EPS in FY2015

This post looks at FY2015 in more depth than my earlier post (yesterday). I selected a NPAT margin of 3% for BYL in that earlier post, because it was low, and because that is what was achieved for 1HY2014, which management said was a period when margins were under pressure. I think the NPAT margin should improve for FY2015, because most of the revenue will be generated by Civil segment, which is more profitable. I provide background information below so that you can vary the assumptions and the calculations to arrive at your own guesstimates.

BYL's NPAT margin was 3.5% in FY2013. The figures for FY2013 were:

- - - - - - - - - - - - - - - - - - Civil - - - - - Mining - - - Bellamack - - - - - - Total
Revenue - - - - $162,717,463 - $84,955,429 - $44,690,575 - $292,363,467
Segment profit - $18,562,811 -- $3,920,246 - - $2,873,752 -- $25,356,809
Margin - - - - - - - - - 11.4% - - - - - - 4.6% - - - - - - 6.4% - - - - - - - 8.7%
Corporate Overheads - - - - - - - - - - - - - - - - - - - - - - - - - - - $10,715,543
Net profit before Tax - - - - - - - - - - - - - - - - - - - - - - - - - - - $14,641,266
Tax - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $4,430,117
NPAT- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $10,211,149
NPAT percentage of revenue - - - - - - - - - - - - - - - - - - - - - - - - - - 3.5%

Corporate overheads seem high – perhaps the segments are not charged enough for equipment to cover equipment-related financing charges.

The above figures confirm the view that civil works contracts are more profitable than mining services contracts. If one prorates the corporate overhead to the segments, which may be an invalid basis for proration, then the net profit before tax percentage by the three segments would be 7.74%, 0.95% and 2.77%, and for the NPAT it would be 5.40%, 0.66% and 1.93%. The wisdom of being in the mining-services business may be moot.

The point I want to make is that the more the revenue flows from Civil segment, the more that the NPAT margin would tend towards 5%, and hence the range of 3% to 4% NPAT margin in the table below has some logic. Although it would be easy to guestimate what Civil segment's revenue should be for different total revenue scenarios by simply assuming that Mining segment would be $67M (The RIO contract), I think that the NPAT margin of .66% for Mining segment is too low to be reliable, so there is no purpose trying to be to cute with the arithmetic.

For FY2015 there will be no Bellamack. Bellamack was not a good deal for BYL, because it tied up large sums in land, which money took ages to recover. From memory, the Brierty family lent BYL funds to get over the problem. The Bellamack funding problem may have happened because another party pulled out of the deal, so BYL shouldered the full burden of the contract, which I am sure impressed the client, the NT Government, and helped BYL get the $100M Zuccoli contract. The Zuccoli contract does not have a land-investment characteristic, so it should be similar to BYL's other housing-estate work bundled in the Civil segment.

The $300M RIO contract is worth about $67M a year, so with Bellamack out of the picture, BYL's non-mining revenue for FY2015 will be civil works. Revenue for Civil segment should be considerably higher than it was in FY2013 – probably about $300M to $333M, of which about $250M-$67M = $183 is already contracted.

NWH's NPAT margin in FY2013 was 5.4%, and the normalised (reverse goodwill impairment) NPAT margin for 1HY2014 was 5.2%. I mention NWH to give credence to the idea that BYL can do better than 3% NPAT margin, especially because BYL does more civil works business than NWH. The table below gives different EPS metrics for a range of revenues for BYL for FY2015, and a range of NPAT margins. BYL has 110 million shares, which is used to calculate EPS.

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6
1		3.00%	3.25%	3.50%	3.75%	4.00%
2	$300M	8.18c	8.86c	9.55c	10.23c	10.91c
3	$310M	8.45c	9.16c	9.86c	10.57c	11.27c
4	$320M	8.73c	9.45c	10.18c	10.91c	11.64c
5	$330M	9.00c	9.75c	10.50c	11.25c	12.00c
6	$340M	9.27c	10.05c	10.82c	11.59c	12.36c
7	$350M	9.55c	10.34c	11.14c	11.93c	12.73c
8	$360M	9.82c	10.64c	11.45c	12.27c	13.09c
9	$370M	10.09c	10.93c	11.77c	12.61c	13.45c
10	$380M	10.36c	11.23c	12.09c	12.95c	13.82c
11	$390M	10.64c	11.52c	12.41c	13.30c	14.18c
12	$400M	10.91c	11.82c	12.73c	13.64c	14.55c

What's BYL's EPS going to be? Do your own sleuthing and guesstimating, and tell me. I can justify my investment in BYL at the lowest number in the table above – an EPS of about 8 cents and a fully franked DPS of 3 cents, which is what I expect in FY2014. Consequently, I do not need to know what EPS might transpire to be in FY2015, but more than 8 cents would be welcome, and seems likely.

I have often found that if one guestimates a series of numbers, a good choice is to pick the one in the middle (the median), which is 11.14 cents, so that is my FY2015 EPS pick for now, and that would suggest a DPS of 4 cents, and a value per share in round numbers of about 60 cents (10 cents more than what I valued BYL in August 2013 when the FY2013 Annual Report was published.

Remember, I am mooting a share value of BYL to me, not the SP that Mr Market will set. I think the SP will move to 50 cents fairly soon, and then dribble upward to 60 cents by August 2015. Obviously, I do not know what is going to happen. I have gone in boots and all, and now hold 460,000 BYL in my SMSF, and 200,000 personally.