Dear Username123 Thanks: you are of course right. I apologise...

Dear Username123

Thanks: you are of course right. I apologise for the silly error-my FY24 figure should be $240m- on the major assumption that it is valid to annualise the result. In the absence of any other mistakes I made, my last line should be amended to read

~$290m market cap gives enterprisevalue/ UL ebitda of 905/240= 3.8x or1290/285 = 4.5x including leasing. Thus my errormeans that the valuation multiples are cheaper than I first thought

I had noted their definition ofgearing re rolling last 12 months: in fact the two slightly different sets ofwords you noted mean the same thing.

Unfortunately several of their reportedfigures are inconsistent. I want to go back and check all this because thereare some anomalies in what they report. This may include what they adjust forin “underlying” What is strange is they say “Underlying EBITDA is calculated as earnings before underlying adjustments, finance costs (net of interest revenue), tax, depreciation and amortisation” In every other example I’ve seen, “underlying” means AFTER such adjustments.! You quote “the FY23 Annual Report Pactreported the following figures for FY23:

· Underlying EBITDA: $277.0m

· Net Debt: $585.6m

· Net debt including lease liabilities: $1,117.9m

· Gearing: 3.0x#

· Gearing (including leasing): 4.0x”

# they said “Gearing temporarily elevated at 3.0x (compared to 2.7x at June 22)”.

On their definition gearing would be 585/277= 2.1x which is NOT the 3.0x they say; or if we start by assuming that the 3.0 is right and the net debt is right at 585m that would make Ebitda only 195m. Likewise (on their figures) the implied Ebitda adjusted for leases is 1117.9/4.0 = 279m. The difference in those ebitda numbers is $84m, but that’s inconsistent with the lease expenses I found below.

Their alternative, higher, sets of gearing figures are because of the leased assets. The liabilities for these leased assets were $533m at June 23 and $515m at Dec 23. P67 and 74 of FY23 AR show the depreciation and interest charges on leased assets were $59.5m and $31.7m respectively.

The PGH gearing figures including leases are usually about 1.0x higher than the other measure because they gross up the debt by about $400m to $600m for leases, and bulk up the ebitda to show it gross before leasing expense. That is the principle but I can’t reconcile their numbers. The numbers are also hard to follow because of the sale of Crates down to 50% and the deconsolidation of the other 50% after 30 Nov 23: they say that ALL the ebitda in Crates is removed after 30/11/23 from the Continuing Ops number they provided.. The debt and leases must also have been removed from balance sheet figures from 31/12/23, although they didn’t say so. I can’t tell whether their use of “underlying” is consistent but I suspect it’s not: i.e. the adjustments made to create “underlying” earnings in one period may not be the same as in another.

One conclusion is not in doubt. PGH is a capital-intensive business which is mainly funded by debt (and leasing). A 30/6/23, PGH equity was $408m, net debt (i.e. all debt + leases lesscash) $1118m. This means it is appropriate to value PGH on lower multiples thanone would apply to other cos. Despite this -it still looks (very) cheap at 84c-and RG must think the same.

PGH said netdebt at 30 April was $507m. Using annualised figures (since we don’t know therolling 12 months to April) I should have estimated $240m for FY24, as you say,so pro forma gearing was 507/240 = 2.1x, not the 2.3x that I first said But if gearing rises to 2.8X at 30 June 24, which they predict, that suggests an increase of debt in May and June from $507m to about $670m, a rise of $160m. This is a mystery: for what- a huge capex spend – or did RG think that the bid would be completed by 7 June and that he could push down some of his takeover debt into the PGH group from Bennamon between 7 and 30 June? On the current timetable, and even if he was able to go to Compulsory Acquisition, that looks impossible.