Technical Question - Trade at considerable discounts
Hey guys, I was checking Sugar & Ethanol companies and realized something, those that own the land, instead of renting from someone else, trade at a considerable discount, EV/EBITDA is especially lower. Why is that so?
No idea, It must be something industry specific since the intuition suggest that those who rent would have an higher EBITDA and therfore a lower multiple
That's what puzzles me, in theory it should be the opposite. I tried to adjust the multiple by subtracting the land value from the EV and then subtracting the value of the rent from EBITDA, the multiple simple nosedives - think that's because the land is extremely expensive right now in this place and that rents "distributes" the value of the land through years, so I end up taking much more from EV than from EBITDA
Do you have any ideia of how can I adjust the multiple?
If these rents are like operating leases you could try to transform them into financial leases (compute PV of future payments, increase assets and increase liabilities) then costs would appear as Depreciation and interest.
It's kind of different because the price of the rent varies with the price of the sugarcane, basically it means that it functions pretty much as a cooperative. I have no idea of what to do....
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