VALUE - 12bigrob22 Oct 2012 16:05
Hi 12bigrob,
Judging by the apparent indifference of the markets so far you may think that selling off two of the four business units of the Company will not have any affect on the SP. On the other hand perhaps the markets have not yet assessed the real potential of the possible sales. I am no expert on balance sheets but having looked at last years annual report I can identify the following facts which you and others may find of use/interest.
Macau and Monaco & Islands combined accounted for 38% of revenue ($2,875m total revenue) and 45% of operating profits ($531m total operating profits) so going forward without them on a flat performance you would expect revenue of about $1,765 million and operating profits of $290 million.
However, the combined sale prices being suggested for these two business units is circa $1.4 billion which comfortably exceeds the large debt that CWC currently has as a consequence of its two principal loans. (One of them called ‘a revolving credit facility’.)
Consequently, although the income from operations available for dividends etc would drop following any sale(s), the reduction in servicing debt (should the board chose to use the sale proceeds this way) would help offset this income reduction to the tune of up to $167 million per year. The net result from the sale of these two business units could then be a reduction in operating profit of just $74 million per year, a fall of about 14%. Now that sort of fall is enough to normally spook markets but what would be left is a debt free company with a simplified structure and much reduced risk.
Oh, and one other thing. For whatever reason the operating costs in the Caribbean were horrendous last year, $611 million on revenues of $1,172. If the company can manage those down to something similar (in percentage terms) to the operating costs for Panama, then there’s another $330m potentially available as operating profits (dividends!).
It’s a real shame that Mr Pluthero and colleagues did such a poor job on CWW but I am far more buoyant about CWC and think this board will do a much better job for us investors. Let’s hope for positive news on the potential sales and the Caribbean operations in November, if so 60p easy!
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