EBOS NPAT Is Up 7.6%
... So why is the share price falling?
A quick skim through the EBOS H1 result, shows that Underlying NPAT (which is basically NPAT that doesn’t account for losses on M&A activity) is up 7.6%, so why is the share price languishing?
Well, on a PE basis, if we assume similar performance in H2, PE could be 22, which is pretty good. However, I think what’s holding back the share price is this statement in the Outlook section of the report:
“We will continue to service the Chemist Warehouse Australia contract until its expiry date of 30 June 2024. Thereafter, we do not
expect to generate revenue from this contract.”1
In other words, the result isn’t that spectacular (it’s a little above inflation for the period, in other words, a few percent above flat) and the result hasn’t even considered the loss of the large part of their business (which was worth about $2b annually, from memory).
For this reason, EBOS are currently on my naughty list and I won’t be buying (or selling) any until further analysis of what I think they’re worth. My acquisition cessation might also include analysis of whether or not they should be bought at all, given their recent lack of performance. I don’t currently have enough EBOS shares to worry about having to sell.
Just spewing thought's an numbers onto the page here...
If we look at H1 Underlying NPAT of $152m, then add 7% to guestimate the following half year (let's round down to $160m), that gives an annual NPAT of $312m. Let's take 17% (which from memory is what I had previously guestimated the NPAT component of the Chemist Warehouse contract was) off that to create a sort of underlying value to consider what NPAT would have looked like if the contract they lost was reflected throughout the year. That gives a new type of underlying NPAT of $259m which we can use in a super sloppy PE valuation to see if the share price is within buying range.
Based on the current share price of $36.32, that gives a super sloppy underlying PE (if I can even call it that) of 27 ($6,967m / $259m).
I feel that 27 is a little high considering that EBOS previously traded at around that anyway, which makes me wonder if there's potential for the share price to go sideways for a year. It really all depends on the next performance announcement and whether growth returns back to higher levels (after accounting for any drop from the loss of the Chemist Warehouse contract).
My gut feeling is that EBO is better buying at or below $35 a share for a longer term view, but more information from the next announcement will elucidate us about the direction of the company and therefore share price.