Definitely a fair point Volf, so I've tried to take it into...

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ckc

35 Posts.

05/06/17

13:36

Post #: 25101855

Originally posted by volf ↑

CKC,

Good points and it's nice to have some rational discussion.

With the segments, you still can't split out a segment and apply a P/E multiple but not take into account the head office costs, especially when they're $17m.

Liquidation value is just a number that represents what you'd get out of the company if you wound up the company and sold the assets over a short period of time. I just use it to help provide a floor valuation. Liquidation value isn't a good representation of what it would cost for a competitor to create a similar business.

Expand

Definitely a fair point Volf, so I've tried to take it into consideration below:

Column 1 Column 2 Column 3

0
Segment EBIT
% of Total

1 Franchise Operations
4,324,440
11.58%

2 Store Operations
3,600,666
9.64%

3 FS - Administration
2,509,945
6.72%

4 FS - Personal Loans
26,898,855
72.05%

5 Vehicle Financing
–
0.00%

6 Total
37,333,906

7

8 Corporate Overheads, Annualised
(34,059,958)

9

10
Francise Ops
Store Ops

11 Segment EBITDA
8,718,798
11,179,644

12 Less: Depreciation & Amortisation
(87,918)
(3,978,312)

13 Less: Portion of Corporate Costs
(1,972,607)
(3,284,910)

14 EBIT
6,658,273
3,916,422

15 Less: Interest
–
–

16 NPBT
6,658,273
3,916,422

17 Less: Tax (30%)
(2,043,732)
(1,251,946)

18 NPAT
4,614,541
2,664,476

19 Add: Depreciation & Amortisation
87,918
3,978,312

20 FCF, pre WC adjustments
4,702,459
6,642,788

21

22 Annualised, NPAT
7,279,017

23 Sector Multiple, per Commsec
13.98

24 Valuation
101,760,657

The allocation of Corporate Overheads is a function of the % contribution of each division to EBIT excluding Vehicle Financing, with a 50% haircut for the Franchise Ops figure as I believe it's overstated (the role of Franchisor is typically very hands off).

So if we work off my original (and arbitrary) 10x multiple we arrive at around $72M and if we use a sector multiple it's closer to $101M. Now if we further assume that the Personal Loans EBIT falls to around 50% of it's annual figure (so approx. what's in the FY17 report) that implies that the market is pricing a $24M a year business at almost the same price ($123M[current MC] - $101M), or around $50M is we work off the 10x multiple. Multiples of 1-2x even when taking into consideration such a significant cut to EBIT appears like a decent margin of safety.

But that being said, I think sentiment is driving the price here. And given that there is no reason why the QLD case shouldn't be successful - it's looks identical to the one successful in NSW - I do agree with you that it remains too risky an entry point.

	Column 1	Column 2	Column 3
0		Segment EBIT	% of Total
1	Franchise Operations	4,324,440	11.58%
2	Store Operations	3,600,666	9.64%
3	FS - Administration	2,509,945	6.72%
4	FS - Personal Loans	26,898,855	72.05%
5	Vehicle Financing	–	0.00%
6	Total	37,333,906
7
8	Corporate Overheads, Annualised	(34,059,958)
9
10		Francise Ops	Store Ops
11	Segment EBITDA	8,718,798	11,179,644
12	Less: Depreciation & Amortisation	(87,918)	(3,978,312)
13	Less: Portion of Corporate Costs	(1,972,607)	(3,284,910)
14	EBIT	6,658,273	3,916,422
15	Less: Interest	–	–
16	NPBT	6,658,273	3,916,422
17	Less: Tax (30%)	(2,043,732)	(1,251,946)
18	NPAT	4,614,541	2,664,476
19	Add: Depreciation & Amortisation	87,918	3,978,312
20	FCF, pre WC adjustments	4,702,459	6,642,788
21
22	Annualised, NPAT	7,279,017
23	Sector Multiple, per Commsec	13.98
24	Valuation	101,760,657