The PTB June 2020 Financial Statements include a provision of $2.357 m against gross trade receivables of $17.753 m (or 13.26% of the gross amount). Of this total provision, $1.186 m was created on establishing the opening balance sheet of the assets and liabilities acquired in the Prime Turbines transaction and $1.080 m was expensed by PTB during the FY20 year.
Some comments:
1. This means there is an expectation built into the financial statements that some of PTB's customers are going to default on paying amounts currently due, suggesting all is not rosey with PTB's existing customer base;
2. The FY20 NPBTFX includes a $1.080 m hit for bad debts, so if we weren't in these turbulent financial times the FY20 NPBTFX would have been $9 m rather than just under $8 m.
3. While there is a degree of subjectivity in the level of the debtor provisioning, the Auditors Report specifically identifies this issue as a key audit risk and details the testing the Auditors have done to be comfortable in the approach adopted. Hopefully PTB management has been realistic in their provisioning approach as the final loss amount will be determined as the collection of the debtors plays out, which will lead to either the need for further provisioning or a recovery to the extent the current approach is too conservative.
4. The provisioning established on the debtors taken over on the Prime Turbines acquisition was $1,186 m on gross receivables of $2.647 m, which reflects an expectation of a 45% loss (refer to Note 20 of the financial statements). Either there is a high proportion of problematic debtors on the Prime Turbines books or if the overall recovery exceeds $1.461 m there is some upside for PTB. Given Prime Turbines annualised revenue is $48 m, PTB's acquisition of gross receivables of $2,647 m appears low (i.e. just over half a month's revenue) - either Prime Turbines doesn't provide a lot of credit or maybe PTB only acquired part of Prime's overall debtors book.
See extract from PTB 2020 financial statements below.
PTB Price at posting:
75.0¢ Sentiment: Hold Disclosure: Held
