NATS - the position of an ordinary shareholderThere has been some commentary between members of the Employee Share Trust about the valuation of their individual holding and whether it seems sensible to sell out. As a complete outsider with no detailed knowledge of the financial strength of the business, it is not possible to offer advice. Yet, the observations of the ignorant might be helpful since standing aloof and being objective may have a place
First, NATS is a Public Private Partnership (PPP). This means it falls into the category of part Government owned, part private. This Government has launched many of these schemes and not least in the structure domain, such as hospitals and schools. The central role in such financing can be criticised due to the taxpayers’ element being placed "off balance sheet" (see 99 definitions) which means that the liability of the investment is not shown as part of Government indebtedness. On the other hand, neither is the asset value. Some PPPs have been sold on at a profit but mainly by the private party
What does all this matter to the shareholder? Well, in the case of NATS, the Government owns 49%. To all intents this means that the business is nationalised (as for example so is the Royal Bank of Scotland after the public bail-out - see Credit crunch diary). Furthermore, 42% is held in a block vote called The Airline Group and 4% by BAA. This leaves the ordinary employee shareholder with a very minor holding of 5%. A holding with no influence in a business with no "free market" for the shares. Shareholder value is therefore in the hands of others
It is not possible to value an individual share from the limited information available in the public domain, for example the number of share in issue is not stated on the website, although a search of the statutory listing would reveal this information. But essentially the value will be meaningless until such time as a free market is established. This can only happen if and when the Government sells its stake, or a big slug of it, and The Airline Group agree to do likewise. The BAA holding is irrelevant
There has been some speculation about a whole valuation. Again, one has to assume a free market for the shares. In the most recent year 07/08 the group profit is shown as £66.7m and if we assume an effective tax charge of (say) 20% and a PE of 15 (both these assumptions are challengeable), a figure of £801m arises. However, the profit in that year was much less than in 06/07 which was reported as £94.4m and it could be that there were exception items in the later year. If the 06/07 year is taken as a basis and the same assumptions on tax and price earnings used, the valuation would be £1.13bn.
But that is not what a buyer would pay for at least two reasons. First, there is a stated net debt of £538.1m at the end of the 07/08 year and an investment programme costing £1bn spread over ten years. A buyer would look carefully at both the future cost of servicing the debt and absolute cashflow
Finally, on the timing of any sale of their shares, an employee should consider that merger and acquisition activity is at a low ebb and not likely to pick up until late 2009. All the portents therefore scream out HOLD ON.
jgs- 2009
