Fair Value and Recommendation
We performed a valuation exercise on the shares of TJH which utilizing Free Cash Flow to Equity (FCFE) Method. The valuation methods assumed an investment horizon of seventeen (17) years and utilized our estimates for the Company’s performance between FY 2020-FY 2036. This is since the company is currently under a Concessionary Agreement that is set to expire in 2036, which they have indicated they will opt to extend for another 35 years.
The Free Cash Flow to Equity method we believe is the most appropriate for this offer, under the basis that there will be a major refinancing of the company’s current debt for which their covenants are restrictive to how actual cash is utilized by the Company. Indicated accounts under the debt structure needs to be satisfied before any cashflows of net profit after tax (NPAT) can be distributed to shareholders in the form of dividends. As such, we access the potential availability of funds for distribution, the FCFE will allow us to sufficiently determine the value being derived by shareholders by being shareholders in the Company. Using a Market Multiple Valuation for this type of transaction would be inappropriate given there is no readily available comparable for this type of structure on our local stock market.
As such, the result of our FCFE valuation was an estimate of US$0.0124 or J$1.74, which provides a implies a potential upside of approximately 23%.
|Listing Price||US$ 0.0100|
|Estimated Fair Value||US$0.0123|
Read full Analysis here.