“Comment, question or quotation of the day”

18-01-2018 : Understand who can!

A broker, certainly not one of the most important one, but the only one to follow this mid cap listed in Paris, has revised down its annual sales forecast now counting on €618m in 2017/2018 against €634 m. In addition, this broker targets an EBITDA of €38.2m, or 6.2% of sales, against a target of 6.5% set by the company. This broker maintained its Neutral recommendation while lowering its target price from 6 to 5.80€. So far, so good. The current share price is €3.50, offering, if you believe in the work of this broker, a potential price increase of 66% (sic). In these circumstances, why not a Purchase recommendation? Are there so many undervalued companies in its universe of analysis that a mere 66% increase to a target price deserves only a Neutral recommendation? Or does it want to please at the same time the savvy investor who understands that a recommendation Neutral means in plain English Sell, and the mid cap management who would not appreciate a Sell recommendation and could cut all investment banking business with this broker? As for the target price of €5.80, is it there to amuse the gallery and flatter the midcap, while deceiving the confident but inexperienced investor? In other words, does the investment banking business that this broker provides to the midcap, in addition to its financial analysis work, disturb its view? But has it forgotten the deontology and the rules of management of conflicts of interest between its interests (as an investment banker of this midcap) and as a professional financial analysist to its clients, the investors who read its works ? Have a nice day.

17-01-2018 : Question from one of our readers

I just answered the first question of the quiz on vernimmen.com
Q1. In the absence of a corporate tax, does the rate of depreciation have any influence on cashflow? The answer is no. I do not understand the answer because cashflow = net income + depreciation + sundry other items. So if the rate of depreciation evolves, depreciation will evolve and there will be an impact on the cashflow?
You must understand that net income itself is affected by the amount of depreciation since in the absence of corporation tax, net income is equal to EBITDA - depreciation + financial result + exceptional result. Therefore cashflow is equal to: EBITDA - depreciation + financial result + exceptional result + depreciation + sundry other items = EBITDA + financial result + exceptional result + sundry other items, which is an indifferent balance to depreciation.
Have a nice day.


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The Vernimmen.com Letter

Number 108 of December 2017

News : The new 2017 edition of the Vernimmen

News : ICOs, the future of listing?

Statistics : Value creation in Europe

Research : Human capital, a key factor in the financing of start-ups

Q&A : 2 questions regarding the scope of consolidation