Time for my FY2019 update!
|
eps |
dps (imputed) |
FY2015 |
16.7 |
14.8 |
FY2016 |
16.0 |
15.2 |
FY2017 |
19.6 |
16.0 |
FY2018 |
15.8 |
16.2 |
FY2019 |
12.8 (e) |
16.2 |
Total |
80.9 |
78.4 |
5 year Average |
|
15.7 |
(e) = estimated profit based on doubling the half year result.
Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)
= (15.7c / 0.72) / 0.08 = $2.73
However, there is a plot in the planning to increase company capital by increasing the number of shares to reduce debt.
The main long term 'problem' with AWF is their 'shortage of capital' and how many new shares will need to be issued to overcome it. The more new shares that are issued, the lower the earnings per share. All other things being equal this means a lower share price.
Estimated Capital Shortage: $27.331m - $20.608m = $6.729m
New capital is being raised twice a year via the dividend reinvestment scheme. Further cash is injected into the business, over and above the declared profit, as 'Customer Relationships' and 'Restraint of Trade' intangible assets are amortized. This effect of these two phenomena over the last two dividend payments are tabled below:
|
Dividend Paid |
Dividend Money Reinvested {A} |
Customer Relationship Amortization {B} |
Restraint of Trade Amortisation {C} |
Money Available for Debt Repayment {A}+{B}+{C} |
1HY2019 |
($2.704m) |
$0.773m |
$0.969m |
$0.109m |
$1.851m |
2HY2019 |
($2.637m) |
$0.797m |
$0.969m |
$0.109m |
$1.875m |
FY2019 |
($5.431m) |
$1.552m |
$1.937m |
$0.217m |
$3.706m |
Over a couple of years the likely cashflow available for debt repayment is therefore poised to extinguish the excess debt that the board wants retired. The 'dividend money reinvested' part of this equation is $1.552m. If these shares are bought at $1.71, then this will require $1.552m/ $1.71 = 907,600 new shares to be issued. Adding that number to the number of shares on issue today makes the total shares on issue:
33,423,399 + 907,600 = 34,330,999
at the end of the debt reduction process.
At EOFY2018 the number of shares on issue was 32,555,193
This means that the incremental number of new shares that need to be issued to retire debt is: 34,330,999 / 32,555,193 = 5.5%
This expected increased number of shares will reduce our fair value target price as follows:
$2.73 / 1.055 = $2.59
At a share price of $1.71 (the price that the last DRP shares were issued), I therefore think that AWF is trading at a price 34% below its fair value. This is why I have been scooping up shares via the DRP and buying on market!