It looks like "Miniority Shareholders" in the Dutton report are the convert bonds and warrants issued two years ago. The conversion price is around $9.50 US. If all the bonds and warrants are converted it will reduce debt by $69 million and increase share count to around 23.5 million shares - up 5.07 million shares from 18.43 million. So the debt goes from 138 million to 69 million. The share count goes up 27.5%.
I was looking at 2008 and I estimate their EPS if all the bond and warrants are converted and Igld hits $340 million in revenues and earns around $1.68 EPS based on 23.50 million shares. Depreciation and amortization will add another $0.72 to their cash flow for a total cash flow of $2.40 ($1.68 eps plus $0.72 for D/A). So by the end of 2008 Igld could be between $25 to $30. Anything more than this will depend on management's new ventures/product offering,etc.
Based on a current price of $12.13 IGLD is selling at a 5 multiple of 2008 cash flow. This is based on the $1.68 eps for 2008 and $0.72 in depreciation/amortization. If the cash flow was paid out as a dividend it would yield 19.79%. How cheap does Igld need to get?
Keep in mind that Igld will start 2008 with 69 million in debt if all the bond and warrants are converted. Igld will generate 56.40 million in cash in 2008. So if they used their cash to pay down debt in 2008 they could end 2008 with only 12.60 million in debt. This is based on 23.50 million share outstanding.
I'm sure too most investors in this stock would prefer the truth out of the mgt team and the analysts they hire to write reports.
Racial? Hardly. Cultural, more like it. I've done a sufficient amount of business with Israeli's in the past to safely conclude you can't trust a damn thing an Israeli businessman says. Nothing. And that appears to be the case here as well.
My bet ... the previous person on this board who contacted IR at IGLD ... he won't hear squat back from them. They lied. They know it.
The share count here is going to 26 to 27 M. The price target Dutton threw out there didn't take into consideration the dilution. Dutton's report isn't worth the paper it's written on. The convert holders are going to crap all over each other to get to the exit to earn that last penny. The stock is broken. Welcome to an Israeli public company.
I listened to the CC replay. The CFO clearly indicated if all the bond and warrants are converted into common stock the total fully diluted share count will be between 23 to 23.50 million shares. Igld would receive $69 million in cash. He also indicated that the current share count is around 20 million as of the earnings CC. The bond and warrant holds are converting on a daily basis. They are in the money. For what it is worth.
If we assume the 26.50 million shares is the real count after the conversion then Igld will get $9.50 for each of the 8.07 million shares (18.43 million shares vs the estimated count of 26.50 million shares) or $76.66 million. This will reduce the $138 million debt down to around $61 million. Igld should generate around $35 to $38 million in cash in 2007. Igld will also save $4.60 million interest costs if all the conver bond and warrants are exersized. When Igld raised the cash on the converts the stock price was around $5 and the conversions price at $9.50. I guess that this was the costs the markets demanded at that time. I just want to know what the end share count will be when all the bonds and warrants are converted.
I E-Mailed Investor Relations on the share count question based on converting all the bonds and warrants. I will let the board know. It does look like the 26.41 million total shares is correct. I would hope Dutton took this into consideration when the raised their target price to $20.
Dutton did not. Dutton is paid by IGLD to write research reports favorable to the company. Dutton knew what it was doing when it ignored the implications of the conversion. Just like the IGLD CFO lied about the impact of full conversion. You simply have to keep in mind that we are dealing with an Israeli company here.
Looking forward to hearing whether IR finally tells the truth.
If we use your 26.50 million shares then this is around a 43.79% in share dilution. This is very expensive money for the $53 million they raised in the convert bond and warrant offering.
E-Mail their investors relation - they are very good at responding back. I could be wrong but do not think so.
I think that everything is on the table at this point. I also think that Dutton did a poor job of reporting the minority sharehold data and it's implication on EPS. They straight lined the quarterly interest payments on the $138 million in debt. The only problem is that the Dutton analyst is the only game in town. All in all I think they are good source of information. I still think that $20 price target by years end is achievable.
What's your math on the share count? I'm getting a significantly higher number of shares from the conversion of the debt and warrants. Debt will add another 5.5 M shares, Warrants 2.5 M shares = 8 M. So share count goes from 18.5 to 26.5.
I simply don't see where Dutton made any provision for conversion in the estimates they put on the table. As a result, they're overshooting on per share valuations.
Am I wrong?
Thanks in advance.
BTW - I don't know who comprise the base of owners of the covert and warrants ... but these people are IDIOTS. By tripping over each other trying to hit the exit, they've so technically damaged the stock that they've shot themselves in the head. If they would have given the stock a little more room ... it would have made the IBD 100 list this week and pushed into the 17s on heavy volume ... giving the converts ample room to realize more value and have more liquidity to exit. These convert and warrant holders are simply MORONS.
My 23.5 million share count came from the latest earnings conference call. I asked who were the minority shareholders and where did the increase in share count come from in the Dutton report. Share count increased from 18.43 million to 19.80 million. The CFO indicated that the bonds and warrant holders were starting to convert into common shares. He indicated that if all were converted it would yield between 23 to 23.5 million total shares. These were the bonds/warrants issued about two years ago when they raised the $53 million or so. The good thing is that it reduces the total debt of Igld.
I think that the bonds and warrants need to be converted into common by a certain date.