SDV - SciDev Limited

[imajica]

we all know that dividends wont happen for ages - the profits will be re-invested into the business to expand operations and to commission the new Intec plant - that's all it means

 

[jet328]

we all know that dividends wont happen for ages - the profits will be re-invested into the business to expand operations and to commission the new Intec plant - that's all it means

I think what dhukka is trying to say, is "how can you can calculate earnings by excluding some of the costs?"
Since they are a technology company, this could have a big effect on the bottom line

Cheers

 

[wintermute]

Return on equity will be the key..... simple calculation if they re-invest into the capital of the company shareholders equity will increase, if they keep making the same ROE (ie earnings growth increases with increasing shareholder equity) then the sp will appreciate comensurately...

At the end of 2006 financial year Intec had approx $31 Million in sharholders equity. Now lets assume that they get an average zinc price of $1.50 / lb and that their admin costs are $4 million... that leaves $20 million... this would be about a 65% return on equity... now lets assume that that entire 20 million is re-invested in the company in such a way that they can continue to make a 65% return on equity.... they now have 51 Million in shareholder equity if they make a 65% return on that they should have $33 million (before admin costs) the following year... even though no earnings were distributed to shareholders 20 million equates to about 3.6c/share at the current sp that is a p/e of about 6.

Now the following year the same happens but the profit (re-invested) will be about 29 million... assuming the same number of shares on issue we have 5.2c/share earnings.. with p/e of 6 we have 31.2c sp or an approximate increase in share value of 70%...

Now this of course is just hypothetical and can't be used to forecast the sp a s INL doesn't have a track record yet for ROE, but it gives an insight into how if money is re-invested wisely it can be of great benefit to the shareholders.. (the key word there is wisely!) consider the return you would get if instead of investing that 20 Million back into the company they distributed the entire profit as dividends... Instead of a 70% return you would be looking at a 16% return based on the current sp of 22c!!!

As I have said before, the zinc concentrate JV is just a means to an end, they are using it to generate cashflow to fund their real drawcard

Tony.

 

[dhukka]

I think what dhukka is trying to say, is "how can you can calculate earnings by excluding some of the costs?"
Since they are a technology company, this could have a big effect on the bottom line

Cheers

Exactly, you wouldn't expect corporate overhead to be a big number but how much is the technology spend, $2m $4m $8m? Based on the zinc price of $1.50 EBITDA according to the slide would be $24.5m. Factor in $5m (I've just picked that out of the sky) to cover corporate and technology spend and you've already reduced EBITDA by 20%.

 

[dhukka]

Return on equity will be the key..... simple calculation if they re-invest into the capital of the company shareholders equity will increase, if they keep making the same ROE (ie earnings growth increases with increasing shareholder equity) then the sp will appreciate comensurately...

At the end of 2006 financial year Intec had approx $31 Million in sharholders equity. Now lets assume that they get an average zinc price of $1.50 / lb and that their admin costs are $4 million... that leaves $20 million... this would be about a 65% return on equity... now lets assume that that entire 20 million is re-invested in the company in such a way that they can continue to make a 65% return on equity.... they now have 51 Million in shareholder equity if they make a 65% return on that they should have $33 million (before admin costs) the following year... even though no earnings were distributed to shareholders 20 million equates to about 3.6c/share at the current sp that is a p/e of about 6.

Now the following year the same happens but the profit (re-invested) will be about 29 million... assuming the same number of shares on issue we have 5.2c/share earnings.. with p/e of 6 we have 31.2c sp or an approximate increase in share value of 70%...

Now this of course is just hypothetical and can't be used to forecast the sp a s INL doesn't have a track record yet for ROE, but it gives an insight into how if money is re-invested wisely it can be of great benefit to the shareholders.. (the key word there is wisely!) consider the return you would get if instead of investing that 20 Million back into the company they distributed the entire profit as dividends... Instead of a 70% return you would be looking at a 16% return based on the current sp of 22c!!!

As I have said before, the zinc concentrate JV is just a means to an end, they are using it to generate cashflow to fund their real drawcard

Tony.

Absolutely ROE and the ability to sustain a high ROE are essential for growing shareholder value however I think your calcualtions need some revision. If we use your adjusted figure of $20m EBITDA minus $1m for depreciation and amortisation (FY06 $0.7m) That's $19m EBIT. The company has no debt and therefore no interest expense. That gives Profit before tax of $19m. With $39.6m in accumulated losses we'll assume no tax. However if we believe the company will earn profits going forward we should normalize the NPAT for tax. 30% tax on $19m is $5.7m giving normalised NPAT of $13.3m.

