Expert: Paul Henneman - 7/12/2005

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Followup To
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Followup To
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Hi,
What is "Npat"? the term is short for something, and that must be why I can't find a definition.


Thanks for your reply, Paul, here is the context:



1) The stock is presently trading at NTA backing.
2) The company posted an operating profit of $1.8mill in the Dec half. (Typically, stocks trade at NTA when they are expected to post massive losses or have serious debt problems).
3) I expect the company to post a $5mill operating profit for the full year (NPAT will be significantly higher than operating profit).
4) On the basis of existing contracts, I expect the company to post an operating profit in the region of $20mill for FY06 and be strongly cash-flow positive. Again, NPAT will be significantly higher than operating profit.
5) Company has solid cash reserves, so no further dilution.
6) I'm aware of one Tech fund in the UK currently doing due diligence ....etc. etc.

Can I guess that N = net, as in NTA, P = profit? maybe?  
Paul, I hope this context sheds some light. I can give you a broader context if you like, but I didn't want to clog your email with too much text. Tell me if you need more of the text.

Thanks again for any help.
Mike.
Answer -
Thank you Mike for your follow up!
I defitinately can't say with any certainty. Your guess is as good as mine. I agree that N likely equals net and P=profit, but I have not seen it listed in this way before. I'd be happy to take a look at the broader context, but I'm not sure how much it will help. Feel free to forward if you want me to give it a further try,

Best Regards,
Paul Henneman
President

Ok Paul, this is by the same guy analysing another company, different context might help (?)

,
As of today, Adacel's market cap is just $26.7mill and the stock is presently trading at a FY04 price to sales ratio of only 0.5. The low share price (305c) reflects underperformance over the last 3 years and market/analyst expectations that ADA's FY05 results will be similar to FY04 (following large restructuring costs/write downs/exiting loss-making businesses, the company incurred a $25mill loss in 04). I think the market is wrong in its assumption that 05 will not be substantially better than 04; a turn-around is well underway and the stock should be dramatically re-rated over the next few months.
My research leads to me to believe that ADA will (1) report an operating profit this FY, (2) will be cashflow positive this FY, (3) will likely receive a new $5mill contract from the FAA/USAF for 4 MaxSim units in the short term, (4) will likely receive an additional $100mill MaxSim contract from the US FAA in September/October of this year, and (5), is now on a strong growth trajectory from a reduced cost base.
Explanation of (1)-(5):
I arrived at (1) and (2) by balance sheet analysis and research into existing contracts and new contracts won since Dec 31. In summary, I'm expecting 05 operating revenue of around $50mill and operating expenses of $47mill = FY05 operating profit of $3mill.
Assuming that NPAT closely tracks operating profit, following the full year results I'd expect the stock to trade on a p/s ratio of 1.2 and a p/e ratio of 20. This values the stock at $60mill or 70c per share. (Assuming a beta of 1.75, I get an even higher valuation using DCF methodology).

I doubt if the above will shed any further light, but there it is.


"Assuming that NPAT closely tracks operating profit...." ?

cheers,
Mike.

Answer
Thank you Mike for the follow up!
I took the examples you provided and showed them around the office here to some of our research folks. While no one could say with absolute certainty, there is good consensus here that "NPAT" is "Net Profit After Tax" and "NTA" stands for "Net Tangible Asset".

Hope this helps!

Best Regards,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEinstitutional.com
www.VEReports.com