*$1.70 Unrestricted Cash, $1.76 Book Value vs $1.55 price
*over 33% of total assets are in cash
*Cash losses are going down by over $1 Million per quarter and only $7 Million last quarter
*Student loan securitization market is recovering quickly (per CEO: "We believe that the private student loan asset-backed securities markets appears healthier now than at any point since 2007")
*No upside in terms of securitization market or partnered lending is priced in
I think it's a big mistake to sell this stock but what do I know!?
I'll put it in simpler terms: the company has more money in cash than it is worth even if you assume they lose another $30 million to get to break even. Additionally, they bought out two companies (Cology and Tuition Management Systems) for I believe a combined $50 Million at a time (2010, 2012) when all companies in general were priced 25 to 40% lower than now and the market is valuing these combined assets at $0.
I'm not even mentioning the possible upside in the business from securitization.
One method you can use is the sum of assets approach in determining value for FMD:
(1) TMS - purchased in 2010 for $47 Million - let's assume zero appreciation in the value of this, despite revenues increasing since then and asset valuations improving significantly.
(2) Cology - purchased for $4.7 last year - again, no assumption for increasing value to be conservative (even though revenues grew over 20% last quarter from this division)
(3) Union Federal subsidiary - This is their banking sub that issues loans to students. As of 3/31/13, it had equity capital of $22.7 Million, tier 1 core capital ratio of 9.5% and risk based capital ratio of 25.9% (well above regulatory requirements) - S&L's are trading at 1.6X equity capital right now so 1.6 x $22.7. Let's assume a 20% discount just to be safe: 1.6 x $22.7 x 0.8 = $29.1 Million
Subtotal: $80.8 Million
Ok keep this $80.8 Million in mind because we will be adding that to the amount below.
"The AMOUNT BELOW":
Now we have to take total book value of $195.3 Million and back out the assets and liabilities at Union Federal and Cology/TMS as well as the goodwill and intangible assets on the balance sheet for TMS and Cology to arrive at the sum of the remaining assets on the books. The reason we subtract those is because they're already included in the above $80.8 Million.
Assets already included in Union Federal / TMS:
Cash and cash equivalents - $70.6
Restricted cash - 36.6
Investments available-for-sale, at fair value - 83.9
Education loans held-to-maturity - 62.1
Mortgage loans held-to-maturity, net of allowance - 11.5
Deposits for participation interest accounts, at fair value - 10.8
Goodwill - 20.1
Intangible assets, net - 24.8
Liabilities already included:
Deposits - 164.2
Restricted funds due to clients - 76.3