First of all, in order to the P/E ratios correctly you have to normalise the NPAT. Therefore my metric of choice is EV/EBITDA.
Based on my numbers, and some assumptions (especially the sharing of milk price in China - but I have been conservative around this), the current EV/EBITDA is not outrageous.
Column 1
Column 2
Column 3
Column 4
1
Now
Target
Commentary
2
Herd[/B]
418
2,500
3
Milk per cow
7,500
7,500
Calc from AHF May-15 ASX Presentation: 7500-7700
4
Milk Litres
3,135,000
18,750,000
CCF Press Release suggests up to 25m litres
5
6
Farm Gate Price per litre
0.49
0.49
Calc from AHF May-15 ASX Presentation: $/l 0.49
7
8
Revenue A$m
1.54
9.19
9
EBITDA margin
30.00%
30.00%
Calc from AHF May-15 ASX Presentation: 34-41%
10
11
EBITDA A$m
0.46
2.76
12
Existing CCF EBITDA A$m
1.00
1.00
Existing carbon businesses
13
Total EBITDA A$m
1.46
3.76
14
15
China Milk Price per litre
8.00
8.00
Low end of CCF Dec-15 announcement
16
Estimated CCF share
5%
5%
CONSERVATIVE ASSUMPTION
17
Additional EBITDA A$m
1.25
7.50
18
19
Total EBITDA A$m
2.71
11.26
20
21
Total Shares
137.60
22
Share Price
0.15
23
24
Market Cap
20.64
25
Debt
2.00
26
EV
22.64
27
EV/EBITDA
8.34x
2.01x
Given the low-cost growth to their target herd size of 2,500 / production level of 25 million litres (with most of the infrastructure in place), you could even say a higher EV/EBITDA multiple is justifiable.
Below is the EV/EBITDA multiples of the range of share prices:
Column 1
Column 2
Column 3
1
Share Price
EV/EBITDA Now
EV/EBITDA Target
2
0.10
5.8x
1.4x
3
0.15
8.3x
2.0x
4
0.20
10.9x
2.6x
5
0.25
13.4x
3.2x
6
0.30
15.9x
3.8x
One thing to point out, Green Lake need CCF as much as CCF needs Green Lake. Green Lake has invested more than $10m in the facilities to secure long term supply. However in order to sell the milk in China, they need an Australian partner like CCF so that they can tell their fellow countrymen that it is Australian owned, produced, processed and packaged, as the Chinese don't trust the Chinese.
