EPD told the market and those taking up the capital raising that Net Debt to EBITDA would be at a ratio of o.6, but some 3 months later it ended up being 0.9 or a $5m miss. This was entirely due to Capex once again blowing out to $7m in H2, $11m for the full year.
Last 4 years:
EBITDA = $39m
Capex = $43m
These levels are unheard of in IT services companies. To make matters worse the majority of this Capex is capitalised labour, which other more transparent companies either book to the P&L or at least make it clear to investors that this is what it is. In FY17 there was $7m in capitalised labour, which subtracted from EBITDA makes the valuation case very poor...around 30 cents.
EPD know they have a problem. You only have to delve a little deeper to find out. They sneakily changed the depreciation term this year, extending to 7-8yrs from 5yrs. Why did they do this? Because if they didn't all this Capex over the past 4yrs would have resulted in the EPS being about zero....
Wilsons and other credible instos won't stand for this capex situation. I can see them dripping out more in coming weeks. It is a shame this company can't be better managed, but I'm not in until I still see the Capex down and the company actually generating free cash!
EPD Price at posting:
62.0¢ Sentiment: Sell Disclosure: Not Held
