daniel chigunwe
Sylvester Mupanduki
The company’s property portfolio is valued at $7,5 million, which accounts for 50 percent of its property, plant, and equipment (PPE) as of June 30, 2024. Currently, the stock is trading at $4,7 million, indicating a discount of about 60 percent compared to the property portfolio value, highlighting its nature as an asset play.
A stock is termed an asset play when its market capitalisation is significantly lower than the value of its tangible assets, which aligns with Zimplow’s current situation.
The return on invested capital has been modest, averaging around 3 percent over the past two years, with the company generating $1,16 in revenue for every dollar of invested capital.
Moreso, the total asset turnover ratio, which reflects the company’s efficiency in using its assets to generate revenue, is relatively low, averaging around 1, relative to the standard benchmark of about 2.5 or higher.
This further supports the classification of this company as an asset play.
Based on our cash flow model, we estimate the stock’s valuation at 3.9 cents per share, equating to $13.4 million, using a conservative revenue growth rate of 5 percent over the next 5 to 10 years, an EBIT margin of 5percent and an estimated average discounting rate of 15 percent. This contrasts with the current trading price of 1.36 cents per share, or $4.7 million, providing a margin of safety of about 65 percent.
In the first half of 2024, EBIT margins were negative 7 percent, and 2 percent for FY2023.
The business is quite cyclical, leading to noticeable fluctuations in operating margins, yet the historical EBIT ratio over the past decade averages 6 percent. This is a low margin business which is asset-rich and potentially undervalued.
Given this context, Zimplow is a promising candidate for a private equity play, with opportunities to increase its value over the next 5 to 10 years through a thorough operational restructuring, the sale of non-core and non-operating assets, and the implementation of strategic growth initiatives aimed at reinvesting in profitable ventures.
The ultimate objective of taking the business private would be to sell it in whole or parts for a profit, potentially realising three times the purchase price at a future date.
Disclaimer: The information presented in this article is provided for informational purposes only and is not to be used or considered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for securities or other financial instruments or any advice or recommendation with respect to such securities or other financial instruments. Business Weekly and Sylvester Mupanduki do not accept any liability for any loss or damage which may arise directly or indirectly from use of or reliance on this information. While the information provided has been obtained from sources believed to be reliable, Business Weekly and Sylvester Mupanduki do not attest to its accuracy or completeness. Sylvester Mupanduki reserves the right to change his opinions without restriction or notice.
Financial Analyst. Twitter: @SMRI_Institute, LinkedIn: https://www.linkedin.com/in/sylvester-mupanduki
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