A bit more on SFE in relation to ICGE for those interested in nurturers:
Talk : Misc (Tech) : Safeguard Scientifics SFE
To: Larry Greenstein (3423 )
From: michael r potter Saturday, Sep 4 1999 1:52PM ET
Reply # of 3424
Update. SFE is now trading under NAV. A question naturally arises as to why investors were placing a roughly $8 premium over NAV a few weeks ago, and now are placing a less than Zero value. On the face of it, it looks like people are really assigning no value to all the private companies SFE holds, and their future potential for both SFE and us, as investors receiving future DSSP "dividends". This is not logical, because not only do they have value, but there is nothing to justify a change of opinion that radical [about future benefits and paying for them], in just a few weeks. What has occurred, IMO is that the market is actually discounting ICGEs contribution to NAV by something like $8-$10. Why? SFE investors, if one can generalize, are more conservative than current ICGE buyers, many of which view long term as a 24 hour hold. Current buyers of SFE are leery of giving full weight to ICGEs contribution to current NAV, as many are probably concerned that ICGE, after the large recent run-up, and its volatility, could fall just as quickly in a very short time, and "take away" part of SFEs NAV very quickly. If the current buyers of SFE were convinced that ICGE would hold in the low $80s at least, they would be fully justified in paying current NAV of over $70-$72 plus something like $8 for future DSSP "dividends" and the contribution those companies will add to NAV when publicly traded over the next 6-12 mo. IE. SFE would be around $80. Without addressing whether the concerns of ICGE falling out of bed quickly are justified [making the current discount to NAV rational], there is now built in cushion in the pricing of SFE. Should ICGE decline, part of that is already discounted in SFEs current price. If ICGE maintains its current level for some time, confidence should build in SFEs exposure to ICGE in the $80 area, and the premium would likely expand. IF ICGE increases fairly dramatically, SFE buyers should continue their recent behavior of discounting ICGEs contribution and probably push SFEs discount to NAV to even higher levels. In any case, even though SFE does not offer the upside leverage of direct ICGE ownership, I view SFE as a more attractive way to play ICGE currently from a risk/reward standpoint, because of the current presumed discounting of ICGE in SFEs NAV by approximately $8. Another way to look at it is that if ICGEs value dropped $16, it would impact SFEs NAV by $8. Theoretically, SFE could stay at its current price, [not drop a dime] and it would then trade at its NAV plus a "normal and justified" $8 premium to NAV. [As a practical matter this will not happen, as SFE would participate somewhat in a $16 move down in ICGE, but it is intended to illustrate the built in cushion.] If this proposed explanation is not clear, I humbly submit, read it again and think about it. Will have comments to make about other aspects of SFE from a technical perspective, but will save those for later. thanks, Mike |
