ASH Stress Case

With the ASHshare price back down to 25.5c, I ran a stress test on the company given the endless mediasuggesting a looming recession in Australia.

The tablebelow shows some key numbers from my base case forecasts for 2019 and 2020, aswell as a stress case which incorporates a revenue slowdown in H2 2019, followedby a further 25% revenue fall and modest margin compression in 2020. In myview, a key strength of ASH is its limited fixed cost base which allows its toabsorb large revenue changes without having an outsized impact on profitability.Also, the growth in the training business should provide a key offset to aweaker economic environment (as out of work people look to upskill). Theseforecasts suggest that even with this significant drop in revenue, we shouldstill be looking at a low double digit P/E and div yield (including franking)of >7%, based on todays 25.5c entry price.

Its alsoworth noting that with a FF dividend of at least 2.5c coming in 6 months time, theeffective entry price is well below 25.5c (arguably well below 24c depend onhow you calculate it), which only makes these metrics even more attractive. Evenif mgt winds back the dividend to fund an acquisition, history suggests thatthey are very disciplined users of capital, so would be likely to provide evengreater upside.

That said,Mr Market may take a while to appreciate this stock as the free float is onlyabout 37% (excluding Viburnum’s s/h), so most professional money wouldn’t evenstart looking at this name.

ASH		Base case			Stress case
	2018A	2019F	2020F		2019	2020
Revenue	326.1	312.4	338.8		293.7	220.3
EBITDA	8.0	9.3	10.7		8.6	5.8
DA	0.7	1.0	1.1		1.0	1.0
EBIT	7.3	8.3	9.6		7.6	4.8
Int	0.5	0.7	0.7		0.7	0.7
PBT	6.8	7.6	8.9		6.9	4.1
Tax	1.9	2.1	2.5		1.9	1.1
PAT	4.9	5.5	6.4		4.9	2.9
EPS	0.034	0.038	0.045		0.034	0.020
DPS	0.025	0.027	0.031		0.024	0.014
P/E	7.50	6.67	5.71		7.42	12.53
Dividend yield	9.8%	10.5%	12.3%		9.4%	5.6%
Dividend yield (including franking)	12.7%	13.6%	15.9%		12.3%	7.3%