Lehman Brothers report observations:
Now I join the ranks of king poobah and leader of the peanut gallery - the only way I could think of following on my lambasting of Mr. DlphcOracl! In all seriousness, I hope that we can all see past our rantings (especially mine) and really try to find out more about GBLX . . . I hope to share some of my thoughts with the following.
Before I start I would like to say that the folks at Lehman Brothers put together a real nice summery of their GBLX thoughts, and their efforts should not be discounted. Unfortunately they do not have Teddy, Frank or others on this thread in their hire (that I am aware of anyway!). I eagerly look forward to their 40 PAGE REPORT, due out shortly.
Which brings me to my second point . . . on this thread, we have the benefit of thinking in simple terms, and do not have to report to an investment committee. This has its good and bad points . . . mostly good. As we shall see, the folks at Lehman Brothers have been swept up in Teddy's father's approach to accounting . . . looking for, identifying, and examining beans (as I understand it anyway). We all know that folks like Teddy's father are at the vortex of capitalism, but when making an investment case before a company is hitting its full stride, it is easy to confuse accounting with an evaluation of prospects. Enough said about that!
This is how Lehman Brothers looks at our lusty GBLX:
(average calculation, in millions of bucks)
Undersea Network $16,200
US Network/LD/ILEC $16,665
Global Center $9,500
Global Data Services $4,050
Europe $13,500
Asia Global Crossing $8,540
= Total Assets = 68,455
Net Debt = 6,612
= Equity Value = 61,843
Shares (dil) 1,007
NAV/Share = $61.41
Well, where do we start!?
To keep it simple, I am only going to consider poohbahing the following this time around (the other areas are covered in my long threatened summery of pipe valuation - should the shares ever rise above $110 a share!):
Global Center $9,500
Asia Global Crossing $8,540 (GBLX portion)
!ignored the ship fleet!
!ignored the VC portfolio!
!ignored price elasticity!
!ignored synergies of the biggest mega network this planet has ever seen!
Global Center @ $9,500
UUUUUUUUUUGGGGGGGGGGGGGGGGGGGGGGHHHHHHHHHHHHH! Well, all I can say here is that my fears posted a few days ago have come true. Leo should have kept his thoughts to himself. One of the most respected and heavy-handed firms on the street has adopted his valuation (or lack thereof). I wonder how much, or how long, this will keep the tracking stock back (please note that it does not have to). The Lehman report states that Exodus is the comp here . . . THEN WHY DID THEY USE 19X 01 REVENUES. Well in all actuality that's what EXDS is trading at . . . ok, so what are the revenue expectations for Global Centers according to the report: $500,000,000 that's it! Folks, Global Centers, if it is just an average revenue producer per square foot should AT LEAST gross $1,575,000,000 on its 2.25 millions square feet of space slated for production by 01'. That would imply a valuation of:
$30,000 (yes, that's $30 Billion)
This is in keeping with our earlier guestimates & discussions of its value. By the way: QWST has on numerous occasions asserted to me that for every dollar of revenue relating to data centers $7 to $8 are created in capacity sales. In other words folks, GlobalCenters (note that this does not include the centers in Japan or other parts of the Asia Global Crossing) could mean an additional $11 to $12.6 Billion in revenues to GBLX. WOW. Now that's synergy!
Asia Global Crossing @ $8,540
This number actually seems in the ballpark, but my gut tells me that it's higher. Need to do some work here but it's nice to see someone get the ball rolling. GEEEEZE! Can you believe me?! I just did what Lehman Brothers did with the Global Center evaluation. Lets see how many more analysts jump on board here too! As Forrest Gump said: that's all I have to say about that.
Did I mention that the report ignored the fleet of fiber laying and maintaining ships GBLX owns as well as their VC investments? I figure that the ships will eventually be IPO'd too along with interests in the VC portfolio for a "very" conservative valuation around $6 billion.
The report also points several areas that will incite demand for the GBLX pipes such as:
Its very own acquisitions (there's that synergy I've been tooting about again)
Big Bandwidth last mile providers (hey! Check out that ARCC!)
Wireless Market
Corporate data strategies & networks
E-Commerce (B2B & B2C)
BUT IT FAILS TO MENTION THE ELASTICITY OF THAT DEMAND! As many of you know, I was recently corrected in my assertion that for every 50% decrease in pricing demand would increase 225% . . . it turns out that it really is something like a factor of FIVE. There's that darn synergy creeping into things again. Seems I missed some multipliers in the data center business . . . gosh, does anyone here see a theme emerging? This stuff is BLOWING AWAY all expectations.
So, if there are all the demand drivers above, plus GBLX insists in driving pricing ever lower, I can really start to see some big revenue numbers emerging. To big to talk about here . . . sorta like the numbers I came up with a little over a year ago that QCOM could be on an $8 per share (pre splits) run rate buy now (they are). Needless to say all my friends and me have a bunch of contrarian QCOM wealth to back up our VARL wealth (really - too many other companies to list where this has occurred to me and my friends). Like I said trying to time anything is nuts . . . just make sure you are right and the bucks will follow like lemmings.
Anyway, while in search of drivers for demand, the report writers overlooked the single biggest driver: pricing. For those of you who have trouble believing this model look at INTC . . . they have had the same model for almost three decades now . . . they're in business still - aren't they?
:-)
Last but not least the report overlooks the synergy I keep mentioning. As we all know, the value of a given network increases by the square of its nodes (it's probably higher - we will see over the next two decades). GBLX is the Internet/network. That in and of itself should give us a valuation boost. Who really know how to quantify it though.
So when we ignore the value of the pipes (trust Lehman Brothers that their aforementioned numbers are ballpark - they aren't of course) I come up with a valuation of approximately $88.343 billion = $87.73 per share.
But wait! What about the synergy premium? Well, that's why I alluded to $110 per share before. I think that when we correct for the "pipe" valuation as well as the Asia Global Crossing valuation and all the other stuff I mentioned, it probably comes out somewhere $110 per share. When we start talking premium for synergy I can easily see some pretty big numbers . . .
That's why if we get to the $110, some serious evaluation work needs to be done - DCF stuff that I abhor.
Good night and God Bless. |
