A very good and thorough discussion however I disagree with the conclusion for the following reasons:
- Due to activists getting involved I think it is very likely that a deal will be done resulting in PXU getting a higher than 55% of equity once the capital structure is simplified
- The administration process for German operations will result in a huge increase in the net assets of the continuing business even after allowing for potential lease liabilities
- Once the next couple of results are released the the market will be properly able to assess the profitability of the continuing operations removing some uncertainty
- Net cash of 43m is 77% of current combined market cap of PPX and PXUPA (remember to exclude hybrids bought back). Although I understand this cash level is probably at a high point in the cash collection cycle cash flow from operations should bridge the gap.
- I believe the Mr Preece is a capable manager. Looking at the ANZA results of the large couple of years profitability and the expense to sale ratio has been fairy constant while sales are down 15%showing they have been able to realign the costs of the business. I think they will be able to continue to do so.
- Diversified revenue has grown by 33% last year (and up 87% since 2012) and has much better margins than the commercial print business. This should help offset weakness in the traditional areas. I don't believe it is 'diworseification'
- Cash flows from operations should be healthy and exceed net income as the sales decline releases working capital. This will allow them to restructure and invest
- Corporate costs should decline substantially as ANZA already has its own management. No need for layers to deal with international operations
- Minimal interest going forward and tax losses mean EBIT is close to NPAT so 5x multiple is too low
There of course risk in any investment (some the main ones I have detailed here). I still think PXUPA is good value and bet it will be significantly higher in a years time
SRS Price at posting:
3.2¢ Sentiment: Hold Disclosure: Held