Now the problem with your ROE calculation is that you used FY07 profit but FY06 shareholders equity. If we assume $13.3m profit and the company retains all its earnings shareholders equity at 30 June 2007 will be $44.8m.
$13.3m / $44.8m gives an ROE of 29.7% However since shareholders equity on the balance sheet is a snapshot at year end whilst the P&L reflects the full period I believe average sharholders equity is more appropriate giving: avg s'holders equity = ($31.5m + $44.8m)/2 = $38.2m. NPAT $13.3m / s'holders Equity $38.3m, ROE = 34.8% still very good but a far cry from 65%.

If we don't normalise profit: NPAT of $19m / avg shareholders equity of $41m gives ROE of 46.3% but you would be hard pressed to make a case that they could continue to earn these kind of returns once they start paying tax. Not to mention the fact that zinc at US$1.50 lb is well above historical averages and therefore unsustainable in the long term.

 

[wintermute]

Thanks Dhukka, just curious as to why the ROE rate would be calculated after adding in the profit... the increase in equity is because of retained profits no? So if they make a profit of 20 million and have 31 million at the start of that year, then I would have thought the ROE calc was done on what they had before they produced the profit, rather than what they have once the profit is added in?? I guess you could go half way and average it as you said because potentially some of the profit from the early parts of that year could already be boosting the performance for the rest of that same year...

I used to have (on my HSBC broking site) figures for the ROE for companies, and when tried to work out how they had come up with those figures as far as I could tell they had were based on what the shareholder equity was at the beginning of the year in question.... I'll go and do some reading, as admittedly the way I have been working out ROE was based on stuff I had divined rather than been told or read

Anyway the calcs were only for demo purposes, and hypothetical.. INL will only have 5 months of actual earnings for 2006/2007 financial year so that calculation was not supposed to reflect reality, just demonstrate a point probably should have made that more clear!

The tax question is an interesting one, should have 1 or two years clear, and there could also be substantial R&D deductions for a while too. From a long term perspective I can understand allowing for tax, but in the short term, it isn't an issue so the growth should be higher as a result, of course when they do start paying tax THEN the relative performance will drop, so I guess in trying to work out share value a discount factor does need to be applied

Tony.

 

[wintermute]

Did a google search, and yeah the average seems to be the way to go Thanks for pulling me up dhukka! It's been a while since I first looked at doing ROE calcs (had been lasy and was doing simple eps * p/e) I will start using ROE in my evaluation, and do it the right way!!

Tony.

 

[dhukka]

Thanks Dhukka, just curious as to why the ROE rate would be calculated after adding in the profit... the increase in equity is because of retained profits no? So if they make a profit of 20 million and have 31 million at the start of that year, then I would have thought the ROE calc was done on what they had before they produced the profit, rather than what they have once the profit is added in?? I guess you could go half way and average it as you said because potentially some of the profit from the early parts of that year could already be boosting the performance for the rest of that same year...

I used to have (on my HSBC broking site) figures for the ROE for companies, and when tried to work out how they had come up with those figures as far as I could tell they had were based on what the shareholder equity was at the beginning of the year in question.... I'll go and do some reading, as admittedly the way I have been working out ROE was based on stuff I had divined rather than been told or read

Anyway the calcs were only for demo purposes, and hypothetical.. INL will only have 5 months of actual earnings for 2006/2007 financial year so that calculation was not supposed to reflect reality, just demonstrate a point probably should have made that more clear!

The tax question is an interesting one, should have 1 or two years clear, and there could also be substantial R&D deductions for a while too. From a long term perspective I can understand allowing for tax, but in the short term, it isn't an issue so the growth should be higher as a result, of course when they do start paying tax THEN the relative performance will drop, so I guess in trying to work out share value a discount factor does need to be applied

Tony.

Tony,

The standard way to caluclate ROE is to divide Net Profit for the year with S'holders equity at the end of the same year. Take a look at the 'shares and funds' part in the money section of msn.com.au. All the financial data there is exactly the same as what standard Commsec clients see on the Commsec website courtesy of Huntleys. You can check how ROE's are calculated. Here is an example: BHP

Imagine a fictitious company with $10m in s'holders funds at 30 Jun 2006. The very next day there is a capital injection of another $10m. The company would have the benefit of that capital for the entire financial year to Jun 2007 yet if we calculate ROE as you suggest we assume their profit was made off a capital base of $10m. Conversely if the company has a $10m capital injection on June 30th 2007 and we use end of year equity we are assuming that capital was available all year when in reality it was available for one day. Of course these examples are taken to the extreme but you get my drift.

