Jeff, as you suggest, with their substantial cash position, I have to believe that UTEK management is considering the option of buying back stock. That potential is one reason that I feel pretty good about the risk/reward ratio of a UTEK purchase at this level. With a lot of technology growth stocks, you can't really count on a floor -- but with $8 per share in cash?
In considering the value of UTEK, I like to think of the Company as comprised of three basic parts: (1) its financial assets, (2) its current "conventional" lithography business (including TFH, Mix and Match and micromachinery) and (3) its developing business units (i.e., Ultrabeam and P-GILD). This provides IMO a nicely balanced investment. The problem is that today's market does not fully value such mixes. (This is what's behind the current popularity of spin-offs and the trend away from conglomerates -- the market values pure plays. Today, investors diversify though mutual funds.) I'm not suggesting that UTEK dividend the cash or spin off any units, but IMO this is just the way the market looks at things today. Following this reasoning, I think this makes UTEK a more attractive long-term play.
How does one rationally value these three components on a per share basis? Here is a VERY crude attempt:
(1) The $8 cash seems pretty easy.
(2) The current business? Maybe a market P/E multiple times net income (adjusted downward for the interest income from the $8 per share -- $1.9 million in the latest quarter). The interest represents about 25% of the net, so it might be fair to reduce the net by that percentage -- resulting in a little over $4 million for the quarter, or $0.19 per share (a $0.75 run rate). What do you want to use as a conservative multiple? Using 15x, for arguments sake (please draw your own conclusion - I'm not a semi equip analyst by any stretch of the imagination), gives us $11.25 for the contribution of the current business -- adding the cash that's $19.25, without P-GILD or Ultrabeam.
(3) P-GILD and Ultrabeam? That's even more difficult. Multiple of FY 2000 revenues, discounted conservatively to 1997 for time and risk? I need some help here, but I've seen numbers for the pair of in excess of $500 in the aggregate sugggested on this thread. What multiple and what discount rate should one use? Whatever the analysis, I have to believe the value of these units is significant, but (1) + (2) is already above the current trading price.
The foregoing is a very crude back-of-the-envelope sketch at best. I intend only to suggest a possible way of thinking of UTEK's value. Due to my limited knowledge of the Company's business, I'm sure I have made some faulty assumptions, and I may not be using the most up-to-date numbers on the Company. Any thoughts from others on the thread? What am I missing? Any other suggestions for determining value?
bill |
