RE: Price Targets9 Jul 2019 14:59
Hi Bezzy et al,
And here's my comment of 27th March, for balance / reality-check :
"At the risk of teaching grannie to suck eggs, NPV is just a way of valuing future cash flows, as a way of helping choose between different places and ways to risk your money. You look at future income streams and discount them, taking account that money today or next year is 'worth' a lot more than money that you expect to get in 10 years time. Or 20. Or 30.
We're interested because MCap (ie share price) is looking at the same thing : when we buy a company, we're basically buying a future income stream ie what we think we'll get back in future earnings.
A lot depends on what discount rate you use. I've commented before that a 10% discount rate makes sense for Canada (Ambershaw, Champion), given low country risk (rule of law , etc), but is too low for Ukraine (BKI), maybe 15% would be appropriate; and Congo-B should probably be around 20%.
The rate is crucial, the longer out you look : £100 inflow in 10 years has an NPV of 38, 24 and 16 at 10/15/20% discount; £ 100 inflow in 20 years is worth about 15, 6 and 2.60 at the same rates; and in 30 years 5.70, 1.50 and 0.42 ie 42 pence. So NPV's that depend on 20,30,40 years are progressively worth (lots) less.
We've no idea what will be in the ZIOC presentation, here is some real-world read-across as to how MCap and NPV CAN relate :
Ambershaw (14 Feb post) : "NPV" of $500M, 50% sold for $ 7.6M, implied 'worth' = MCap /NPV =3%
Kropz potash (19 Feb post) : "NPV" of $1,850M acquired for $ 40 M, implied worth MCap/NPV = 2.1%
The S African buyer was OK with a 10% discount rate in C-B, but his perception of country risk is relative. As, in fairness, would be a Chinese buyer, particularly if State or semiState...
BKI (21 Feb post) : "NPV" of $ 1,666 M, MCap $ 16M, implied worth = 1%.
So - other things being equal , which I'm sure they're not ! - if you multiply whatever NPV is given in the presentation by 1-3% that , ON THE FACE OF IT, is the logical MCap and should give you MrMarket's WEIGHING MACHINE view of what the EPP project is 'worth'
Of course, the market's VOTING MACHINE may push the MCap a lot higher, because of the 'more credible 'hope value' there will be that Stages 1 and 2 are more likely to come to pass...
Viewpoints welcome - preferably with links to sources."
ATB
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