Accordia Golf Trust(AGT) plunged today with the already informed impairment to its books. I did not buy enough during the deposit saga when it plunged to a low of $0.495. I thought the chance is here again and its not even a year but had since rebounded.
The impairment are of mainly goodwill and fair value of golf course. Now, impairment to goodwill or fair value does not affect the cash generation of a business, if the business generate $1 billion of income before the impairment, it still generate the same after with everything else remain constant. So the PB ratio is now 0.82x, up from 0.65x, it generating the same income which the reason I bought in the first place, there is no reason to panic.
IMPAIRMENT! RUN!
What is this goodwill that make everyone panic and sell? The goodwill is from when the trust is form and AGT bought the golf courses above valuation.
Recovery will have to wait
AGT will have another low performance year and a better weather condtion will help 2019. The return of deposit has normalize to about 1 billion for FY18/19, however this is mitigated by higher refinancing cost, finance lease obligation and lower Operating cash flow (OFC) due to the very bad weather in 2018. Therefore the FY19/20 I expect interim dividend to be stable at 1.64cents with total DPU of 3.77 cents which give a yield of 6.44% base on price of $0.585.
All debts has been refinance till 2023, there should be no more refinance cost but the repayment of borrowing with a slightly lower interest rate. If OCF can return to pre-bad weather 2018, that will allow an additional OCF of 300 Million yen + 947 million one time refinance cost - 450 million finance cost = 847 million upside. With a payout of addition 847 million give about 1cent more DPU. If god decide to be kind and give Japan a good weather, there will be higher upside, 2017 weather wasn't good either.
A 4.77 cents will give 8.15% yield. All will depend on the weather and of the update below.
When buying AGT, investor has to accept that the DPU will not be predictable nor constant but accept that it will generate average of a certain % that he is okay with as he hold it through the years.
The increase in impairment loss recognised during the current financial year, as compared to the previous financial year, is mainly attributed to forecasted underperformance of selected golf courses and an infrastructure project announced by the Japanese Ministry of Land, Infrastructure, Transport and Tourism, which will reduce the expected operating cash flows to be generated from Northern Country Club Nishikigahara Golf Course.
