Today's fall is overdone in my opinion.
Before the allegations, PFC were trading at around £8.50 and, after today's news, we are at £4.00. That's £4.50 per share destroyed due to the SFO investigation (oils overall are now trading higher than April/May 2017). With 346 million shares, that equates to £1.56 billion of shareholder value destroyed by the investigation.
Assuming that PFC is held culpable for the contract bribery allegations admitted by the ex-worldwide head of sales, and assuming that a agreement is reached with the SFO, then a fine rather than a trial would result (which might explain why no-one else has been charged at this point).
Precedent suggests that the fine could be based on the profit made by PFC on the relevant contracts. Based on press releases today, the relevant contracts sum to total revenues of around $4.45 billion. PFC's historical operating margin is around 10% (less in recent years). Assuming that PFC made 10% on all of these contract revenues would give an operating profit of around $445 million.
In bribery cases, the fines are 'usually' in the range of 250%-400% of the profits made (depending on a number of factors, including the extent of cooperation with the investigation, procedures in place etc.). Assuming an aggressive penalty of 350%, would give a fine of around $1.56 billion (or £1.2 billion).
A hit of £1.2 billion rather than the £1.56 billion PFC has already taken would put the share price at around £5.08...rather than £4.00. On top of that, PFC's operational performance has been excellent over the past 6 months, the oils in general are higher...and the CEO made a significant share purchase.
Unless there is more news to come, which is unlikely as the individual concerned was the worldwide head of sales and would have been aware of activity on all contracts, then PFC should be trading in the 510p to 550p range today...25-35% upside potential.
Obviously, just a thought, not a recommendation, DYOR
Hi wayne_d_roberts,
I may be misunderstanding something, but I'm not sure that a reduction in PFC's MCap because the market has taken fright and assigned a lower value to the Co' future earnings stream can be directly compared with the potential issue of having to stump up the equivalent in hard cash in a much shorter time frame.
PFC hasn't 'taken a hit' so far, its shareholders have. That will change if/when PFC is fined....and pays up.
ATB
