I've been running some numbers on the downgrade. This is clearly extremely disappointing, but with the share price down ~40%, its always good to take a fresh look before hitting the sell button;.
- I've assumed TRS generates about $9m NPAT for the full year 2019, reflecting a modest loss in H2 in line with H2 2018 (I can build a case for a higher or lower number, but this seems reasonable given various initiatives that should impact the H2 result);
- This should mean an EBITDA (before any lease adjustments under the new standard) of ~$33m;
- These numbers should allow a dividend of about 19c for the full year, and free cashflow (after dividends) of about $5M, with a year end cash balance FY 2019 of c$20m;
- At the current share price, this gives a fiscal 2019 EV of $60m, EV/EBITDA of 1.8x, P/E of 8.6x, and a dividend yield of 7% (9% grossed up for franking credits).
- EV/EBITDA of 1.8x is extremely low for a company with net cash, profitable and still generating good free cashflow;
- Accordingly, if this doesn't shake out a private equity bidder, then I don't see what will, as a low EBITDA multiple drives a very attractive private equity IRR;
- This obviously assumes that the business model is still viable, but given the scale and position of TRS and the success of this format in US, UK and Canada, I don't see why it can't thrive with the right strategy.
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