Despite selling out just over a month and half ago, I'm finding myself tempted to get back in. In just over 1.5 months the share price has fallen ~23%, significantly more than the general market, with no obvious fundamental reason.
At $2, I sold out primarily because of operation and structural issues more than valuation. At $1.56, this can potentially offer value even if it continues on its current operational decline.
I think the following metrics illustrate the cheapness on this stock:
P/E: 7.8
EV/EBITDA: 6.52
and my personal favourite:
Market Cap/FCF: 11.26%
While the print assets are declining, this business is still a significant cash generating machine, which as mentioned above results in a very respectable FCF/market cap yield of 11.26%. Additionally, unlike some businesses which at present have great free cash flow relative to price (i'm looking at you mining services), SWM is relatively stable business and easy to forecast.
I'm thinking about buying, but I'm not there yet. Primarily because:
a) The market is starting to through up some value in some better quality stocks and I wouldn't be surprised if these opportunities improve over the next few months. If possible, i'd rather deploy my excess cash into blue chips, rather that SWM (still a quality company, but not my definition of blue chip)
b) I need to get more comfortable with the SPS' and their potential dilutive effect, especially with the dividend yield above 6% (thereby triggering a conversion price adjustment).
c) I've started to benchmark against the other free-to-air listed companies, and need to do some further analysis on this
d) I think it could go cheaper. Just a gut feel really, but it's evidently an out of favour stock and is being sold off pretty heavily.
e) Whilst, gearing level is pretty mild at ~30%, interest expense is still a pretty significant cost. I would like to do some sensitivity analysis around interest rates and the effect that would have on free cash flow.
Regards
Gralynchett
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