SGH (ASX) Ann: Recapitalisation Agreement

Originally posted by Grant62 ↑

In practice, under a 95% dilution scenario, the shares on issue will exceed 7 Billion. Not certain therefore how you can get to a $1.80 position under any type of scenario (plausible or otherwise) which gets you to this (ie: a >$12 Billion MC).

Once >7 Billion shares are on issue, even with minimal debt in place, SGH will need to perform. Under most scenario analyses, the likely best position that SGH can get to is revenue of $700 - $800M and a possible profit margin of 10%, even if at $800M. Look back at previous posts in this regard by a variety of posters.

But even if you were generous and considered the possibility of $100M in profit being generated (pre tax), this would still equate to 1.42c per share. Put then a 13x multiple on this and one might then get to 18c per share (21c, if at 15x). But that's being optimal, maxed out, and very likely, the pinnacle of anything that might ever be achieved.

More likely, profit might come in eventually in the $60 - $80m range (assuming normalised behaviour applying). If so, then the resulting pre-tax earnings would be 0.85c per share which, even if done at 15x (not, 13x) would get you to 12.8c. At $80m, it would be 1.14c per share which, if at 15x (not 13x) might get you to 17c.

To any of this however, one would then have to apply a discount factor on account of the massive share overhang. In such circumstances, a discount of 20 - 40% would likely apply which, if so, would then have the effect of heavily pulling back any likely future SP projections - for example, 21.3c, pulled back to between 12.8c - 17c, or 12.8c, back to 7.7c - 10.2c.

So many different variables involved. So many different possibilities but not too many that can withstand the likely crushing impact of a company potentially having >7 Billion shares on issue, particularly when it comes to tryicng to garner positive support, sentiment or future outlook.

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You are assuming they will issue new shares for the holders?

My assumption is based on a DOCA restructure where the lenders physically take ownership of the shares, they can do that through the share registry. Hence the amount of shares on issue doesnt change, only the ownership. The ending effect is hte same and i think this will be easier than issuing 7billion shares and then splitting it.
Something similar happened in MBN.

Happy to discuss the calcs to show you it ends up being the same. Im just at work and tied up a bit.