Pioupiou, I know your suggestions to "Pick an EPS for FY20, and...

Pioupiou, I know your suggestions to "Pick an EPS for FY20, and work from there using fixed YOY growth" was only "For starters", and that you will probably come back with a more detailed post on valuations shortly.

One simple method I sometimes use to take into account a capital raising could be of value here. It is to calculate the total capital likely to be invested in the year or two after the raising, and using the normal Return On Invested Capital achieved by the company to estimate the likely NPAT, EPS and P/E.

In the case of CCP after its raising, I calculate the total capital likely to be invested over the next two years as follows:

• At 31 Dec 2019, CCP had equity of $482.7M and Net Debt of $206M;
• The additional capital raised in the last 2months is $155M;
• CCP indicated their Debt Headroom in their last report was about $191M;
• CCP normally reinvests about half of their NPAT each year, so I estimate they will reinvest about $85M from profits over the next 2 years;

This adds up to total Capital available for investment of: $1120M.

Now for my assumptions:

1. I assume they will keep at least $50M of headroom debt for a rainy day, and not invest their current cash buffer of about $20M as at Dec 19.
2. I assume CCP will continue to achieve an historical ROIC of 12% on their invested capital.
3. P/E will settle back to around 17 over 2 years.

Conclusions:

1. A 12% return on $1070M is an NPAT of $128M;
2. On the increased number of issued shares of 67.3M, that equates to EPS of $1.90;
3. At the current share price, this gives us a forward P/E (2 years) of 9.5
4. To get to a P/E of 17 over the next 2 years, that means there is around 80% upside on share price over that period.

I find that the above analysis gives me the best idea of where CCP should be headed in the next couple of years. Of course, no analysis or predictions are ever 100% accurate, and could even be quite wrong in the event of unexpected events, so please DYOR before investing.

All comments or other ideas welcomed.