Value Review (17/11/25)

Is SGI still an asymmetric bet with the HBT acquisition? It was borderline at $0.70 prior, but now at $1.20 a week later with HBT is the question.

So, I looked at a set of scenarios (Now + FY28 sales) and value matrix (PE/Discount combos) based on those scenarios as outlined below they are (more dilution the more aggressive the target):

·        Proforma FY25: Simply slap the businesses together what are they worth as is in combination. Would expect a low PE of 12, so $0.42 is the value I would take.

·        Half HBT FY28: If only $100m in sales is added by FY28 (ie they fall short of the Pre-HBT target of $300m) but 5% NPAT% is achieved. Would also expect a low PE of 12 but discount range from 11% to 15%, so a value between $0.71 and $0.79.

·        HBT Target: No organic or acquisition growth other than the $200m expected from HBT to come it at $342m by FY28, 5% NPAT. A PE of 16 and discount rate between 11% and 15% is my expectation of value from $1.27 to $1.42.

·        SGI Target: Assumes the full $500m FY28 sales and 5% NPAT% is achieved. A five fold increase in NPAT in three years should command at least a PE of 20, with a value range somewhere between $2.19 and $2.44 based on 11-15% discount rates.

I have also looked at WC changes (orange) based on the same ratios as the business currently runs at, and while it obviously needs more cash to fund the WC, the increases by FY28 should be able to be funded out of operating profits even allowing for 1.5% Capex.

I have also factored in the increased cost of financing based on a 1x EBITDA target for Net Debt. To get to 5% NPAT I up’ed EBITDA to overcome this and this leaves EBITDA at around 10%, which is an improvement on current but not out of reach and in the middle of the companies target.

So, I am comfortable with that NPAT% and EBITDA% are achievable with increased sales, the ability to grow the top line is important to generate the operating leverage needed. However, even on a modest $242m sales target for FY28 these are reasonable.

Conclusion

Pre HBT, I saw value at between $0.70 and $0.90 with FY28 sales of $249m as my base scenario.

Post HBT, I am comfortable to add $100m so expect FY28 sales of $342m per the “HBT Target” scenario and take a base value of $1.27 to $1.42 as quite achievable.

I also see a reasonable amount of asymmetry remaining as I view the $500m FY28 target as achievable given the current opportunities HBT presents with existing and new ranges. If achieved the value is about double by base value, and I see downside a likely limited to half my base value (ie the Half HBT Target).

Value Check (13/4/25)

Stealth has up until late February has been way below my low-ball value estimate of $0.74 that I had been resting on for over a year now, so I hadn’t reviewed. At current prices I have had to trim just for portfolio balance reasons but need to do a hard assessment of value ranges because the asymmetry of value has changed radically at these prices and I need to be prepared for higher.

Below is a summary of values I have arrived at, the key factor is FY28 sales expectations, all of which sit at or below company minimum targets. I have a separate straw to analyse the sales bridge, note I use a more conservative set of assumptions in my valuation for EBITDA% and NPAT% than the sales bridge analysis for valuation purposes.

So my base case ($1.01) uses the expected sales growth generated from already executed or begun initiatives (Loyalty program + Exclusive brands) to get to around $250m sales by FY28 and margins around target. 

The bull case ($1.45) lands just under the companies announced target of at least $300m with margins solidly above target.

The bear case ($0.56) sees about half the expected sales from those initiatives eventuating and no other growth and margins falling well short of target.

The EBITDA% and NPAT% targets I expect SGI will reach and likely exceed, the sales bridge analysis has them at these levels from the higher margin business additions, scale efficiencies have not been considered but will help. The focus on bottom line efficiency has been a constant and execution on this has been impressive even with acquisitions. If I didn’t have faith in this part of the business I would never have invested, because the operating leverage we are now seeing depended entirely on it.

So at the current price of $0.78 there is 30% downside to the Bear, 30% upside to the Base and 86% upside to the Bull case. Favourable asymmetry still exists, but it is now far less pronounced.

I will continue to hold and it will probably continue to be my largest position for a while (unless BOT or XRG re-rate), but I will continue to trim from mid-80’s and up.

Disc: I own RL & SM