1. Net return and net margin in the year to 30 June 2003. Projected Revenue and NPAT: $220 mill. and $23.2 mill. Net margin: 10.5%.
2. Current share price and prospective P/E: Price: 25 cents. 305 mill. shares and prospective P/E: 3.3
3. Comparative returns:
Trading-see (1): 10.5%.
Buy-back-see (2): 30%. This is nearly 3 times the profit from trading.
In reality, as buy-back proceeds, the price of shares-as well as the ASCOA and ASCOB Options- must rise; thus the returns will be somewhat less- a pause in the buy-back may restore the return somewhat.
At the same time doing a takeover will most likely result in a less net margin as given in (1). There are costs including goodwill and it will take some time before the given net margin in (1) will be achieved.
Therefore, The speed of net margin erosion in a buy-back will be comparatively less than in a take-over,ie buy-back at higher than estimated values can be done before an equilibrium is restored. At that point there would be no advantage in having a buy-back or a take-over.
A buy-back is relatively risk free. ASC decides when the Share price is too high to warrant further buy-backs.
Take-overs are riskier. Theoretically, it means that to offset that, the buy-back could proceed at a higher level still-if the risk can be quantified.
Gerry
ASC Price at posting:
0.0¢ Sentiment: None Disclosure: Held
