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Melrosian

2,018 Posts.

13/02/17

00:17

Post #: 22555814
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Originally posted by Dr.Who ↑

Fish, a book to market cap ratio is the main indicator of the need to calculate value-in-use (which is 5yr free cash flow and terminal value discounted to PV at approx 10% for SGH). Goodwill must be tested every year, it simply couldn't pass audit remaining at such a high level with low market cap Therefore estimates of PV future cash flows, which are notoriously subjective, when discounted and compared with goodwill must result in an impairment that brings book to market something close to a reasonable multiple. It is manufacturing numbers to come up with generally accepted metrics.

Therefore debt has a massive impact in it is a component of book and goodwill has a massive impact as it is required to be tested each year with a leading indicator of potential impairment being current market cap. Simply cannot justify a value-in-use of $x when the market has valued it at $x reflected in the SP.

In that it can be seen the perfect storm. High gearing plus relatively high goodwill = potential to attack and cause debt stress due to blowing normal debt metrics out of the window. Domino effect, all the additional costs dealing with debt reaction to declining SP further eating into earnings creating worse still metrics.

It is not hard to see how this could have been manufactured for a reason by related parties with deep pockets and access to initial shorting stock. What is the end game? It could be use the weakness to stock up very cheaply on a sound sustainable company with good defensive earnings - those earnings after integration issues and proven to have stablished perhaps FY17H1 will be the first sign of stabilised!

If revenues hold up and NPAT returns to a normal 14% there is no rush to buy up big. Anything under $1 is remarkably cheap - subject to a possible equity injection to bring gearing to 40% sooner rather than later. Even if that was to occur it shouldn't damage the SP just probably slow the up trend to a less steep up curve.

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Dr Who

2 good posts >

Mel

SGH Price at posting: 26.5¢ Sentiment: Hold Disclosure: Held
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