The problem (or one of the problems) I personally see is that...

The problem (or one of the problems) I personally see is that Management don’t seem to be able to deliver on their own guidance, as shown by recent history:

1) On 19 Feb 2018, the Company guided “Low single digit 2018 Operating EBITDA growth”.

2) On 02 May 2018 (only ten weeks later), guidance got revised down to “Operating EBITDA in line with 2017”, i.e. zero growth. In the same presentation, the H1 operating EBITDA forecast was for a -12.0% YoY decline.

3) Today, it turns out that the H1 decline was actually -15.5% (on a like-for-like basis and before AASB15 accounting changes, consistently with a -15.8% decline in Pre-tax Operating Cash Flow) and the full-year guidance has become “A mid single digit decline in Operating EBITDA”.

So, it would appear to me that the Company keep revising their guidance down, and yet still manage to miss even on their own revised guidance.

This clearly has nothing to do with the Protect & Grow plan, because that hasn’t changed: it is still the same number of facilities that need upgrading/refurbishing, and according to Management it is all “progressing to plan” or even “surpassing expectations”.

Meanwhile, Net Debt has increased from 228m$ (DH2017) to 320m$ (JH2018); if we assume a 5% decline in FY2018 operating EBITDA (consistently with today’s updated guidance), then [Net Debt]/[Operating EBITDA] is on track to move from 1.84x (DH2017) to 2.72x (DH2018 like-for-like forecast).

The actual DH2018 metrics are going to look somewhat better, due to the change in accounting rules, but the underlying dynamics do not look particularly healthy to me.

I used to think that IVC deserved a 12.50x EV/[Operating EBITDA] valuation, because of its high durability and low cyclicality characteristics.

But this subjective valuation was predicated upon the capability of the Company to grow their top line, organically and in CPI-adjusted terms, at no less than than the annual death growth rate. And that, regrettably, isn’t happening.

In light of these developments, I would not currently want to pay more than 11.25x (which still represents a ~12.50% premium to market, in EV/EBITDA terms, or a 5.00% FCF yield on EV) for this business.

On a 118m$ FY2018 Operating EBITDA forecast, that equates to 11.25 * 118 = 1,328m$ Enterprise Value; subtracting 320m$ of Net Debt, that gives an implied Market Cap of 1,008m$, or 9.16$/share.

I would like to emphasise that this is merely a subjective assessment of value, i.e. I am not for a moment implying that this is where the stock will or should trade. But, as far as I am concerned, and before any further announcements, this is now looking way too expensive relative to its fundamentals and to the broader market.

IMHO & DYOR