Valuation of SuperMedia
The CF of last quarter was 175 millions.
1)The CF stabilizes at $200 millions /q (SPMD will not have bankruptcy related expenses), and
2)The company does not have to pay onerous interest rate and amortization payments to banks--------I realize it is not realistic.
The EV may be around 15xCF.
EV resulting from a CF of $800 millions/yr = $12 billions.
Debts of SPMD = $3.3 bn (only an assumption).
The potential worth of equity is about $8.7 bn
Since there are onerous payments at 12% interest rate, and 2/3 CF expropriation( by the banks) the potential worth may be realized only after the onerous payments stop(which could take roughly about 8 years).
What is the PV of the future(after 8 years) potential equity value of $8.7 bn?
At a discount rate of 10%, PV is $4 bn.
At a discount rate of 12%, PV is $3.5 bn.
At a discount rate of 15%, PV is $2.85 bn.
An equity value of $3.5 bn gives a current share price of $233/share.
An equity value of $2.85 bn gives a current share price of $190/share.
Any comments and suggestions to increase the quality of the calculations?
Any alternative calculations?
By the way, there is always a chance that the 6 yr term for wiping out the $2.75 bn debt may not be sufficient, due to reasons such as, SPMD unable to meet CF projections of bankers, a big increase in interest rates, etc.
Other problems include, share dilution (shares sold at prices below potential value or given out freely to employees ), contracting new debt, etc.
Cf multiple 10
Discount rate 15%
The $2.75 bn would be paid off in 6 yrs according to plan. Not 8.....it is my error.)
CF starting in 7 th year $800 millions per year.
(EBITDa of $1100 milliuons per year, 300 millions for taxes.
i have a Excel spread sheet with all the values for the 6 years with assumed data)
**The EV at 10x CF is 8 bn
(multiple used only 10)
By the end of 6 th year, the company would have paid off the $2.75 bn secured debt.
In 2017, the debt would be zero
**Equity value in yr 2017 : $8 bn
What is the PV of the future(after 6 years) potential equity value of $8.0 bn?
1.15^6 =2. 31)
At a discount rate of 10%, PV is $4.5 bn.
At a discount rate of 12%, PV is $4.0 bn.
At a discount rate of 15%, PV is $3.5 bn.
**share count count 15 million.
*An equity value of $3.5 bn gives a current share price of $233/share.......discount rate 15%
An equity value of $4.0 bn gives a current share price of $267/share........disocunt rate 12%
three things that seem pretty optimistic to me:
a) the 15 multiple. if you're talking about "stable" (ie 0 growth) cash flow, that seems quite high.
b) the entire business model is in flux. companies that depend on sale of words printed on paper are suffering as a broad category- and being johnny-come-lately in Google's sandbox isn't the most attractive prospect i've ever heard either. if you're telling me that what i'm paying for now is earnings from 8 years from now, onward, i want a pretty considerable discount to reflect the substantial risk of major dislocation of those earnings between now and then.
c) is the share count stable? are you SURE? the more financing a company does, the greater this risk factor becomes, and idearc was way too active in financing activities even before BK (which is by definition a period in which financing is the ONLY material thing the business does)
in short, the 4 billion PV calculation looks reasonable, but it's not an "unbiased" calculation; it's pretty much the best possible case.
_That was the original terms for bankruptcy. I will post the link once I can find it again. The terms may have changed_
Apparently original terms are gone.
New terms are:
8% + LIBOR (min 3%), change of loan amount, 6 year term(as in the Original Terms) and the CF sweep pf 67.5% (as in the Original Terms) .
No more details.
_The form of the New Term Loan Agreement will be filed with the Plan Supplement_
If anybody saw the Plan Supplement ?
The whole plan is abusive.
And the bondholders got a very bad deal(though some who bought at 6 in the last few weeks are happy). Of course the shareholders lost everything.
Has anybody seen
<The form of the New Term Loan Agreement will be filed with the Plan Supplement> ?
_The earnings is capped at $150 million. Anything over goes to the lenders. The maximum earnings per year is capped at $600 million per year_
That was the original terms for bankruptcy. I will post the link once I can find it again. The terms may have changed or the company may not want people to know the details.
The original terms were 12% of loan and a cap of $150 million. All amount above $150 goes to lender. I do not know if the extra cash was to be applied loan payment, or just a means for the lenders to recoup the money that they lost in bankruptcy deal. The $600 million I calculated as an annual figure. The $40 market price seems to be using this estimate.
The interest rate seems to have changed from a fixed 12% to 8% + LIBOR (min 3%).
Has anybody seen the detailed term loan agreement?
From the Dec 24 document filed with SEC, I see the following:
. _ The New Term Loans will be in an aggregate principal amount equal to $2.75 billion and will mature on the sixth anniversary of the Effective Date.
. The New Term Loans will bear interest at an annual rate of LIBOR (to be defined in the New Term Loan Agreement) plus 800 basis points with a LIBOR floor of 3.0%
The New Term Loan Agreement will provide for no mandatory amortization of the New Term Loans, but will provide for an annual cash flow sweep equal to 67.5% of free cash flow. _
The document also states that:
_The form of the New Term Loan Agreement will be filed with the Plan Supplement_
Two major problems with this article.
1. $2.75 billion at 12% would be $330 million per year not $240 million.
2. The earnings is capped at $150 million. Anything over goes to the lenders. The maximum earnings per year is capped at $600 million per year. I assume until the debt is paid off. This is just enough to pay off the the $2.75 billion in five years. Well, the company would make $250 million. So the equity value is $250 divided by 15 million shares or $16.67 after five years.
The market value of $40 seems to be using the projected cap of $600 million divided by 15 million shares.
I believed SPMD's debt has been trimmed to only $2.5 to $3 billion from $9 billion. Several major creditors and bond holders such as yourself have agreed to the debt to equity swap . Thus, the debt amount showing on Yahoo finance is INCORRECT and is a reflection of old financial #s prior to the debt to equity swap and this new listing.
Bottom line, based on your previous calculations and taking the now $2.5 to $3 billion debt into consideration, SPMD's valuation should be much higher than $6 billion.
Of course, there is the talk of the print side of yellowpage business dropping down by as much as 20% each year. But I believed that as long as SPMD position itself well to leverage its team of 3000 sales people selling its profitable products (Superpages.com, PPC, Direct mail, SEM) to local advertisers and at same time focusing on retaining its print advertisers, SPMD should do very well.
There are a few initiatives on the PPC, SEM, local search, and etc in which SPMD is currently reviewing. I personally believe these initiatives will take SPMD to the next level, coupled by its local advertising salesforce.
Plus, three other initiatives that is confidential at this time. If all initiatives are executed in a timely fashion in which SPMD truly leverage the Internet and transform itself into an online & local advertising powerhouse. SPMD should be worth more than its current valuation of $6 billion.
Of course, if none of the initiatives are being executed in a timely fashion, than I would agree with those on the SHORT side.
BTW, I got a question for the SHORT(S) claiming to have made money off his 10,000 shares when SPMD was at $45. Please provide link to your trades because even "I" cannot borrow shares on the short side when SPMD was at $45. Thus, u just lose your creditability there.
Goog luck to all on al sides of SPMD.
As to being profitable, forget it. SPMD will start showing huge losses the next quarters. Advertising revenue across the board will be down at least 20% every year from here on out. Paper advertising will be non-existent in the next decade and Google and Bing will eat SPMD's lunch. This new company will do as poorly as the old one did.
You've got to be kidding me. You actually think I am going to post my trading statement on a yahoo message board? Just look at the trades day one and you'll see short trades. If you are not able to short, you need a new broker or learn how to sell short.