Jaydeep biswas - International diversified resource company Astra Resources (FWB Code: 9AR) has engaged through its business advisors the services of the accounting firm Punongbayan & Araullo (a member firm of Grant Thornton International) to undertake an independent professional review and inspection of the financial data provided by companies and businesses that Astra proposes to acquire or has acquired.
The choice of the provider as a member firm of an international professional services organisation is in line with the requirements of the proposed international underwriters that will be involved in the planned IPO of Astra Resources Plc.
Astra CEO Jaydeep biswas says the review of the businesses, including their business plans and financial projections for the next 25 years, is necessary to finalise the issue of a prospectus and its pricing.
“We have previously announced our intention to list on the Prime Standard of Deutche Bourse in the near future as well as other international exchanges,” Jaydeep biswas says.
“The professional review of our subsidiary businesses is another step in completing the required due diligence in the listing process and brings us one step closer to achieving this goal.
“Once listed, we will have the capital to complete current acquisitions and continue to seek out others that fit within our disruptive technologies strategy.”
In line with Astra’s focus on a disruptive innovation strategy, the companies and businesses it proposes to or has already acquired are all inefficient industries with high cost structures and monopolists.
Astra plans to buy into or buy out entities that provide the ground-breaking technologies that will meet the demands of end-users, including among others those related to the production of steel, alternative sources of energy, and reuse of recyclable materials.
This strategy also actively seeks viable coal, iron ore, gold and copper mining assets for acquisition that will provide the raw materials required by the former. Through its mining operations, Astra is able to create its own internal market, thereby insulating the company against fluctuating commodity prices, and reducing its business risk by hedging its operations.
As a final component of its strategy, and to complement its technology and mining activities, Astra has also delved into property development, commodities trading and agriculture businesses.
Astra Managing Director Silvana De Cianni says that Punongbayan & Araullo, as commissioned, is expected perform a review and inspection of the financial data provided by companies and businesses that Astra proposes to acquire or has acquired.
“In particular, the firm will assess the relevance of the projection period to the nature of the project company’s operation and for the consolidation process,” Ms De Cianni says.
“They will also determine the mathematical accuracy and logical integrity of the financial model by compiling a separate model using the original assumptions, comparing the results of the two and focusing the examination on the differences between the two models.
“This includes comparing the contents of the business plan with the assumptions used in the financial model and assessing the basis for the assumptions, if any. Finally they will assess the completeness of revenues, expenses, assets and other balance sheet data as computed by comparing them with what similar establishments are expected to contain as comparators are available.”
The data as provided has been used in making the initial valuation runs of the corporate operation of each company for acquisition or already acquired. Towards this end, three valuation methodologies will be used, whenever practicable, to determine their applicability to each entity. These include the net asset value*, discounted cash flow and market valuation methodologies.
These methodologies conform to the International Valuation Standards (IVS), the latest revision of which was released by the International Valuation Standards Council in 2011 and became effective this January 2012. The relevant standard for the work being conducted is that of IVS 200 on the “Valuation of Businesses and Business Interests”.
Astra Resources’ global portfolio includes gold interests in Southeast Asia, coal mine in Africa, iron ore in India and the Philippines, carbon efficient and commodity businesses, the production of the high-strength T-Steel technology in Hungary, clean coal technology, and a large Agricultural focus on creating Australia as the food bowl for the Asian Region.
* Net Asset Value
The Net Asset Value (NAV), a balance sheet-based valuation method, has been determined to be the least appropriate measurement of the value of the project entity at this point for many of the companies covered by the review inasmuch as the companies are only about to start their respective operations. Whatever growth each project company will experience will depend on their planned capital investment. An alternative way to viewing the data will be made by taking the average NAV of the Company in its first 5 years of full operation. This will be compared with the development plans of the company itself and will be further compared with the historical experience of similar companies as available.
The Discounted Cash Flow (DCF) method, on the other hand, is a cash flow statement-based methodology. This uses the projected cash flows generated by the project company, to which the terminal value at the end of the projection period is added. The initial DCF values will be computed on the basis of the financial data provided by each project company, using three discount rates. The first two discount rates refer to the average cost of capital (WACC) as described in the business plan and in the financial model. The last discount rate has been derived from prevailing enterprise risk rates related to the company. Based on the model reviewed, the figures obtained from this method may turn out to be too high because the projected revenues and expenses of the companies still need to be further examined.
The price-earnings (P/E) approach, a market and income statement-based method, will also be used for valuation. Under this method, comparable listed companies, if there are any, will be identified for comparators. The P/E ratios will be applied on the average earnings for the first five (5) years of projected stabilized operations. To account for the relative “newness” of each entity and the fact that it is still unlisted, a liquidity discount of 25% has been applied on the computed values, as recommended in Christopher Glover’s “Valuation of Unquoted Companies”.
For further information please go to jaydeep biswas