Following Friday's late news from Avesco i.e. the sale of Presteigne for £5m cash, I've done a quick bit of maths this morning to try and find a fair valuation for the newly streamlined business going forward.
Last year the figures were as follows:-
Creative Technology made a operating profit of £8,699,000 whilst Presteigne made an operating loss of £3,279,000.
Stripping out the operating loss but keeping finance costs, a small loss at mclcreate and the tax expense the same, it gives us a picture of possible earnings for the streamlined group going forward.
Without Presteigne then operating profits for the group would have been £5,633,000 or 30p per share putting the group on a p/e ratio of 10 (2015 figures).
The trading profit would have been even better at £6,776,000 (that includes all of the above deductions) or 36p per share (p/e ratio 8.75).
Given that CT is growing rapidly, and finance costs should be substantially reduced then a p/e ratio between 15-20 is fair imo.
On last year's figures alone that gives fair value of £4.50-£6.00 for operating profits or £5.40-£7.20 working with trading profits.
A further favourable factor includes exchange rate gains (a big slice of CT's profits are generated in the US).
Remember that these figures are based on last year's results and CT is a growth company, and hence I think it's reasonable to assume that results will continue to improve significantly.
Clearly there is massive potential upside in the share price which ever way you look at it.
p.s. A key driver will also be their ability to sustain their progressive dividend policy, and based upon the above projections this is pretty much assured. They clearly have the cash to pay special dividends as well if they so choose.
Now I've had chance to look back at the figures, I'd be very disappointed if a sale of the whole group was eventually made for anything less than £8+.
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