There has probably never been a company in history that has earned a consistent (10 years +) ROE of 65% - certainly not a resources company. Hight quality businesses can consistently average 20%+ only very exceptional
ones would be capable of 30%+. BHP's average ROE for the past 6 years as you can calculate yourself on msn money is 24.6%. Over the last 10 years it becomes 19.4%.

You could kid yourself into believing that BHP has evolved into a fantastic business and that the 42% ROE achieved last year is sustainable or you could be a little more realistic and say we are in a period of peak commodity prices and over time we would expect BHP's ROE to revert to around the 20% level - still quite good.

 

[drmb]

INL presentation now posted on its website http://www.intec.com.au/docs/asx/07/070207 - ASX Announcement - Australias Newest Zinc Producer.pdf
(the ASX post is a grainy b/w) I emailed generic Intec email a "Nice presentation but wazzup doc?" Got an email back from Philip Woods (CEO) within a few hours "Believe me, I share some of your frustrations, but INL is heading in the right direction." Thought that was nice. Must remember Warren Buffett said to the effect "The stockmarket is a mechanism to transfer money from the impatient to the patient", repeat 100 times (Ommmmmmm!)

 

[kransky]

INL presentation now posted on its website http://www.intec.com.au/docs/asx/07/070207 - ASX Announcement - Australias Newest Zinc Producer.pdf
(the ASX post is a grainy b/w) I emailed generic Intec email a "Nice presentation but wazzup doc?" Got an email back from Philip Woods (CEO) within a few hours "Believe me, I share some of your frustrations, but INL is heading in the right direction." Thought that was nice. Must remember Warren Buffett said to the effect "The stockmarket is a mechanism to transfer money from the impatient to the patient", repeat 100 times (Ommmmmmm!)

nice post!

its funny... i want it up but i also want it down under 20c so i can accumulate more.. come on ivanhoe.. sell some more shares...

 

[imajica]

I know what u mean, I have no problem waiting - always prefer to hold them a year at least to reduce CGT

 

[gordon2007]

http://www.asx.com.au/asx/statistics/showAnnouncementPDF.do?idsID=00692872

News is out. And I'm not even a holder.

 

[KIWIKARLOS]

That equates to $22 M US at 60000 T PA
Thats almost $30 M AUS PA

Lets hope they announce some JV and partnerships etc in the near future. Go INL

 

[ezyTrader]

Looks all good news to me. Lets see how the market takes on... :

 

[Moneybags]

Looks all good news to me. Lets see how the market takes on... :

If it doesn't move today it never will........should be green everywhere today.

MB

 

[PhoenixXx]

Have been waiting for this.

 

[imajica]

for some reason VMS can nearly double in a few minutes on hot air over a possible hit of mineralisation and INL has reliable bona fide cash flow for the next decade and it jumps a point - it doesn't make sense. (I hope everyone who runs after the hot money gets burnt !!!! hehe)

 

[wintermute]

personally I was a bit disappointed... seems I mis-interpreted a previous announcement and had unrealistic expectations about their smelter costs.

Yes it is nearly $30 million (if you extrapolate) but that is just the revenue, not gross profit... we still don't know what the plant costs are to produce that concentrate... there is a figure from April last year of 25 million / annum costs, but I don't know if that includes smelter costs or not. If it doesn't then that 30 million is looking more like $5 million, a big difference! I guess we will know once the annual report comes out!

Something just doesn't seem to add up as even at a zn price of 90c / lb their revenue was predicted to be 34 million.... unless I just went back and looked at the latest presentation, and the figures I realised are for the whole JV, so at a zn price of 1.50 / lb Intecs gross profit before any corporate overheads is projected to be around $12 million... not to be sneezed at but also no where near $30 million

I give up on trying to work out how INL arrives at their figures!

Tony.

 

[Col Lector]

Been in INL for a while but also concerned after todays announcement....
At the crux of the issue is INL's "Base Case Scenario" most recently posted in the Feb7 announcement.
I, similarly, had been reading the table as INL's share of the JV revenue and profit.
It appears it is not!! ie, the table appears to be misleading.
Surely any confusion could be overcome by replacing...
"*50% JV interest @ 1.5M tpa" with
" The figures in this table refer to 100% JV revenue and profit at 1.5M tpa"....as it appears to be

Will be postponing stocking up on more shares until INL clarify this crucial point!

 

[Dave31]

another announcement just came out for those who dont know.

Would have prefered it out tomorrow tho!