Chart Update, page-836

Sabine

As I wrote, my earlier post was an off-the-top of my head message – I did not have time to populate it with facts that needed to be established, and one of them was the amortisation of Goldings goodwill in FY18.

Goodwill is an intangible asset, but not all intangible assets are goodwill. In respect to amortising goodwill, it is immaterial from a valuation perspective. It is also an accounting expense that does not attract a 30% tax reduction to NPAT. Further, if a business grows organically, the goodwill inherent in that growth is not shown as an intangible asset, and so there is a case for amortising goodwill to bring things to a common footing.

In respect of the other intangibles, these are often created in an acquisition in an attempt to window-dress the balance sheet, because folk regard goodwill with suspicion. Consequently assets like trade marks, company names, software are created – things that are usually not created in organic growth situations, because whatever was expensed to create them was debited to expenses. I am not so sure how the ATO views these intangibles, but I imagine their amortisation also is disallowed for tax purposes for the same reason that the ATO uses for goodwill – namely, the expense to create those things has already being expensed, and the tax benefit gained by the original party in the past.

I thing that we can ignore what happens on the Goldings amortisation front and focus on a normalised EPS for valuation purposes, which leaves guesstimating what the interest expense is going to be for FY19. Maybe you, or someone like Pbawley, can poke about and come up with a normalised EPS for us.

Sticking with the Lucifer theme, I hope the foregoing has shed some light on the matter.

PS: What is below is off topic, and substantially irrelevant – it's just a thought bubble that sprung into being when I read Google News this morning.

The Snowy 2 project is somewhat akin to an electric battery project – cheap off-peak energy is used to pump water up to the dam, and the outflow later generates peak-time electricity – see https://www.9news.com.au/2019/02/26/06/43/snowy-hydro-expansion-officially-approved

In my view a project like that is only interesting from a NWH perspective if someone like Salini bids for it, and invites NWH to join the party, and also, if it sucks up capability that lessens competitive pressure. A project like Snowy 2 involves tunnels, pumps, piping, turbines and what I'll lump together as “electricals”.