Adrad Holdings Limited

ASX:AHL

Adrad Holdings Limited

ASX:AHL
TradeAdd trade order Follow Unfollow Set Price Alert
$1.040 (+4%)
Last close price
#31
Rank
29
Held by
44
Followers
TradeAdd trade order Follow Unfollow Set Price Alert
Reports (5) My Report Forum Investors
Forum Topics AHL AHL AHL valuation

Pinned valuation:

197G
jcmleng
Added 3 months ago
Justification

First crack at using @Strawman 's Intrinsic Value approach.

  • I used 3 scenarios, assumptions are laid out underneath each scenario
  • Rather than use EPS, I used FY25 Operating Profit instead as that felt like a "purer" view of earnings
  • Stayed with current PE of 8.82x, as it is conservative, undemanding and reflects current cost concerns


Appreciate feedback/reactions to the approach taken! Doing the valuation helped put the AHL FY25 results in better perspective and was an extremely valuable exercise.

456d0e61ab6d44b47b1b7e3b128e901202be1b.png
twee
Added 3 months ago

Firstly, good on you for doing a valuation. It's well presented.

I don't know the details of this business. My first reaction was that there's not much difference in the scenarios. After seeing you kept the P/E constant, I can see you are trying to test different sensitivities while ignoring the market multiple.

After fumbling through a similar scenario valuation framework for AIM recently, I struggled with setting the weighting for each scenario. In my case, the scenario weightings were all equal, but I made sure the bull and bear cases had quite different assumptions. For the final number, the bear case partially cancelled out the bull case, and the valuation was close to the base case.

What was the point then?

Even though the blended number was my 'valuation' in this scenario, in the real world I actually care most about the probability of the most optimistic case, because that coming true is really why I'm investing in small caps.

This number is constantly changing and really just a finger in the air. But at least after going through the process I have some conception of what the scenario might look like.

21
jcmleng
Added 3 months ago

Thanks @twee , AHL is having a solid run with revenue, have faced cost headwinds and so, profitability has been flat/down. The revenue increase in FY25 was essentially wiped out by cost increases of about the same magnitude. I was in “should I be more worried” mode, so, in generating the valuation scenario’s, I really had a cost focus. 

Hence the base case being 3% EPS growth using current Operating Profit as the base (some cost containment will kick in), then 5% growth (more cost containment will kick in) then 5% growth with actual cost reduction. In the last scenario, I removed the one-off expenses from the Operating Profit to create a higher earnings start point, then 5% growth off that higher base - think I was in “gee the one-off’s have spoilt the earnings party here” mode. I could have used the Operating Profit base, bumped up the growth to 7 or 8%, to remove the impact of the one-offs.

Struggled with the weightings against the initial xls categories of Best Case/Best Guess/Worst Case as this is not how I think. I always like to start with a “realistic/pessimistic base case”, then add optimism in different doses. Solved that by relabelling the weightage categories and the weighting. This change really helped!

I used the current PE as that was readily available (!). It also seemed to make sense given the share price response of up/flat amidst a tepid result.This felt to me like it was “understanding” of the cost challenges, and giving AHL some time/rope to fix it. It was only after reading @Strawman’s response that I realised that by using the existing PE, I was essentially not expecting the market to do any future heavy lifting of the price AND that the PE value could be used as a proxy to future market sentiment where a higher PE = better sentiment and vice-versa.

So I eventually got past the math and the template constraints ... It was valuable to ask “so if it grew 3%, what would it be worth” and getting a range of outcomes if the numbers were varied and a really good sanity check. I think it will be very useful next reporting season which will highlight whether the valuation had any predictive value or not as I now have a base case against which to compare the results and the resulting impact on the share price.

18
Strawman
Added 3 months ago

Nicely done @jcmleng

As far as I'm concerned, there's value in just going through the process itself.

And in regard to the assumptions used, hard to accuse you of being overly ambitious in terms of growth. And nothing in your model relies on the market sentiment improving. All of which is to say, it should be a decent investment so long as they can produce a modicum of growth. Which is basically my thesis too.

22