Post by
tesh on Sep 07, 2013 11:16am
One person's answers to the value questions
"Sex appeal" is certainly an important factor. My experience has been that the more clarity and certainty of profitable cash flow growth and the ability of the market to quantify this growth and certainty are factors in a company's "sex appeal" so they are worth taking a shot at.
So, given that I asked the questions, here is my attempt to answer them (for what it is worth to those readers who value this sort of exercise)
Key assumptions:
1. Starting base is recently reported 2nd qtr 2013 results annualised.
2. BPE will reach 90% + occupancy (i.e. their definition of stabilised) for 85% of its centres (now less than 50%)
3. The centre margins for the stabilised centres will be the same as for today.
4. Additional child spaces will be via 1/2 leased premises (at $6,000 per space) and 1/2 owned (at $12,000 per space)
5. Head office G&A is capped at today's level.
6. The company can borrow at 6% per annum.
7. Have not factored in increased revenues from new programs offered outside normal business hours or non-inflationary price increaes as these will be offset by the fact that most of the additional spaces will be outside Alberta where centre margins are lower and that the numbers are based upon 2nd qtr annualised when we know that the 3rd qtr is seasonally lower.
8. A multiple of 20 x AFFO - used this multiple (versus the approx 14x it is now) as I believe that once the company demonstrates that it is working towards and achieving the above metrics the market will pay a higher multiple. I actually believe that it will exceed 20x.
Based upon those assumptions:
1. BPE needs to achieve an AFFO per year of 7.5 cents per share to hit a $1.50 share price
2. The company will do so at approximately 8,000 child spaces (versus the 5,000 + today)
3. The cap cost of adding the new spaces will be approximatley $25 million
I believe that all of the above is doable and presents one plausible scenario to achieve a share price of $1.50 and beyond as I think we would all agree that should the company achieve these sorts of results that the growth potential is well beyond 8,000 spaces and growth capital will be readily available under those circumstances. Anyway this provides a set of benchmarks that I will use to evaluate this management's progress for the time being. Would welcome other posters' thoughts.