The 70% EBITDA was just the first two months of the financial year, the circa 40% is an estimate that is likely conservative given historic guidance record. They have used the opportunity given the fact that the business is flying to expense a significant reconfiguration of the warehouses for a new ranging opportunity in conduits. Absent this decision, EBITDA would have been up at least 50%, which implies the EBITDA over the last 4 months is at least 40% up on the prior period.
The conduits are in length up to more than 4m long and the cost (all costs expensed as their conservative accounting tendencies demand) has all been incurred and will lead to new revenues and further customer reliance. The MD's AGM presentation hints at this on page 12. I asked about the quantum of this at the AGM and the answer seemed to imply at least $500k was expensed in this half on the factory refit that will not be repeated in the June half.
The other reason why the EP&I EBITDA increase did not match the revenue increase is that circa $500k of engineering costs were moved out of Innovative Electrical into EP&I to more accurately reflect more accurately where the benefit flows. This also has the effect of dampening margins in the major part of the business which is helpful when negotiating prices on large sales.
The Celemetrix acquisition sound as though it is still not going as well as expected however, with a significant part of that attributable to a "major instrument client" replacing a fleet of instruments Celemetrix have the contract to test. The fact this equipment is presently brand new means it doesn't require testing this year. The deferred telco demand referred to in the MD's presentation will presumably normalise soon too. These present another tailwind to earnings in the next half and beyond.
If we assume they hit the middle of their guided December half NPAT, that is $3.7m and then assume that the second half is no better than the first, but doesn't have the circa $500k or so of costs that the first half bore then June half NPAT should be about $4.1m, which suggests $7.8m of NPAT (which I think will prove to be conservative) and about $15.5m of EBITDA.
I don't think you'll find too many other businesses (if you know of any, please let me know!) with the earnings trajectory and tailwinds in their key industries that LGD has that are traiding on a prospective P/E of less than 9x and a prospective EV/EBITDA of about 5.3x.
Assuming they maintain the roughly 55% payout ratio, they should pay dividends of at least 2cps over the FY19 period, which means a yield at current prices of at least 6.25%, or a grossed up 9%.
The market behaviour around this stock over the past few months is a clear demonstration that EMH is still a long way off - Eternalgrowth
