodologies, TRS is roughly at levels less than half of their historical averages.

But, importantly, I don't believe that people should expect the stock to be rated even close to what it was in the past (for example, P/Es of ~20x and EV/EBITDA in the 8x region), either in a takeover situation, or should the company remain in the hands of the public.

The reason for that is that those elevated multiples reflected the period of greatest pace of store roll-out and the stock was treated by the market as a growth company.

But it is now clearly ex-growth (critics would have a point if they suggested that it was still a growth stock, but a negative growth stock!).

Therefore, the combination of the store roll out approaching the end game, probable continued challenging retail conditions, and current elevated earnings risk, I cannot see the market paying more than 10x P/E for the stock, and probably somewhere between 9x and 10x would be the right figure.


Assuming:

1. the company hits the mid-point of its DY2018 NPAT guidance of $10m to $11m (so, $10.5m),

and

2. breaks even in the second-half of the year,


.... this would translated into EPS for FY2019 of around 37cps

Capitalising that at 10x yields a target price of around $3.70.


Of course, even $3.70 is by no means a certainty because there is a very real chance that no deal materialises and that Allensord ultimately walks away.


I see some people on these threads talking about takeover valuations in the high $4's and even in excess of $5. The only reason that the stock might get there, I think, is if a bidding war broke out for the business.

And I'm not sure I can see that eventuating.

For starters, it is with some exasperation that I read in the Target Statement issued by TRS directors saying that the board is not soliciting other offers for the company.

Accordingly, I have today written to the Chairman of the Board (copied) the fellow directors indicating in strong terms my wish that the Board does actively solicit competing offers for the company.


If I was pressed to predict how I see this unfolding over coming weeks, I'd say that Allensford waits for the new year to get a feel of how retail trade fares over the Christmas period.

If its proprietary insights suggest it was a tough Christmas for retailers, then I reckon Allensord simply extends the closing date of the offer (currently 7 January) without adjusting the offer price, and it waits for TRS to break the bad news to the market.

If Allensford gets signals that Christmas retail trade was better than expectations (which, it has to be said, are not very high) then I think it lifts its bid to around $3.00, and extends the offer date to the second week of February, to a date before the company reports its interim results.