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Online Resources Corp. Message Board

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  • boratnumber1 boratnumber1 Apr 17, 2009 5:18 PM Flag

    Who would buy and what would the common shareholders get?

    Applying a DCF is a good idea; however, I am not sure I can see too much growth when the top line is really starting to slow. If revenue is growing at 5% this year, how much growth can we expect in the future. EBITDA is growing at 20% this year, which is healthy, but eventually the bottom line will start to slow unless the top line can grow faster. From what I hear about management, I think they have taken out as much cost as possible so I do not expect expanding margins.

    The cash flow of $20M is before any debt payments or preferred stock accretion. If we assume that the free cash flow will grow 20% next year, 15% the year after that, and 10% in perpetuity after that and discount the cash flow by 15%, that would give an enterprise value of around $250M. The discount rate may be a bit high and the market is assigning a higher enterprise value than that right now so I may be underestimating growth.

    My quick analysis using a range of growth and discount rates leads me to think that the current valuation is fully-valued at best and over-valued at worst. With financial institution consolidation on the rise and clients who are desperate to cut costs, the risk of client loss due to acquisition or lower revenue growth due to price compression seems likely. With the core processors like Fiserv and Fidelity / Metavante willing to bundle online banking and bill payment for very low prices to win the core processing business, I am not sure how ORCC will compete.

    With all that said, I am not sure that a sale is the right path at this point for the common shareholders. Additionally, a company of this size cannot afford the expense and distraction of a proxy fight so hopefully the situation resolves itself quickly.