good example of Valuation Targets...
c/n say that I put any credence into anything posted on the Yahooligan board, but I have done some similar analyses and this one from triad1961 is pretty damn good.
finance.messages.yahoo.com
It's difficult to value any pre-profit company but one way may be to parallel DESC's own S-4 Registration Statement and the valuation process described there for the Proton's acquisition of Northern Power. This valuation was part of the fairness opinion done by Adams, Harkness & Hill, and it uses comparable "Distributed Generation/Renewable Energy" companies and their Enterprise Values in developing a valuation.
sec.gov
The companies identified were: ACPW, BLDP, CPST, ESLR, ENER, FCEL, MCEL, HHO.TO, HYGS and PLUG. (Several pure infrastructure companies were also identified but these seem outside the merged DESC model.)
In a very rough application of the AHH approach, we would first average the Enterprise-Value-Divided-by-TTM-Revenue (EV/R) ratios of each of the comp companies to develop an industry average EV/R. You would then multiply this average EV/R number by revenue to develop a target total EV based on the sector average and DESC's stated $21 million 2004 revenue. You would then divide by the number of DESC shares outstanding to derive a target EV/Share value then add back net cash per share (cash/share-debt/share) to derive a target share price.
I looked at Thursday's numbers from Yahoo finance stats and threw out MCEL because it was way too high (EV/R 185) and could not find HHO.TO data (I'm lazy). Using EV/R numbers for ACPW, BLDP, CPST, ESLR, ENER, FCEL, HYGS and PLUG I came up with an industry average EV/R of 9.77. PLUG and ESLR were on the high side (EV/R of 21.25 and 14.33) while CPST and BLDP were on the low side (EV/R of 4.24, 5.08). DESC was at an EV/R of 3.72 after Thursday's close. The average EV/R of 9.77 may seem high but it is below HYGS, PLUG and ESLR. IMHO DESC seems most comparable to HYGS and HYGS is at an EV/R of 9.93.
Anyway, if my math is right (I just did this quickly so it could be off), using the average EV/R of 9.77 x $21mm that DESC estimates for 2004, yields an EV of 205 million. Divided by 35.54 million shares yields EV/share of 5.77. Adding in the net cash of $1.50/shr yields a target based on averages of $7.27.
DESC has historically lagged averages for its sector but this week may be a good sign. Their proactive press release was a change for them and is encouraging.
Of course just because averages can justify a much higher price doesn't mean they'll get there or even get close. But DESC seems as strong as anyone else in this sector, stronger than many others, and seems deserving of at least moving up from 9th place out of 9 in EV/R. Just matching the 8th ranked company (CPST at an EV/R of 4.24) would put DESC at $4.00/shr based on the $21 million revenue figure. |
