Westminster Group - A look at the Ferry Contract.

To get the disclaimers out of the way first, I have no licence to give financial advice and I have a long position in Westminster Group within my current portfolios.



Westminster Group seems to either be a bastion for thoughts of great rage or those of huge potential for most private investors, with little occupying the middle ground in-between.


Ignoring the fluff around the deal and moving to the numbers, the deal looks to be set to provide large revenues for Westminster Group over the duration of the twenty-one year contract, with it being initially valued by the company at $300m (around £202m).


We have to make a few assumption in order to continue this (initially) very harsh analysis:

• The USD to GBP rate doesn't change 
• We take a high level of inflation per year at 4% 
• We assume that banking facilities pay no interest rate on money accumulated by the company.
• We exclude any taxes or charges

Split evenly per year over 21 years (not realistic), the figure of £202m gets eroded by inflation at a real rate of 4% per year, meaning that by 2036 (year 21) this contract has been effectively worth £92.44m.


Now, this hardly sounds like a reason to be bullish, but actually we have to view this in context with the current market capitalisation of the company - £14.9m. Even if we then say that because this cash hasn't been realised yet we reduce the value of the contract by 50% as a risk hedge, you still end up with a contract valued at £46.22m (or 3.1 times the current market capitalisation of the company - 210.2% potential upside).


There is a pretty comprehensive argument to suggest however that this $300m figure is a very conservative value, as the poster "sunnyca" on the LSE forum eloquently puts it:

Just thought I'd post some facts regarding figures for the ferry/airport etc. In June 2013 the "security fee" which has to be paid by everyone no exceptions was $45, it has risen to $50 over that period. The transfer from Lungi to Freetown by the old delapidated ferry was $40 unless you bought a fake ticket (in which case double that), also your bags went by a seperate boat so absolutely HAD to be locked or they would be "inspected", the road journey could in fact take up to 6 hours and would cost between 200,000-400,000 SLL ($50-100), so having read all the speculation on the bb regarding prices I thought it time to make it more realistic. The ferry project was upgraded for very good reasons, the people using it will be paying over $60 minimum that is a simple fact. Add in the security fee and round down to $100 minimum for each visitor utilising both (ignoring any local use) and again just use the minimum estimate of ferry passengers then ammortise again and you will get a true picture of expected absolute minimum revenue i.e. $1,600,000 per month, this figure is the minimum that can be expected from the combination of the projects. For all that people want news on other fronts which is understandable we have this here and now, it just isn't functioning fully yet. I would fully expect that figure to be exceeded within the first 3 months of "normality" returning to SL. Not at all bad for a "backwater airport and ferry business".



I will seriously consider adding more here if the technical set up and fundamental situation remains the same as funds become available from elsewhere in my portfolio.


Enjoy,

The Masked Stock Trader