Just a quick check-in before we get updated data.
I'll revisit my valuation post 1H22 numbers
but I remain extremely confident that material upside exists for BCC and that my price target will prove to be conservative.
The upcoming 4C should be very good too, but the real focus, for me at least, will be the 1H22 numbers and the
contribution from the JV. We know the sales volumes have been strong given we know all the orders from Roadpost and we know how the structure works, but our visibility beyond that is limited and we only get two data points each year, so for me it will help confirm/calibrate my thinking on the profit contribution.
I also think from a price action point of view, the upcoming reports will close either one of the lower or higher gaps. Let's see which way it moves but outside of continued market weakness, the higher gap will likely close first. Not super important anyway, but it's something I do look at.
In the meantime, you will note that in the my valuation framework I use a
PE of 15x. I still think this is '
about right' as BCC does not yet deserve a multiple premium as it has just started on it's inflection journey.
At some stage, I think the quality of the earnings and growth rate will see
valuation overshoot but the company first needs to pass a market cap of at least $100m so that funds can get in the action for that to happen. At some stage I will write about this, but that will be a VERY GOOD time to own the stock. When this goes from
unfashionable to
fashionable we will start to make serious returns - I think that's at least a year away though. In case there is any doubt, we're firmly in the unfashionable camp - that's great for now as we can still buy cheaply.
Anyway, back to the PE. JPM had a good report recently on the smaller end of the market (below). For context, BCC is still too small for the Small Ords but this is the best fit - the Small Industrials index (it strips out resources). It shows that the index multiple has continued to rise and is around 21x earnings, which is high by historical standards.
While we could take that or even something like 18x, I still think 15x seems about right for now but if we did plug in 18x, the FY23 price target (referencing my last public numbers)
would be $2.56 which includes recent dilution from the recent raise.
At 21x it's $2.98 for FY2023 and $4 for FY2024. Certainly some food for thought but we'll be able to reconfirm very soon. GLTAH
(20min delay)