most expensive ms on asx - 3+ x nta

I make no bones about it - I am short this stock and have lost money. Momentum can take stocks to unbelievable places so I expect to lose more money . I am shorting against the Feb announced Balance Sheet which will be diabolical for the following reasons:

June 2013 Share Capital $213.4m / Intangibles $40.3m = Net Tangible Assets = $173.1m. Announced expected EBITDA loss (85m - 90m). Deduct say 30m for Depreciation and interest (generous) based on additional debt gives NPBT of a $115 - $120m loss. Therfore retained earnings are reduced by this amount and similarly NTA. NTA June 2014 = say $58m. This assumes (a) no further write downs (e.g. no write downs of the existing $40m intangibles) and (b) ignores the intangibles from the Taggart acquisition. Therefore it is, if anything a best case scenario.

On top of that they have given away 15% of the company to ANZ - (i.e. 13% of the 86m common equity on "a fully diluted basis after giving pro forma effect to the issuance of the warrants" which is 13% of 100m shares. On a fully diluted basis, ANZ will have 13m of 100m shares or 15% of the current market cap.

$58m on 100m shares is 58c NTA per share. At current share price of circa $1.74 it is at a 3x NTA multiple. NO other MS is higher than 1.5x and most are at a discount e.g. Ausdrill (more than 50% discount), Macmahon, Boart.

In terms of intangibles the real order book is not $1.8bn but $0.9bn because the above figures are forecasts for end of June 2014 after they have burned through half their order book by their own announcement (assuming no further additions) of $0.9m of the order book being for 2014. So the profit calcs above are after they burn through $0.9m of revenue of their $1.8bn order book.

Second the announcement was diabolical for reasons beyond the headline. The loss on the two power stations losing them $127m "one-off" was bad enough but they have also announced normalised EBITDA of $45 - $50m excluding one-off effects. That is an almost 60% reduction on 2013 EBITDA of $115m and back to EBITDA of 2010. Besides the fact they wrote off 60% of their capital on two projects, the second part of the announcement alone - reducing normalised EBITDA by 60% should of at least halved their pre-suspension price of $4.18. On top of that add the $127m one off loss (about a $1.40 a share), the 15% giveaway to ANZ and the complete incompetence of management between "business as usual" October and KordaMentha Novemeber and you have a share price that should be well below $1.

Last, gearing will be a problem. From a net cash position of $78m in June, their post Taggart post suspension announcement said they had net debt of $25m in October before spending another $45m on the losses from the two power stations so $70m net debt from $78m net cash in one year. Against NTA of $58m and share capital of say $98m, this represents gearing of 45% at June 2014 year end. Boart, Emeco and others have been slammed for similar gearing levels to well below NTA - and this all happened in one year.

In a logical non-emotional way I would really like to know where I am wrong and I will eat my losses but for now I am looking to get shorter on the spike towards $2.