@jcmleng thanks for sharing your valuation and assumptions on $XRF, which I am also a happy holder of.

You asked for feedback on your valuation, and compared with my assessment, which I will sketch out in a moment - you have arrived at valuations that are higher than mine.

My approach is slightly different, in that I project the financials out 4 years to FY29, and then discount back at 10% to the start of FY26.

In developing my projections, I note the following CAGRs for the historical period FY21 to FY25:

• Revenue 17.4%
• GM 20.2%
• Expenses 15.6%
• EBIT 21.1%
• NPAT 19.1%
• EPS 18.1%

I didn't go back further, because $XRF was a much smaller business then and the growth rates therefore exaggerated in the early years.

The rate of growth has flattened across the period. Because of this, I get a bit nervous when I see your high case EPS growth of 27.60%, as a basis for valuation. I can't see anything in the company strategy that would lead to such a change of gear on an ongoing basis.

I've also been somewhat conservative on the P/E range, choosing 20 and 25 for my range. I agree that if $XRF can reliably deliver mid-teens EPS growth as it scales, the market could well reward it with a higher P/E premium.

So, I've run the following cases - in all cases I assume EPS growth into the future is at a slowing rate compared to history.

Common parameters:

• Discount rate: 10%
• Tax rate: 30%
• Growth in SOI are 1.2% p.a. (based on last 4 years)

Conclusions

I've highlighted in green the results I'm focusing on. If $XRF achieves lower EPS growth, we are more likely to see the lower P/E ratio, and equally, if the high growth is achieved the higher P/E seems more likely.

Thus, I've settle on my valuation range as $1.76 ($1.46-$2.12)

What's great about using this simple methodology is that it makes it easy to compare our valuations and key assumptions, If the case of comparing your analysis with mine, I am very comfortable with your lower and middle assumptions, but I can't get to your higher ones. And that explains the difference between our respective attempts.

One factor I am alert to is the maturing of growth. While profit growth has held up well recently, it is also maturing, and it will be interesting to see if revenue growth resumes, as this is needed to justify the longer term valuation.

Although the SP today is above my range, I am holding onto my full position. This is because I recognise the potential for the market to reward the quality of earnings growth stability of this business with a higher P/E than I have allowed for.

In the high EPS growth scenario, with a P/E of 30, the valuation increases to $2.54, so I'd be unlikely to sell for anything much less than $2.40, at the moment.

Disc: Held in RL and SM