News: TFC TFS Corp reaffirms FY16 guidance, page-5

In the current climate, I wouldn't be too disappointed with a maintenance of earnings guidance of 5-10%. I agree with your point RE: the questions around the inclusion of the NT property sale in earnings.

The key for me is the growth in sales revenue excl the property and the control of costs - ie cash sales growing faster than costs. A look at F15 results:

Total revenue growth of +49.8% on F14. 29% of his was delivered by sales growth (cash) and 70% from gain on revaluation of the trees (non-cash).

Sales growth (cash) was +20.6%
Gain on reval of trees (non-cash) was +216%

The thing I will be looking for is the lion share of the 5-10% EBITDA growth being from an increase in the cash sales revenue.

If the gain on reval of trees is the biggest driver as it was in F15, I will be a little nervous, especially if it's driven primarily out of a revaluation driven by an increase in the market price of oil. Keeping in mind that in F15, the valuation used was US$2,800/kg and the company has contracts at a price of $4,500, there is room for an upward reval. I just don't want to see this as the only driver of our revenue and EBITDA growth.

I am still incredibly bullish on TFC's prospects and future. The company has consistently reported that the F16 harvest will be its biggest ever, with a 10 fold increase YoY. Adding to optimism about the future is the pharmaceutical trial success and potential upside in this market.

Things that can help TFC's F16 EBIT growth:

- (cash) YoY decline in volume weighted AUD/USD - upside on AUD oil price/kg
- (non-cash) Potential reval upside in oil price based on actual sales contracts at US$4,500/kg vs F15 'market price' of US$2,800/kg
- (non-cash) Cycling over the F15 unrealised foreign exchange loss of (-$39m) - this shouldn't be repeated.

There's lots of value here and IMO, the market has this one seriously under priced. I have a conservative intrinsic value of $2.10 (stripping out some of the non-cash drivers of NPAT) and a DCF valuation of $2.08 (using growths of 10% F16 & F17, 1% F19, 2% F20 & F21 before averaging 6% into the future).

All of the above is a back of the envelope 5 min job over coffee, so DYOR....