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Ebix Inc. Message Board

  • getintoh20 getintoh20 Jun 21, 2013 5:39 PM Flag

    Must read long or short. Ebix could double in the next 3 months

    EBIX has been getting lots of attention in recent months due to Gotham City's short posts and SEC investigation. However, I think during times like these it is important to take a step back and think about the various scenarios. Fundamentally, EBIX is a high quality business with strong, recurring free cash flow and minimal capex needs. This favorable annuity-style free cash flow stream allows EBIX to return significant capital to shareholders. EBIX currently yields 3.2% and repurchased $118MM of stock since 2008 or 34% of current market cap. At today's price, EBIX trades at just 5x FCF or a 20% FCF yield. Now lets work through some math on the valuation.
    Bull case (25% probability): SEC investigation results in no issues, EBIX fixes corporate governance issues, and management and the board can refocus on organic growth and finding accretive acquisitions. In this case, I expect EBIX to trade back to its historical average P/E multiple of 15x. On 2013 EPS of $1.87, EBIX is a $28 stock.
    Base case (50% probability): SEC investigation finds some corporate governance issues, possibly even Raina departs or is removed from his CEO role. In this case, the strong free cash flow will not be adversely impacted. Corporate governance issues will be repaired over time but the company's reputation with investors will be damaged. In this case, I value EBIX at 10x P/E which results in a $20 stock price.
    Bear case (25% probability): SEC investigation results in material misstatements of financials and the company needs to restate historical financial information. In this case, EBIX will likely trade to 4x P/E while the company is in the restatement period which could take as long as 12-24 months. This values EBIX at $7.50. Even in this case, EBIX's software platform still generates substantial FCF and is a high quality business which could be sold to private equity so there is no chance that EBIX is worth 0.
    I estimate EBIX's fair value based on the above scenarios and probabilities

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    • When you say they currently yield 3.2% do you mean in a dividend? If so last quater did they pay?
      I'm not a number cruncher but did you figure in the 100 million they have to raise for the newly proposed stock buy back program in your figures.
      Last but not least don't you think mgmts reputation is already ruined with investors especially long term holders who saw the way they handled the short attacks prior to there deal with and the deal itself with GS?
      I feel for those who held thru.

    • I bought in after reading the SA hatchet article this afternoon. I knew it was a sure thing at that point. Sure enough bear raids 1 & 2 took place a few hours apart.

      Thanks for the article. This particular one has some truth to it; whereas the hatchet piece was 99.9999% pure BS.

    • Beautifully and succinctly stated. Welcome to the board.

      Sentiment: Strong Buy

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