That correct.
The irony is RPM's trading multiple prior to this announcement was LOWER than what they've been buying businesses for! Traralgon was done on a 3.8x multiple.
In their last investor presentation they said their target multiple for future acquisitions was 3x to 5x. That provides a rough lower bound multiple of what the GROUP should be valued at.
Clearly you'd want a higher trading multiple than a purchase multiple or you're destroying shareholder value. For this size business, you're probably looking a multiple of 6x to 8x EV/EBITDA which is still scary low. That's probably justified for now given the size and lack of track record but I'll show you why there's still a large opportunity here.
Given we know they're acquisitive, I can apply the cash holdings to a theoretical acquisition. If I use say $5m of my cash balance leaving a ~$2m buffer for working capital, I can buy $1.25m in EBITDA at a 4x multiple. This only assumes I use cash. If I use debt, I can buy more profit but let's keep this simple.
I also believe the company is low balling their forecast so they can show a 'beat' at the end of the year. I'm ok with that but I think they will comfortably do $5m to $5.5m in EBITDA for the year.
So if I use $5m EBITDA and I buy another $1.25m in EBITDA with my cash, my run rate EBITDA is $6.25m.
Using the mid point of my 6x to 8x multiple on what I think the Group should be valued at gives me an EV of $43.8m (i.e. 6.25 * 7). If I add back cash of say $2m then my market cap is $45.8m, which translates to a share price of ~40c using 115.2m shares on issue. This excludes any growth or synergies!
With the very tight share register it's not hard seeing that this can bag from here. GLTAH
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6.7¢ |
Change
0.000(0.00%) |
Mkt cap ! $16.90M |
Open | High | Low | Value | Volume |
6.6¢ | 6.7¢ | 6.6¢ | $91.87K | 1.375M |
Buyers (Bids)
No. | Vol. | Price($) |
---|---|---|
1 | 2171 | 6.7¢ |
Sellers (Offers)
Price($) | Vol. | No. |
---|---|---|
7.0¢ | 239401 | 3 |
View Market Depth
No. | Vol. | Price($) |
---|---|---|
1 | 2171 | 0.067 |
3 | 523270 | 0.066 |
3 | 293900 | 0.065 |
1 | 202835 | 0.064 |
1 | 100000 | 0.063 |
Price($) | Vol. | No. |
---|---|---|
0.070 | 239401 | 3 |
0.071 | 439999 | 2 |
0.072 | 117442 | 1 |
0.073 | 177778 | 2 |
0.074 | 140000 | 2 |
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