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Axion International Holdings, Inc. Message Board

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  • mikebert mikebert Jul 19, 1998 7:40 PM Flag

    Why the sudden drop? Anybody?

    Hello, I just got back from vacation (been gone
    since 6/25) and am checking my ANLT. I saw the news
    about the new stock issue, and have seen that the stock
    has fallen quite a bit in response. I thought about
    it a bit and have concluded that this new stock
    issue may be accretive. Here's my
    thinking.

    According to the news release, some of the proceeds of the
    stock issue will be used to pay down debt. Reducing
    debt decreases interest expense and thus directly
    contributes to the bottom line. Assuming an 8% interest rate
    and a 30% tax rate, $18 of debt reduction will
    produce about $1 of earnings. Thus, as long as ANLT
    trades at a P/E greater than 18 (based on future
    earnings) selling new shares to reduce debt will be
    accretive to EPS.

    Of course, the quantity of shares
    to be issued is far more than that needed to pay off
    debt. These extra shares will dilute current earnings.
    However, the sale of these additional shares will increase
    the amount of cash available for acquisitions,
    assuming management doesn't spend it foolishly. Thus,
    there is an element of risk here and I'm sure this
    element is responsible for the recent drop in
    price.

    Since management has done 5 accretive acquisitions in
    the past 3.5 years, I see no reason to disbelieve
    that further accretive acquisitions will be
    forthcoming and the cash proceeds from the stock issue will
    be put to work profitably.

    Thus, I'm still
    anticipating 60 next year.

 
AXIH
0.16-0.03(-16.22%)May 27 9:30 AMEDT