I prefer to look at ROIC with the invested capital bit being debt along with equity.
Looking at ROIC for years up to 2012 it consistently was in excess of 10%, in 2011 it was 17% odd. Up into 2012 EBOS more than covered it cost of capital. It was adding substantial economic value. As such EBO market cap deserved to be in excess of its book value. (Theory being Market Value Added being NPV of future economic value added)
The last couple of years has had the Symbion effect making Ebos much bigger. In achieving that equity has increased to $970m and debt is $404m. Invested capital end FY14 being $1,704m. ROIC for Fy14 was just over 7%. Forecasts for FY15 indicate ROIC won't be that much higher.
So back to theory - unless profitability increases faster than it currently is than a fair assumption all the company is doing is covering its cost of capital, indicating a fair price for EBO is about it's book value, about $6.44.
At about the current price of $10 the market is saying that its market value added is over $500m. If this is indeed the NPV of future EVA then Ebos should be making about $30m than it currently is and still growing 7%pa for at least the next 5 years.
Interesting way market sees things at the moment, both a TA and FA perspective.
On one hand a few weeks ago the market was saying $10.50 to maybe $12.20 (the new trading range I suggested) was about right. Maybe the recent downturn is the realisation that post Symbion acquisition that's too high and the share price is going to gravitate closer to book value (the $6,44)
Who knows. All I know is that fundamentals generally win out in the end.
But then again all Ebos has to do is make another decent acquisition and everybody will get excited again and things will look different.
But maybe 24 years of history will be a guide to future performance.
(Disc. Respect the company. Been in a few times but not continuously for 24 years. Last time was post Masterpet acquisition and riding share price increase from 6 bucks to 10 bucks. Currently not in as considered overvalued. Maybe back in one day)
Been a very good investment for me, but have sold out a fair few of my holding today. Im really not trusting the markets at the moment, and have everything in a short leash.
Been a very good investment for me, but have sold out a fair few of my holding today. Im really not trusting the markets at the moment, and have everything in a short leash.
people are worried about the outcome of Australian healthcare budget cuts. In particular a subsidy EBO receives, to promote the service of rural centers.
Expect the stock to remain under pressure till this gets resolved (either way), in a couple of months.
Now I normally wouldn't take any notice of the presence of bots trading a stock. It looks like they have been active in EBOS this afternoon. I know percy has been waiting for the Aussies to take notice of what EBOS have been achieving. Perhaps this is some evidence. Aussies do love their bots.
Reply With Quote
Originally Posted by KW
Bookmarks