Yangarra Resources Ltd T.YGR

...someone is excited on Twitter X

[cuffy54]

https://x.com/BubleQe/status/1866983717656469578

[SHoldd]

yeah the guy forgot to add the debt 

[cfliesser]

well not adding the debt is not wrong. It's a levered investment. Really what you need to do is subtract the interest rate on the debt. Around what 8%? So 30% FCF - 8% debt interest cost = 22% FCF after debt payments. So being levered is better than not being levered in that sense.

[Helloworld]

This doesn't matter.  Just need YGR to issue a PR saying all fcf will go to buying bitcoin.  Market cap will double overnight. 

[SHoldd]

No it's 100% wrong. The current business operations and cash flows he's projecting (30M) were funded by debt. You cannot have the existing cash flows without the debt financing. Or alternatively the capital structure or amount of leverage used should make no difference and in order to replace the full company it would cost 200M. If you're ignoing debt then how about the company take

[cfliesser]

What you are describing is simply leverage. Of course if you increase debt to equity ratio FCF will go up. They could hold debt fixed and pay a 30% dividend... thats what 100% leverage gets you.

[SHoldd]

what i'm describing is the enterprise value or it's total price. That's what the free cash flow is a yield of.  Also you're way of using the interest rate substraction is not the enterprise value it's a yield off the interest rate, not the principal. I prefer it to not considering the debt at all, but it's still not the enterprise value and the total replacement cost

[SHoldd]

Do you not see how my exmaple has a yield that is 3x more than his yield simply by changing the capital structure? How does that make sense that the same company can have a yield 3x better just by performing accounting acrobatics? It's because it doesn't make sense. A company capital structure is made up of both equity and debt. The free cash flow yield is a yield of it's total price

[SHoldd]

I should add that I take your point that it's simply a levered investment. But that factors into how much more market cap is needed and i think that capital gains is the more appropriate place to consider the extent of leverage, not the valuation itself. So 200M would be the starting point and then every extra 100M (only the equity) would be a double. I understand what you're saying I just

[SHoldd]

This way would make sense to me if I did valuations based on free cash flow yields so if I projected a 8% FCF yield as my share target, it's currently 30%, so the share price should be, etc. 

[Hendrick3]

Your method is a conservative measure albeit fairly unconventional. The question I try to answer is my return on investment. If ygr has $30million 30 cents per share, to give to shareholders at the end of the year and my purchase price for the share was $1, it means they could pay me a 30 cent dividend which clearly is a 30% rate of return. 

[SHoldd]

It's a 30% dividend but it's not 30% off the replacement cost for the company. If you bought the whole company for 100M you would still owe the debt so it's not actually 30% which is how I look at it. To not consider debt and only equity would place indebted companies yields on the same level as no debt companies yields which misses a lot specifically the entire capital that went in

[SHoldd]

David Swensen one of the best portfolio managers suggested using enterprive value in pioneering portfolio management and discusses this very point and how you have to sum the debt, to consider only the equity means you're making major distinctions based solely on capital structures which are very personal and you will favour indebted companies on the basis of their "high yields" on

[SHoldd]

And if you were the business owner had 100% of Yangarra, would your return on investment not include the debt used? That is money that went in to produce the current cash flows it has to be considered if you look at it as the business owner that money had to go in 

[SHoldd]

Here is an abbreviated version from unconventional success for some reason I can't find the original version in pioneering portfolio management - quite simply a company's enterprise value comprises both it's equity and debt 

[SHoldd]

[SHoldd]

https://imgur.com/pA09HMT

[Hendrick3]

The short answer is no. An analogy. If you bought a house for $500k with a $400k mortgage and the next day are offered $600k, you have a rate of return of 100%. In your analysis you are saying the rate of return is 20% but that is incorrect. You have doubled your money.   

[SHoldd]

You're not considering your borrowing costs and interest rate. Even if you did, it's highly unlikely that there would be a one-day turnaround otherwise the second person would have just bought it for the lower price. And then if you change the timeline of your example and paid off the whole house and then sold it, you had to put in 500k to get 600k. Given the amount of time you've held

[SHoldd]

if Yangarra didn't have to pay off debt there would already be shareholder returns the debt directly prevented that for 2 years 

[SHoldd]

and if you consider the "31% yield" in the context of it being offered in 1 of the last 3 years due to the debt t's really a 10.3% yield which is a lot closer to my 15% yield on the EV after adding the debt

[SHoldd]

and then consider that it would have also been a 31% FCF yield 3 years ago it just went to the debt have to add the debt 31% yield means nothing without it