My take on valuing the stock is 1. Price-to-Earnings (P/E) Ratio...

My take on valuing the stock is

1. Price-to-Earnings (P/E) Ratio Method

This method uses the company's earnings per share (EPS) and an appropriate industry P/E ratio. However, since the company has negative earnings (as reflected in the negative EPS), this method might not give a reliable result unless we normalise future earnings expectations.

Let’s estimate the share price based on the normalized diluted EPS (provided as 0.008 in 2023):

If we apply a reasonable P/E ratio, say 15 (a typical average for many industries), we can calculate the fair share price as:

Fair Share Price

= EPS × P/E Ratio = 0.008 × 15 = = AUD0.12

Fair Share Price=EPS×P/E Ratio=0.008×15=0.12

This would suggest a fair value of $0.12 per share based on the current normalised earnings (FY23) (FY24 awaited)

2. Price-to-Book (P/B) Ratio Method

The P/B ratio compares the market price of the stock with its book value. Book value is calculated from the balance sheet as:

Book Value per Share = Total Equity Total Shares Outstanding \text{Book Value per Share} = \frac{\text{Total Equity}}{\text{Total Shares Outstanding}}

Book Value per Share=Total Shares OutstandingTotal Equity

Using the total equity from 2023 ($627.7 million) and the total shares outstanding (504.04 million), we can calculate the book value per share:

Book Value per Share = 627.7 million 504.04 million ≈ AUD 1.25

Book Value per Share=504.04 million627.7 million ≈1.25

If we apply a typical P/B ratio of 1 (indicating the stock is priced at its book value), the fair share price would be approximately $1.25.

However, companies often trade at a P/B ratio higher or lower than 1, depending on market sentiment and growth prospects. Given the company's current challenges (such as declining revenues and negative cash flow), it might trade at a discount to book value, say 0.7:

Fair Share Price = 1.25 × 0.7 = AUD 0.875

Fair Share Price=1.25×0.7=0.875

Thus, the fair share price using the P/B method could be around $0.88.


Mostly the investors are interested in Discounted Cash Flow (DCF) and Enterprise Value (EV)/ EBITDA models . Example if we expect SP to be $2.5 then the scenario is

FCC:

To estimate a $2.50 share price, the company might need to generate around $100 million to $150 million in annual free cash flow, depending on the growth assumptions and discount rate used.

EV:

The company would need to generate around $157.5 million in EBITDA to justify a $2.50 share price, assuming an EV/EBITDA multiple of 8. This means substantial improvement from its current EBITDA levels.

PE Ratio & EPS method:

For the stock price to reach $2.50 using a P/E ratio, we need to estimate the earnings per share (EPS) that would support such a valuation. Hiumm needs to achieve an EPS of $0.167,

Net Income Improvement: With 504 million shares outstanding, to generate an EPS of $0.167, the company would need net income of:

$$\text{Net Income}=\text{EPS}\times \text{Shares Outstanding}=0.167\times 504=84.17\text{million}$$

This means the company would need to generate at least $84 million in net income annually to support a $2.50 share price using the P/E method.

Areas Needing Improvement to Reach a $2.50 Share Price:

1. Operating Cash Flow: Significant improvements in operating cash flow through revenue growth, cost-cutting, and better working capital management.

2. Free Cash Flow: The company would need to generate $100 million to $150 million in annual free cash flow for a $2.50 share price under the DCF method.

3. EBITDA: The company would need to reach an EBITDA of $157.5 million to justify a $2.50 share price using an EV/EBITDA multiple of 8.

4. Net Income: To achieve an EPS of $0.167 (necessary for a $2.50 share price with a P/E ratio of 15), the company would need $84 million in net income.

5. Equity and Book Value: The company’s equity position needs to improve, primarily by increasing retained earnings and reducing debt, to support a higher P/B ratio and justify a $2.50 share price.

IMO ...DYOR