Skellerup (SKL) Fundamentals

[Aaron]

I bought SKL shares at the height of the boom based on a recommendation and bought more through the rights issue when it crashed. Its now at around fair value according to Lizard et al on this thread and at a level where I can get my money back. I own twice as much of SKL as I would like to due to the rights issue. The moving average and other oscillators indicate the shares are in an overbought position but they are not declining.
I am caught between greed and fear. I guess the share price could plunge back down but how likley is it the TA indicators give me a warning before the share price drops back below .90 cents per share. Asking the question I realise its impossible to answer so I will run with it and hopefully be able to sell when the trend changes or when I finally succumb to fear.

[percy]

I think the company is now a lot healthier and better focused than when you brought into it.I think you should sit back and enjoy making some money.Well run companies do not throw up too many surprises.The bad surprises are now history.

[Lizard]

SKL might be a contender for NZX50 today with the exit of PRC?

[Lizard]

SKL might be a contender for NZX50 today with the exit of PRC?

And yes, in it goes. Maybe this will push it solidly through the $1 mark?

[percy]

Good call Lizard.I am buying some for the wife today.Not sure whether we will get at $1.03 or $1.05.

[Lizard]

Looks like the Directors decided it was a good idea to make sure the market was well informed before the index funds get their fill...

Profit upgrade to $18.5-$19.5m NPAT fo FY11 (from $16-$17m). This might get us to $1.15 before Christmas? (The IPO price!)

[percy]

Looks like the Directors decided it was a good idea to make sure the market was well informed before the index funds get their fill...

Profit upgrade to $18.5-$19.5m NPAT fo FY11 (from $16-$17m). This might get us to $1.15 before Christmas? (The IPO price!)

You have done it again Lizard. Brought wife's at $1.04 yesterday. I hope aaron is still holding?

[Aaron]

You have done it again Lizard. Brought wife's at $1.04 yesterday. I hope aaron is still holding?

Still holding thanks for the advice.
Wish I could say my investing came down to something other than luck like research and understanding markets.
A profit upgrade in the paper this morning for SKL also makes me happier.
When I can start making investment decisions on a more logical consistent less emotional basis I'll start entering the share picking competition.

[Lizard]

Enter the comp, Aaron - a chance to test any theories you might hold on stock picking without actually having to risk any real money!

A share investor with the nature of a perfectionist is going to have a very difficult time - no matter how long you hone your investment skills, you will have to accept getting things wrong and wearing the consequences.... the skill is in being able to acknowledge you were wrong quickly!

[Catalyst]

A good turnaround result I thought.

Key metrics from today's FY10 result:
EBITDA = $31.8m (excl $3.2m abnormal costs pre-tax)
NPAT = $14.5m (excl $2.5m abnormal costs after-tax)
Net debt = $26.6m
FY dividend = 4.5c

# shares = 191.1m
Current share price = $0.78
Market cap = $149.1m

Current PE = $0.78 / ($14.5m/191.1m) = 10.3x
Current EV/EBITDA = ($149.1m + $26.6m) / $31.8m = 5.5x
Gross dividend yield = 4.5c / 78c / 70% = 8.2%

My valuation is around the $0.90 mark, based on:
PE of 12.0x = 12.0 x ($14.5m/191.1m) = $0.91
EV/EBITDA of 6.5x = (6.5 x $31.8m - 26.6m) / 191.1m = $0.94

If we use the company's guidance for FY11 of NPAT between $16 - $17m, it doesn't materially change my view on fair value:
Forecast NPAT = $16.5m midpoint
Forecast EBITDA = $33.0m (NPAT + $7.1m tax + $2.1m int + $7.2m dep'n/amort'n)

Using slightly lower multiples given it is a year away, I still get values around the $0.90 - $1.00 mark:
PE of 11.5x = 11.5 x ($16.5m/191.1m) = $1.00
EV/EBITDA of 6.0x = (6.0 x $33.0m - $26.6m) / 191.1m = $0.90

Anyone got any different values?

My valuation range is between $1.10 - $1.20 if I now use the midpoint of the company's current guidance ($18.5m - $19.5m). I wouldn't be surprised to see the company exceed this range, like last year, though.

Forecast NPAT = $19.0m midpoint
Forecast EBITDA = $36.8m (NPAT + $8.2m tax + $2.3m int + $7.3m dep'n/amort'n)

PE of 12.0x = 12.0 x ($19.0m/191.1m shares) = $1.18
EV/EBITDA of 6.5x = (6.5 x $36.8m - $26.6m net debt) / 191.1m = $1.10

If I assume NPAT will be $20.0m, my valuation range is $1.15 - $1.25, using the same PE (12.0x) and EV/EBITDA (6.5x) multiples above. It could be argued that if the company is in a period of good growth prospects then the multiples could be increased. If I assume $20.0m NPAT and use a PE of 13.0x and an EV/EBITDA multiple of 7.5x, both multiple-based valuations then come to $1.35.