@andy777 ,
Your point, about Australian companies stumbling the minute they try to replicate a successful Australian business model internationally, is well-made, I think.
That's exactly what I have thought when I've gone through some of RHC's previous results, but even more so this most recent one, for obvious reason.
At any rate, I some time ago came to the view that I am a shareholder in RHC largely for the Australian business, and mostly despite the international businesses (not because of them).
Valuation-wise, because RHC is such a strong generator of Free Cash Flow (OCF is ~3 times Stay-in-Business Capex) I tend to look at FCF Yield and EV/EBITDA as my preferred valuation metrics.
By my reckoning, on these the company is currently trading at:
FCF to Market Cap = 6.2%
FCF to EV = 5.0%
EV/EBITDA = 10.6x
While the share price has done nothing for 3 years, the compound earnings growth has chewed into the multiple to leave the stock priced at the best level I have seen for some time.
I think it is now at a level where I believe it to be about fairly valued; no longer ridiculously over-valued when the P/E was multiple was above 20x and the EV/EBITDA multiple above 13x.
In fact, when the stock price was at this level some 6 months ago, I bought more RHC, the first time I had done so in many years.
Don't get me wrong here; this is no 30%, 40% or 50% pa investment at these levels.
Rather, I think it is one of those investments involving a high-quality, well-managed, large-cap company with a near-bullet proof business, which is able to be acquired at a fair multiple.
The investment returns I envisage are around 10%-12% pa (made up of 8% to 10% capital appreciation and ~2% dividend yield).
And the capital appreciation expectation comes solely from the company merely holding its current valuation multiples, with the share price performance therefore matching the growth in earnings.
So, nothing too ritzy in terms of return potential.
But nothing at all dangerous, either.
