...is debt. PGA has too much of it (approx. $350m+) and investors have deserted this stock. Even more pressing, Photon has $100m of debt due to be refinanced with ANZ by July 09. (more on that in a bit).
There is absolutely ZERO interest in Photon right now - everything else has been going up since March, whereas here - you could hear a pin drop, it's that dead.
Well, here lies the opportunity.
Photon is cheap. Big time.
As of today (17/4/09) you can buy PGA for 96c - a company that will make 32c in EPS next year. That's 3x earnings for a company that will grow 10% EPS next year. Nice...
...so, what's the catch?
Debt. In the last financial report PGA disclosed 3 key debt covenant requirements for the banks:
1. Total debt to EBITDA maximum 3x (currently 2.9x)
2. EBIT interest cover minimum 3x (currently 3.7x)
3. Capital ratio of 60% (currently 58%).
Photon has $100m of debt due to be refinanced by July and should be meeting the ANZ guys very soon to talk about it's debt position.
By looking at the numbers above, it looks like Photon could easily default. However, when a full-year of earnings on recent purchases hits the bottom line and as lower interest rates on the debt they have reduces interest payments, Photon should manage to stay above those requirements.
If it can refinance this debt successfully, and show to the banks that it is meeting it's debt covenant requirements - this will lead to a share price re-rating IMO.
...and here lies the opportunity.
Good luck to holders.
Add to My Watchlist
What is My Watchlist?