My issue though is that despite a crappy 2009, indication for pro forma earnings based on q1 2010 earnings does not show growth that justifies the purchase price (if you annualize q1 2010 it looks real nice but keep in mind q1 is winter season so its half of the 60% they get in winter aka its 30% of the expected year's earnings). And while BD may have decent growth I haven't heard any comments on Gregory growth which we paid around 18x for which is a much higher multiple than what we paid for BD.
no details given from what i can tell. But it appears one is in north american and the other I think in asia. As I recal it was approx 90% of sales with the two together.
I too am a recent investor. I got in when it was trading below $5 primarily under an alignment of interest thesis and value play.
This thing has morphed significantly from a value play (I bet there are investors out there thinking the cash is worth more...) but given the upped ante in alignment of interest I believe there is a real plan here. I think the most logical value creation will come through their distribution networks which are in varying geographic markets. Gregory has two major customers that make up nearly all their sales my bet is they sell BD stuff into their channels and vis-versa.
this is going to be a bit of a longer hold than I first expected. The friday report did not give a very clear understanding of the growth we can expect to see at these companies. Unfortunately it appears we will need to wait and see if WK and RS can expand margins and implement merger synergies between the two companies. (I think the first thing we can see cut is the reseach budget)The one postive that came out of this is that it would appear we have relatively solid alignment of interest given that WK and RS sold gregory for half stock and the other half in 5% interest notes - so In reality their entire stake in gregory is still tied to that original investment and now ours. However, anyone whose original value thesis rested in WK's option expiration dates will have found themselves very upset when he simply extended their dates by 5+ years.
next 30 day prediction I expect to see this stock hit 5.50 a share - maybe lower. Original investors got in on a value philosophy that money can be put to work at reasonable multiples and there would be instant upside. Those same investors are now feeling extremely nervous / upset that WK took their money and bought two businesses for 13 and 18 times 2009 TTM earnings with no clear indication that enough growth exist to justify such valuations.
As for me, I think I will stick around. I am interested to see what WK has in store. Although WK clearly has little regard for my interests here I have respect for his ability to create value.
have you looked lately? It was due for a price correction. Whoever bought above 6 was naive to think earnings would be higher than what they are. BD management hold on to almost no equity was one clear signal and WK over paid for gregory (big suprise). Annualized q1 numbs looks nice but its a seasonal biz with 60% of sales happening in winter quarters. When you look for it through that lense its not necessarily a growth stock either which it is currently being priced at (approx 15x earnings).
I'm sure everyone is reading this 400 page document. I went straight to earnings and would like to hear everyone's thoughts. Based one 2009 earning I would say we got hosed but that growth must be big for the earnings that came out Q1. If you annualized that it seems like an attractive multiple to me esp given they will not be paying taxes....
I woul argue a big reason we did not see the large pop that was expected would be the deal structure. Yes this stock traded at 9.50 predeal and although there was more cash on the balance sheet I believe the expectation was for clarus to use significantly more leverage which would fuel faster NOL realizations and greater long term acquisition potential. We simply aren't seeing this here - it's primarily a straight cash deal. The concern now is if all NOLs can be realized instead of when. I fear there is a good chance we are disappointed about the multiple kanders paid come to tomorrow particularly for Gregory but also for black diamond.
by my estimates you would need greater than 20% annualized rev growth and at least 15% margins to justify half that stock price.
stock moves today on this news but will have a major correction (up or down) once we all figure out what exactly we own on June 4th
I agree, there will likely be more volatility even now as it has gotten more attention but especially once it gets listed. While the swings may be larger, fundamentals are key to keep one's bearing through it all. I don't think about the fundamental value as a destination into the ever extending horizon but rather a centerpoint or mean around which we will see the swings occur. Having a good peg as to where it exists inevitably pays hansomly... as long as you keep your emotions straight.
And yes, I think topline growth will be key here but this stock stands a major correction in either direction depending on where margins come out.
Yea it is a weird statement. When there is a 50% chance or greater (ie more likely than not) that a company will use their NOLs they have to create a deferred tax asset. Think of it like a prepayment asset on the balance sheets. So what they are saying is that they are creating that deferred tax asset for approx 88M. I would say its more of a positive indicator than negative. I'm not sure if there is a defined methodology in determining the 50% or greater criteria (ie what kind of growth assumptions they are allowed to use etc.) Would be interesting though because might be able to back into EBITDA if there were defined criteria.
I'm not so sure. I think most investors got into this stock under a value play. Those same investors are likely not to be the type to give into deal excitement but more grounded in fundamental prospects. Plus with WK's history to look out for #1 and important details still hidden (in addition to risk of the deal going through)I expect many are taking a "wait and see" approach.
I think the market here is very uncertain about the margins. I made a rough DCF for this with 12.5% margins, 8% annual revenue growth, and a 15% required rate of return and I came up with a valuation of $5.89. Now what I do not take into account is LBO activity (ie leveraging up future cashflows for acquisitions to fully utilize NOLs). Now you pick up another 2.5% on margins valuation goes to $7.20 a share. I'm sure its difficult to take at facevalue when anyone talks about the output of their model but I suggest you run it out yourself and see where it comes out - point is market is not that far off given reasonable (although somewhat conservative) assumptions. I think everyone got in this early on thinking WK would leverage up massively to blow through the NOLs as fast as possible, we just are not seeing that here.
Happy to share my model with ya if you are interested.
I agree. That is why I focus on bits of information that indicate our fates are tied. One being that his payment to himself in clrs shares for Gregory are locked up for 2 years. Given that he valued them at $6 a share that would appear to be a pretty solid floor for this security... especially since WK has shown a history to look out for number 1 and in this case the lowest possible valuation accomplishes that.