Saturday, September 27, 2014

Great moments in financial analysis

Financial commentary on the Reef Casino included in that last post from the AFR report also caught my interest.
A measure of his success will be to more than quadruple earnings within two to three years at the Cairns Reef Casino, which looks likely to be acquired by Aquis in a $270 million deal by November. The casino’s controlling company, the Reef Casino Trust, had earnings before interest, tax, depreciation and amortisation of $14 million in the 2013 financial year and Mr Fung said a result of $20 million this year seems possible.
“I think if we in the next two or three years, if we can bring ourselves an EBITDA of $80 million . . . the chances of us getting it financed, without me ­giving up too much equity, would be very high,” he said.

There seems to be a problem with the numbers here. The $14 million actually relates to the distributable (net) profit for 2013 and not EBITDA. The EBITDA for Reef Casino Trust (RCT) was approximately $19 million in 2013. This was the basis for the fair valuation range by the independent expert in the target statement from RCT which is included in their report. However that is also not the EBITDA for the full Reef Casino corporate structure which includes a management company and responsible entity. Estimated from information in the expert report EBITDA would have been about $22.5 million for 2013.

This report has also been repeated and misrepresented elsewhere to give the impression of strong growth in the current year at Reef Casino. RCT reports a full financial year to December 31. The more recent 1H2014 to June 30 result was actually relatively flat even after adjustment for one-off costs of the takeover and a high roller bad debt.

I presume this misrepresentation was a misunderstanding on the part of the journalist?

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