We have also been asked questions about Feltex (NZX:FTX). Here there is at least some information and we can give some thoughts. NOTE: This post was originally in the Valuecruncher Newsletter dated 14 September 2006.
We wait with interest the outcomes of the discussions between the company, ANZ and the Turner Group around their proposal.
Attached is our valuation of the company – we make the following assumptions:
1. Current company forecasts of NZ$20-21 million EBITDA for 30 June 2006.
2. Earnings growth of 10% in 2007 and 2008.
3. 10% EBIT margins.
4. Net Tangible Assets (NTA) based on 31 December 2005 numbers adjusted for the latest ANZ borrowings amount.
Our valuation output is a negative number – ($0.15) per share. We have a range from ($0.32) to $0.03 per share. The NTA is $0.27 per share – assuming the assets hold their value. The June 2006 accounts are not yet released but if there is no rescue package available we would anticipate the assets being written down. The current share price is $0.11. It doesn’t look good.
We do not have a lot of faith that the Turner Group will manage an effective rescue of Feltex. Based on our numbers there does not appear to be a lot of value in the equity of the business – with the existing debt levels. Our view (outside the process) is that we would expect that Godfrey Hirst is in a better position to achieve an effective outcome. We say that based on the assumption that Godfrey Hirst can generate some operational synergies from the Feltex assets that the Turner Group cannot. In either case the existing shareholders of Feltex will suffer.