VIL - Veritas Investments Limited

[noodles]

I’ve been working on estimates for Veritas earnings and dividends for the next couple of years. For me, earnings, earnings growth, and dividends are the key drivers of share prices.

There is some heavy number crunching, but you can drop to the bottom for the summary.

Actual FY14
EBITDA 6,293
NPAT 4,353
eps= .121
Dividend 8.16c Imp Credits 3.17c Gross Yield @$1.28 = 8.85%

Annualised FY14
There were a couple of items that meant that FY15 does not reflect annualised earnings.

1. Kiwi Pacific foods contributed $250K for the six months of ownership. For FY15, and without any growth, it should contribute 500k. This is an increase of NPAT(and EBITDA) of $250k
2. 3 new mad butcher stores were opened in 2014. Each store makes VIL an additional $150K of EBITDA, and $100K in NPAT. I’m going to assume that only 50% of those store earnings were earned in FY14. Therefore, we can add another 150K *3 * 50% =$225K of EBITDA and 100K *3 * 50% =$150K of NPAT.

Now we can calculate FY14 additional Annualised EBITDA $250K+225K=$475K
Annualised NPAT$250K+150K=$400K

EBITDA 6,293 +475= 6,768K (a)
NPAT 4,353+400=4,753K
eps 4753/37,342,332=.127
This gives us forecasted FY15 profit figures if there is no growth.

Forecast FY15
Since the close of FY14 there have been 2 new acquisitions

1. Nosh. No profit projection have been given from management. However, they did say at the AGM...“The business plan is to be materially profitable from FY16.” I take this to mean that there will be little or no profit in FY15. Annual revenue is currently $25m. Perhaps we might see NPAT of $1m in FY16. This is pure finger in the air stuff.
2. BBC (Better Bar Company). Details of the purchase were given at the AGM. Net Purchase price $31.2 m. EBITDA multiple c.x5. There for Annualised EBITDA = $6.24m. For FY15, there will only be 7months contribution. This equates to 7/12*6.24= $4m (b)

Management gave forecasts at the AGM as follows

	Existing FY2014	Combined FY2015
		Low	High
Revenue	29972	71000	78000
EBITDA	6293	10600	11700
NPAT	4353	6300	7000
EPS	12.09	15	16.66
DPS 70%	8.16	10.5	11.67
DPS 60%	6	9	10

If we take the FY14 Annualised EBITDA(a) and add the 7 month contribution of BBC(b), we get 6,768K +4,000K=10768K. This is very close to the Combined Low of the management forecast. If we add in some acquisition costs, you could almost say that the Low of the forecast range assumes that there is no organic growth in the rest of the business. So I’m confident that management are being cautious in their low estimate. We could also assume that the High value includes some growth across Mad Butcher and Pacific Foods. We know a know from the AGM that Mad Butcher has opened another store and carcass and rebate margins are up. Additionally Kiwi Pacific has won the Carls Junior contract to supply patties.
In any case, I think for the purpose of estimate FY15 Forecast, we should use the midpoint of the ranges for EBITDA, NPAT, and DPS.

EBITDA (10600+11700)/2=11,150K
NPAT (6300+7000)/2= 6,650K
Dividend (10.5+11.67+9+10)/4=10.3 Imp Credits 4c Gross Yield @$1.28 = 11.17%

Annualised FY15
FY15 does not reflect annualised earnings of BBC as only 7 months were included. FY16 should add EBITDA 6,240-4,000=2,400 . To calculate the NPAT contribution, I’ve simply taken the ratio of EBITDA to NPAT for the FY15 LOW figure and applied it to the EBITDA uplift
FY16 NPAT=(6300/10600)*2400=1,426K

EBITDA 11,150 + 2,400= 13,550K
NPAT 6,650 + 1,426 = 8,076K
EPS = 8,076,000/44306618=18.2c

At the current share price of 1.28c, we get a pe= 6.9. We should expect that FY16 will provide a result at least as good as this. The annualised FY15 assumes no additional acquisitions or organic growth.



Forecast FY16
Up till now, all my estimates have been from management guidance and estimated impact of the BBC acquisition. For FY16, it is a matter of working out what the base earnings are and work out where some growth may come from. Therefore, any projections are very subjective.

