Member Info for StarBright

Or in the long term..?

No worries. If I had £1 for every time someone here or on Twitter has posted a “valuation” based on incorrectly applying a P/E multiple to Gross Profit, I’d have a large pile of £££’s....

Not a silly question at all. This is an all-too-frequently misunderstood topic on LSE boards. There are a variety of profit measures, some of which are confusingly named or duplicative. I will try to summarise them...

GROSS PROFIT: This is the difference between a firm's total revenue and the cost of the goods sold over a given period. For a company like ODX, the cost of goods (COGS) includes the cost of LFT cassettes, test strips, reagents etc. But it excludes many other expenses related to running the business - such as rent, salary costs, marketing expenses and other business overheads. It is sometimes calculated as a percentage and called Gross Margin. It’s useful when you are looking at the economics of a business, but only part of what you need if you are attempting to value a company.

OPERATING PROFIT: Operating Profit is calculated in the same way as Gross Profit, except it factors in ALL of the operating costs, including the examples above. It is sometimes referred to as EBIT - earnings before interest and taxes. If quoted before the inclusion of so-called “non-cash” expenses it is frequently presented as EBITDA - earnings before interest, taxes, depreciation and amortisation. This is liked by analysts as it is an approximation of cashflow (& cashflow is the basis for NPV valuations) and by company management as it allows them to hide stuff....

PBT or PRE-TAX PROFITt: This measure takes into account all of the above plus a business's interest costs on any debt financing it employs.

If you then deduct how much tax is due for the specified period, you get to another profit measure – PAT or profit after tax.

This is also known interchangeably as NET PROFIT, NET INCOME or EARNINGS. It is the number that is used to work out a company's all-important Earnings Per Share (EPS) figure. (Profit after tax divided by the number of shares a firm has in issue).

I hope that is clear. Sorry I couldn’t make it any easier to read and understand. I tried my best...!

Interesting letter / proposal: https://drive.google.com/file/d/1zihISYRvsZEJSNLq4YC5L5ftSOKtIXs6/view

Good work Max.

As posters have noted, some platforms are better at getting inside the spread (“price improvement”) than others. This is because some use a wider panel of RSP’s than others. You can read about it here: https://www.barclays.co.uk/smart-investor/news-and-research/investing-for-beginners/the-story-of-a-trade/

And watch a video here: https://www.barclays.co.uk/smart-investor/investments/barclays-price-improver/

Some regular posters have revealed interesting character flaws in the last week or two.

Great news. But I will be waiting just a little longer before starting the high-fives and lap of honour. I would like to hear what Boris has to say, and I would like to hear from the company first.

Discussion on this topic is lamentable. Misinformed and misdirected.

These shares (a tiny number) have been sold by an employee who’s been saving for them monthly. It is likely that they’ll be paying for the new kitchen (or similar) she’s been promising herself for years. Where employee share schemes and incentive compensation are concerned, the shares awarded are part of people’s compensation. When they sell their decisions should not be evaluated - much less criticised - as though they are major investors or proprietors.

Regulator is right on this. It is good news for us as citizens / taxpayers, and good news for us as ODX shareholders. Our government has misused the emergency powers it awarded itself, but will take more care now.

A share price is the aggregate of the expectations of market participants. News events like assay results are best viewed as checkpoints. They offer market participants an opportunity to review their expectations, and to adjust them if necessary. Thus share prices move only when there is unexpectedly good or bad news.

For a company like UFO with a range of different opportunities, few investors go through any deliberate process of evaluating each opportunity separately. Rather they tend to focus on one or two of the company's initiatives and compare that potential with the Mcap as a whole. We see this all the item in discussion on this board; some view the Mcap as underpinned by the silver projects, some the iron ore. Some view it geographically, saying that they like the Australian projects but are not so enamoured of those in Mexico. What we know for sure is that the market has priced in £38m of value for UFO that is not yet supported by operating revenues or proved reserves, let alone profit or cash generation. This is why I say that the company cannot yet be valued in a conventional manner. So today we have to consider that - in aggregate - the market values the potential future returns of UFO at £38m. We should also recognise that only a few weeks ago, this figure touched £56m. There is a lot less "priced-in" now, so the potential for unexpected good news to provoke a positive re-rating in the SP is similarly much higher.

What you think is priced in is every bit as important as whether updated assay results (for example) are better than the previous set. It is the comparison with expectations that matters. This is why I refer frequently to what might and might not be priced in, despite the obvious irritation such discussion provokes.

"Every day, in every way, I'm getting better and better"

GGP looks like it has been an amazing story, but I sense a huge anchoring bias when I hear holders talk about it. The valuation it reached was a long way north of established norms. It almost needs to do +100% to get back to where it was. I don’t know whether it was just a big sentiment spike, or whether the price level now represents a good entry opportunity. It is referenced all the time on the OMI board as justification for some of the punchier valuation ideas. As a battle-scarred value investing dinosaur I am sceptical so content to watch...

Brother Kevin I think you are making progress..!

EWT98 - It would be more more accurate to say that people there are TALKING their positions in anticipation of news. The board has been hilarious for two days now with constant posts from the ramping crew about how many shares they've just added etc etc. It's like watching an episode of Rawhide. My assumption is that these guys are selling not buying. but I have been enjoying watching them at work...

100% agreed, EWT98.

You shouldn't have let such a cheap comment drain your confidence.

This thread is titled "Have a read of this..."

For those minded to descend (or at least peer into) the rabbit-hole of mining company valuation, here's a link to the latest (2019) edition of perhaps the seminal study on the topic:
https://www.edisongroup.com/wp-content/uploads/2019/02/GoldStarsandBlackHoles_220119.pdf

I am hopeful that it will be updated soon to reflect recent developments, but in truth its utility lies in the fact it is built on regression analysis of years of underlying data. Whilst spot prices command media attention, longer-term metrics are used when valuation models are built because the timescales involved are so extended - typically 15 years or more - that they span economic cycles. This is one of the prime reasons behind the inherent conservatism in valuations that PI's can find so surprising when spot prices are strong.

Some of you will enjoy it. Some won't!

Max makes the biggest contribution here by a mile! His knowledge of UFO is unparalleled, and I value his energy and enthusiasm.

I agree 100% that good drilling results here can have a material impact on the SP.

The way in which UFO can add value most quickly is by demonstrating its ability to add value to exploration projects. A clean early exit at a good multiple builds confidence. This one looks like a good opportunity for just that.

*Marillana - auotcrrcoet not me....

Max,

Brockman has about 440Mt of high-grade (55%+)across its Mariolina and Opthalmia projects. Also 1,440Mt of 42%. It has everything in place and hopes to start production next year.

It has a market cap of about £200m.