Time to update my capitalised averaged eps valuation (excluding special dividends) for Contact, given the subdued outlook for FY2016 and the impending and current share buyback program.
Compared to last year, the special dividend ($367m total) has created an ongoing parcel of extra debt going forwards that must be serviced. Contact doesn't declare in their annual report the interest rate they pay over their whole debt portfolio. But we can:
1/ take last years total interest paid ($90m) AND
2/ divide this by the end of year term debt ($1,219m + $531m) LESS
3/ the capital paid out in the special dividend (because that payout only occurred just before the end of the financial year).
and calculate:
$90m / [($1,219m + $531m) - $367m] = 6.5%
So 6.5% is our indicative interest rate that Contact currently pays.
The extra interest bill because of the capital return is therefore: $367m x 0.065 = $24m
I am estimating that 20m Contact shares will be bought back and cancelled when the current share buyback program is finished.
Given EBITDA is forecast to be little changed from last year, we can now work out the expected NPAT for Contact for FY2016.
|
FY2016 Adjustments |
EBITDA (normalised FY2015) |
$549m |
less DA (FY2015) |
-$204m |
less I |
-($98m+$24m) |
Total EBT |
$233m |
less Tax at 28% |
-$62m |
NPAT forecast FY2016 |
$161m |
We can now divide that forecast profit figure by the reduced number of shares 'post buyback' to get a forecast eps figure.
$161m / (733m -20m) = 22.6c
And that eps figure can take its place in our multi year eps table below.
Year |
eps |
2009 |
27.0c |
2010 |
25.3c |
2011 |
22.4c |
2012 |
24.6c |
2013 |
27.5c |
2014 |
27.1c |
2015 |
24.3c |
2016 |
22.6c |
I get an average eps of 25.1c (net) over the eight year representative period.
25.1c (net) is equivalent to 25.1/0.72 = 34.9c (gross).
Using a target 6% gross return figure for 'fair value'.
34.9c/0.06 = $5.82
It is no wonder then that I have been buying in recent months and see today's closing price of $4.70 as a bargain. Even if you use this years forecast manic depressed profit on its own (ie assuming profits will never recover and remain low) I still get a valuation of:
[22.6/0.72]/0.06 = $5.23
Mr market can do what he likes as far as I am concerned. I have no problem taking advantage of him.