Summary

• Buy for value below $1.43
• We can’t see any reason to buy for momentum until volatility subsides

Valuation Update

Yesterday afternoon API.AX revised down their profit guidance. Net profit after tax is expected to grow at 5% vs an increase of 15% in the previous quarter.

One of the key uncertainties outstanding is the future operating margin. in FY15 & FY16 API.AX had an operating margin of 2.00%. In both years however operating cash flows during the first 6 months were negative. So does this announcement affect operating margin given the CEO remains positive on performance? To be conservative we’ve assumed a decrease to 1.50%.

Given that supernormal short-term growth is most likely off the cards for now our updated intrinsic value is $1.43.