GNC General Discussion, page-269

Not sure about NTA re: valuing GNC. What's the difference what a silo is worth if its empty? Similarly the replacement cost of an oil seed processing facility isn't particularly relevant to the value of oil seed it is processing etc ...

Here's why I don't think the current GNC valuation is challenging.

GNC management has generally under-promised and over-delivered in recent years. It retained a $240m through-the-cycle EBITDA target, even when it was pretty clear that GNC would easily exceed the target over an extended period. That has now been raised to $310m. An 8x $310m EBITDA valuation gives $11/share.

$310m EBITDA *should* translate into npat of at least $150m (66cps) and a 60% payout ratio means a 40c fully-franked dividend. This is a grossed up return of 5.7% on a SP of $10. Assuming GNC management continues to be conservative, this should be a base return, with plenty of potential for upside.

Yes, GNC is exposed to weather. But there a a number of mitigating factors when it comes to a period of poor rainfall including:
- good subsoil moisture and full dams;
- crop production insurance contract;
- heavy capex investment in oilseed processing and grain storage infrastructure over the past two bumper years;
- $100m to be received in November due to the takeover of UMG.

Each of these factors should provide some dividend protection (at least for the next 2-3 years) and I think a valuation up to $10 is fine so long as a 40cps dividend can be maintained.