FY16 Growth:

1. Organic Growth in Mad Butcher and Pacific Foods. During FY15, management are forecasting organic growth of around $350K. This is calculated this using the midpoint of the difference between the high and low estimate (7000-6300)/2. I’ve assumed the same growth.
2. Nosh. As discussed above. NPAT of $1m
3. BBC. I’m assuming they can open a new bar each year. They currently have 7 bars contributing Annualised EBITDA = $6.24m. This equates to NPAT = (6300/10600)*6240/7=530K

FY16 NPAT = 8,076 + 350 +1000 + 530 = $9,956
EPS = 9,956,000/44306618=22.4c
At the current share price of 1.28c, we get a pe= 5.7.

For the dividend, I’ll assume 65% payout ratio
Dividend 22.4*.65=14.56 Imp Credits 5.7c Gross Yield @$1.28 = 16.25%


Fy15 normalised eps growth = (18.2 - 12.7)/12.7=45%
Fy16 eps growth = (22.4 -18.2)/18.2=23%


Financial Takeaways
FY14 Historical Dividend Yield 8.85%
FY15 Forecast Dividend Yield 11.17%
FY16 Forecast Dividend Yield 16.3%

FY15 Annualised pe = 6.8
FY16 forecast pe=5.7

Fy15 normalised eps growth = (18.2 - 12.7)/12.7=45%
Fy16 eps growth = (22.4 -18.2)/18.2=23%


Risks

1. The biggest risk for me is Nosh. Supermarkets and Farro competition will mean margins will be important. Clearly it was unsuccessful before. How will Veritas make it successful? Massive execution risk.
2. Mad Butcher. High red meat prices are bad for the company. It has clearly slowed down the rollout of new stores. Are franchisee’s struggling? Will stores close?
3. BBC. I know some of the bars that they own. They have been around for a while they seem a bit stale to me. I guess they are well managed and make a buck. Perhaps the fact that they aren't the latest and greatest bars, mean they aren't trying to attract the fickle cool crowd that move to the next cool place. Unlike Nosh, management are on board and have a significant stake in Veritas.

Summary
I don’t think I’ve ever come across a stock with such attractive metrics: High growth, low pe, high dividend yield. What is more impressive is that the high dividend yields are using just a 65% payout ratio. Even with the above risks, I hold VIL.

I don’t think it is correct to give a target price as it would imply that I’m recommending you buy VIL. I am merely highlighting the financial metrics. Please do your own research.

[percy]

Noodles.
Thank you for sharing your research with us.
I appreciate the hard work you have put into this.
I read the ASM presentation, which made sense to me,and added to your analysis of the company I can see why you are so excited about their future prospects.
I must also thank you for pointing out "The Risks".
I have tried to add to your reputation but had the following come up; "you must spread some Reputation around before giving it to Noodles again".
So would other kind posters add to Noodles reputation on my behalf.

[winner69]

Ha ha .....I gave Percy the reputation instead of noodles as Percy requested.

You deserve a green tick Percy as well

Noodles now got a reputation as well


We all love each other tonight

[percy]

Thank you.!!!??
Back to normal in the new year?? lol.

[percy]

"SMELL THE MONEY"......................
The VIL share price has just gone through "THE GOLDEN CROSS".
The Golden Cross is considered an important technical indicator of a long term market trend.
It has gone through both the 50 day EMA moving average [$1.21], and the 200 day EMA moving average [$1.21] and has finished the week at a healthy $1,28.

[BFG]

Great post noodles, thanks for it!

Always been happy that this was my very first cap raise foray and helped to get the company up and running. I will be back one day before it gets too expensive I hope!

[percy]

Great post noodles, thanks for it!

Always been happy that this was my very first cap raise foray and helped to get the company up and running. I will be back one day before it gets too expensive I hope!

You said the same on another thread a couple of days ago.
Don't miss the train on this one.!!!!! lol.

[noodles]

"SMELL THE MONEY"......................
The VIL share price has just gone through "THE GOLDEN CROSS".
The Golden Cross is considered an important technical indicator of a long term market trend.
It has gone through both the 50 day EMA moving average [$1.21], and the 200 day EMA moving average [$1.21] and has finished the week at a healthy $1,28.

Thanks Percy,
Yes, I must admit I tend to overlook the technicals sometimes.
Here is a chart with your golden cross highlighted
Attachment 6616

[BFG]

You said the same on another thread a couple of days ago.
Don't miss the train on this one.!!!!! lol.

Which one?!?!

[percy]

Which one?!?!

Post #4098 Heartland thread.