BYL a buy at .33?, page-27

Hi Deepcoverpoint

I have in the past suggested that BYL's engagement with Aboriginal communities and its growing percentage of Aboriginal employees was a tender-winning differentiator, plus it helps to recruit operators to work in remote locations where non-Aboriginals do not want to work, and where FIFO costs can be significant. Although the topic crossed my mind when I posted on 12/07/2015, the length of that post suggested otherwise.

Taking a stab at the EPS being 8c and multiplying by six and then seven to get 48c and 56c respectively to suggest in round numbers a valuation range of 50c to 55c may seem like numeromancy. However, I find that this simple valuation methodology seems to work. There are so many factors that come into consideration, including qualitative ones like I have mentioned in the above paragraph, and any attempt trying attach values to them is impossible. If one takes the trouble to know a company, then the human mind is fairly good at coming up with viable gut feels, for instance, what is a reasonable P/E Ratio for a particular stock, and what is its EPS going to be?

A nervous shareholder asked me yesterday if he should sell his BYL shares, and as I have a large holding, I was happy enough to have another look at BYL today to protect my own interests. I came to the same conclusion as I did on 12/07/2015 – that is, my valuation is in the 50c-55c range for now. I would would be disinclined to sell BYL. I also looked at the two February dated reports on BYL's webpage – see

http://www.brierty.com.au/images/Documents/Third_Party_Research/Hartleys_Brierty_Ltd_150225_1H15.pdf.
http://www.brierty.com.au/images/Documents/Third_Party_Research/Bell_Potter_Research_Note_Feb_15.pdf

They came up with fairly similar EPS and DPS estimates for FY2015 (8,5c mean for EPS and 3c for DPS). They used different valuation techniques, but retrofitting their price targets to their EPS expectations for FY2015, one finds that their implied P/E ratios are about seven:

• Hartleys 8.4c x 7.5 = 63c as a 12-month target price
• Bell Potter 8.6 x 6.63 = 57c as a price target

These are 12-month targets, so we should give them time to see if the targets are reached by February 2016. I think we will see a better SP once the Preliminary Report is published on about 18 August.