TSX:STB.DB.A - Post by User
Post by
slimjim11on Jan 17, 2016 10:58pm
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CapEx is growth focused
CapEx is growth focusedFollowing the earlier comments by d_trump and bluecollar, I checked the split of Capex between growth and sustaining in Q1 2015. From Page 12 of the Q1 2016 MD&A: "The Companys investing activities for the three months ended September 30, 2015 resulted in a use of cash of $52.0 million. Included in these investing activities were, (i) capital expenditures related to the new bid contracts for fiscal year 2016 of $46.8 million (which includes $0.1 million for oil & gas investments in new wells), (ii) $5.4 million in capital expenditures related to replacement capital spending, and (iii) $0.2 million in proceeds from sale of equipment." So in Q1, 90% of CapEx was for growth, and only 10% was to maintain existing assets. (46.8/52.0 = 90%) This means the sustainable Payout Ratio reflecting maintenance CapEx only, is lower than that calculated by either d_trump of bluecollar, who assumed 50% was maintenance CapEx. While I agree, the classification between allocating a Capital Expense a maintenance or a growth CapEx is open to management interpretation, it would take a major re-write of the allocation to turn a 90% growth number into a 50% growth number. My takeaways: 1) The sustainable Payout Ratio is lower than is being currently priced in the share price 2) With significant growth CapEx, I am expecting continuing positive top line growth.