Based upon some recent comments on my posts I took some time to run the following calculations.
Pali Research estimated in September that Allyes can generate $60M in net income in 2009. A 15x multiple places a value of $900M market cap (obviously could fetch a much higher multiple). I placed the new downside risk on this and said earlier it may be conservatively worth between $600M and $800M. Based upon 133.7M shares that places the worth between $4.49 to $5.98 per share of FMCN. The Allyes earn outs are done with 2M shares issued. Those issued shares plus the shares they bought kept the average shares around the 133M forecasted. SO FMCN IS VALUED AT $7.00 (Friday) - $4.49 ( Allyes conservative) = $2.51 for the rest of FMCN! KINDA CHEAP!! So would you buy FMCN for $2.51?
Also, Citi estimates, based upon 3Q results, that cash will be ~$382M in 2008 and $690M in 2009. I took 20% off the 2009 estimate and get $552M. So cash per share 08 = $2.86 and in 09 = 4.12. AND THAT”S USING THE SAME 133.7M shares. That share count is going to go down because there will not be any more significant earnouts of new issued shares (read the 20F and Citi report of the Analysts Day). CGEN isn’t going to collect their earnouts and Allyes is done. So the cash per share will be higher because the shares will come down due to the buybacks AND the EPS will be higher.
Even with all this chest pounding I still feel really sick about this stock.
One other almost useless piece of info: over the past 4 trading days about 45% of the float traded for an average of $7.97/share. Thats right...WOW! Almost half of all the owners decided to take a bath unless they bought it like in 2005. Yea thats a lot of panic selling but its also a lot of opportunistic BUYING. Wonder what these new owners will do when it goes to 9? To 9.10, to 9.50? And then there's the rest of the float (55%) at an average cost of something above $16. What will they do? It all depends on news coming out of China on advertising and stimulus> which should be difficult to know. Just a little brain stimulus on a Saturday afternoon.
Well I am one of those new entrants. At a price that's a bit below that 7.97 but not much. As for what I am likely to do, I may scalp a bit if the market pops but I am generally looking at this as a longer-term economic recovery stock.
China WILL recover well before the US does for one reason. China saves. The US doesn't. And that savings habit also provides an additional upside - since advertising is a business that tries to get people to spend their savings.
My biggest concern about the company is their atrocious accounts receivable and cash flow process. Which is probably a function of their go-go-growth mindset. I won't add to my position until they show that they are solving that. Until they do solve it, their internally-generated growth rate is only 5% or so. So absent them proving they can generate cash flow from operations - rather than from financing (which is dead now and will remain so for years), FMCN is fairly valued in here.
great post or posts....one comment on the 45% of the float changing hands, which I to believe is very significant. I would not play up the 45% as a true figure because it doesn't take into account the day traders. But even still, at least 35-40% of the float did change hands last week. SICK!!! I was so close to be one of them....I still haven't bought more yet though...will dabble this week perhaps...so gunshy at this point.