@Rick

Thanks for your Straw & insights mate!

"I thought this was an excellent result with record revenue and EBITDA and record underlying NPAT of $8.7 million up 10% on FY20. The market thought otherwise, trading down 5.6% at 42.5c in the first few hours after opening.

Was the market expecting more? Revenue was in line with expectations, EBITDA was was at the upper end of guidance and NPAT was up 23% on analyst expectations (Simply Wall Street data)."

I think you need to better understand context of these results rather than taking them at straight face value. 

For one, anything taken from Simply Wall Street is likely to be misleading/wrong data.

If you look at ACF's ASX annoucement on July 22nd under "CAPITAL RAISING PRESENTATION" (here) you will find that management give a range of guidance for Revenue, EBITDA & NPAT.

Revenue was slightly lower than guided, EBITDA was towards the top end, but underlying NPAT was at the bottom end of the guided range.

Revenue may hit or miss but remember shareholders, as owners of the business, will be more affected by a lower NPAT than a higher EBITDA or anything else, hence the market reaction.

What is also very noticeable is that reported underlying NPAT ($8.7m) is very different to ACTUAL NPAT of $3.9m. Make sure you check this in the consolidated financial statements as it is very hidden in the report presentation. (misleading).

In terms of your valuation, I have to disagree.

"I'm using a PE of 20. I think this is reasonable"

ACF is a stock in a cylical industry, to which revenues/profits will be out of their control when the cycle swings away from them. ACF is also a capital intensive business with little track record of shareholder wealth creation. The market will rarely, if ever pay 20 times earnings for this type of business, especially not during the top of the building/construction cycle.

On the underlying NPAT number, ACF trades on a 12.6x multiple (reflecting the market sentiment for this quality business).

I believe you chose a 20x P/E because it seems conservative in today's market environment compared with a lot of tech stock valuations, however ACF chews up a lot of capital and is a price-taker more than a price setter. I think the market would generally never pay more than 18x earnings and even 15 times earnings is way more than I would want to pay.

I do believe ACF is undervalued, but not by 100% or so as you suggest.