Good morning
@hottod I acknowledge your gentle castigation of my tone and apologize to
@Kjt1969 for that tone and agree that thoughtful, generous posters like them should not be discouraged. I wasn't so much having a bad day rather just reached a point where a minor annoyance built up to a point where I went off. Probably with a projectile of too great a calibre and aimed at the wrong target.
It just seems like every time we discuss T/Os which are a hard arsed business decision someone is screaming " we are worth as much as CSL", "$US15 billion MINIMUM" based on a theoretical calculation that makes perfect sense in the lab and next to no sense in the real world.
DCF calculations work at establishing a fair price for established businesses like CBA but in my opinion are next to useless for a NEU situation. I say that because of the binary nature of the events being modeled.
You say ktj1969 has addressed the risk in his model by applying only a 45% chance to success. True but that leaves a 55% chance that the value will be zero.
Let me posit an over simplified example. We choose 2 random horses in a paddock and put them in match race with $1m prize money. On a DCF basis each horse is now worth $500,000 as they have a 50% chance of winning a million. You might in the real world find a buyer with deep pockets and a gambling mindset who would pay you $500k for your horse. But if the pool of potential buyers is limited to hard nosed corporate entities with shareholders to answer to then what might they pay? Yes they might double their money but alternatively they might lose everything including their jobs. So what is their discount on the discount?
So people have responded to my post yesterday by saying effectively "show us YOUR calculations". What I'm saying is I cant because its not possible to model the sort of human behaviours and business decisions that will come into play. What I'm saying is that the DCF valuation of the horse is $500,000 no argument there. But what will the horse sell for? I dont know, I cant know, none of us know, BUT I am certain it will be way less than $500,000. How much less depends on the number of potential buyers, their risk aversion, their FOMO, their need for horses to replace retiring ones in their stable, competition from other horses that they have their eye on. You cant model these because they are individual to the potential purchasers and how febrile the bidding environment they may find themselves in.
With the greatest respect for those posters who put enormous time and effort in their models I urge you to think about what your resultant figures represent. They are the maximum likely value that might accrue to an acquirer of NEU at the very end of a long and expensive process. It cant be the sticker price, or auction reserve, for a cash sale right now. That thinking will doom you to disappointment and perhaps blind you to a really good offer when it comes along.
(20min delay)