Netlink Trust

[BlackCat]

Thanks Shrivathsa and tanjm, 

For point 8, yes, the 2020 "earnings-before-tax-and-D&A" (~239m) matches the 7% target: 7% of (debt 700m + equity 2.9b) is 252m.  "Earnings-before-tax" (of 72m) is nowhere close.  So the WACC is probably a target for CashFlow from Ops.

I'm no expert, but I doubt if the regulated WACC is based on Netlink's existing debt/equity structure. More likely, it is based on some "industry average". What is that average? I don't know. But the likelihood is that the "industry average" uses a higher leverage than what Netlink currently has.

Taking 50% debt and 50% equity,  a 25-40% drop in interest rates reduces WACC by 18-30%.

The interest rate portion of the WACC would not be based on risk free rates either. It should be based on what a equivalent corporate can get on the market.

Good point.  Since corporate loans are SIBOR + x, my 25-40% drop from 2018 to 2023 would be a lower percentage (maybe 15-30%).

Some may think that NLT is a halfway between a govt agency (like HDB) and a corporation.  

All in all, I would not be surprised if the 5.4% WACC by DBS is derived in the "typical" way. Decide on the "target price" first, then reverse engineer the WACC (with a bit of hand waving justification).

Yeah, this WACC calculation looks simple in concept but is impossible to work out the details.  There are so many assumptions and moving parts, you can justify whatever needed.

In the end its a guess.  I estimate an 18-30% drop in WACC.  From 7%... to 4.4% to 5.7%.