some figures to play with at last.

Hi everyone, finally some figures from the Austpac Preliminary final report for the soon to be announced plant. The plant is nominated in the report as having a 30,000 tonne per annum output and has the potential to give a $12 million pa EBIT. Given they have only a million in liabilities and about $30 million in accumulated tax losses you can say that’s $12 million profit for the first couple of years. Lets assume some debt funding costs of $2 million per year to build the plant gives $10 million profit for three years and $7 million pa after that (though by that stage you’d assume the decision to build the large plant similar to the Indian model would be made). With 400 million shares on register that’s 2.5c per share profit per annum for what’s really only a scale up plant. Take a PE of say 8 and that would give a share price of 20c just on this scale up plant. Given it is successful the future is a scale up to a 120,000 or 240,000 tonne per annum plant which was envisaged for India. On the same basis this would give $0.80 to $1.60 per share.

Hey calm down now, don’t get your knickers in a knot, this is not a ramp, this is an attempt to value the company and put some fundamentals behind why people are interested in this company and to try and see if there is any basic sense in that takeover rumour? I really can’t see anyone racing out and buying on these figures unless they are real knee jerkers (though if they did others may accuse them of jerking something else).

Hold on there, a bit more decorum please gentlemen, back to the discussion!

Ahem …Those values are way out in the future but those possible earnings are why this stock is interesting and why it got to 20c per share when India was looking possible. A large risk premium is always needed for developmental companies. I’m confident APG can eventually get to those sorts of profits given their doggedness, just don’t ask me when.

Now add in the NZ steel deal (assuming the conjecture is correct and it is NZ Steel) with a plant in place by Christmas. Lets assume it can add another $0.01 per share, then you can see a share price value to someone well above today’s figure.

So does this equate to a takeover offer right now of 25 to 35 cents? I really can’t see it unless there is a lot more being held back by the Company. 25c may be possible currently ($100 million total to get a 12% return just on the 30,000 tpa plant seems reasonable to me) though once the plants are up and running this scenario becomes a hell of a lot firmer. But I think that would need the company to agree given the share register is wide open with the biggest holder having only about 3%. It is going to be very messy for a company to try and buy on market without giving the game away a la NAB and AMP.

If a company was going to try and have a go I’d expect it would need to get its foot on say at least 10% of the company quickly or hopefully (for them) up to the 19% limit after which they would have to make an official offer. Given the above sums you’d assume they’d like to pick up that amount well under the prices calculated above. Lets say their first target is a maximum 15c at a guess, then there would have to be 30 million plus shares shown on screen for sale up to that 15c or the whole thing is in the too hard basket for them. Now I don’t see that much there so I can’t see that scenario happening. Unless we all want to show our hand and put the shares on the board for sale I don’t think we will ever know. I personally think it would be good to have such a company on the books at a 10 to 20% holding. Then again it might have been that extra bottle of red last night that caused me to dream this whole thing up anyway.


Cheers

Seik