North West Agri Feeds Business Plan — Investment Case and Returns

The return profile, valuation basis and exit assumptions, and what the numbers do and do not support.

Section 21 of 26

Investment Case and Returns

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This section states the returns at face value and maps them to the investor types they suit, without smoothing.

Break-even analysis

Break-even analysis (Year 3 cost structure)
Figure 1. Break-even analysis (Year 3 cost structure)

At the Year 3 cost structure, accounting break-even, including depreciation and interest, sits at approximately 22,471 tonnes, or about 79% of that year’s available capacity. Year 3 production of 17,732 tonnes is below this: the business crosses into net profitability in Year 4. This is an important, unflattering disclosure, there is little margin of safety until two-shift volumes arrive, and management must run the plant hard.

Returns

Equity value bridge and returns (base case, 6.5x Year 5 EBITDA exit)
Figure 2. Equity value bridge and returns (base case, 6.5x Year 5 EBITDA exit)

6.1%

Project IRR

4.2%

Equity IRR

1.23x

Equity MOIC (5 yr)

R-33m

Project NPV @ 15%

Table 14. Valuation and returns summary

Measure

Value

Total funding requirement

R136.3m

Equity invested

R88.3m

Year 5 EBITDA

R20.4m

Exit EV (6.5x Year 5 EBITDA)

R132.4m

Less: net debt at Year 5

(R24.0m)

Exit equity value

R108.4m

Equity MOIC (5-year)

1.23x

Equity IRR (5-year)

4.2%

Project IRR (incl. terminal)

6.1%

Project NPV @ 15% WACC

R-32.7m

The honest verdict on returns