Some preliminary questions re LR: ($ in millions)
About 85 million shares at 1/2 is $43 market value of common as against a $155 book value. But how much of the book value is good? I see $116 in intangibles. Then there's a $218 notes receivable, presumably from financing sales of equipment - how good is this?
Then there are the $600 in receivables and inventory. It would take just a small percentage of write-off to produce quite a hit to book value. The inventory in particular worries me. Why do they have so much?
Unless I am missing something here, I would not count on any book value at all, perhaps negative.
OK, so what about earnings value. We need enough value from earnings to to offset the $680 of debt.
Firstly, does anyone understand why there is a $400 administrative and selling expense? Is that not a lot f money for sales of $800 and service revenues of $600? Perhaps sales commissions are 25% to get machines sold for their service revenue.
In any case, I am seeing about $110 and $130 of operating profit in 1998 and 1999. This year looks like perhaps $120. I would be hard pressed to put a high multiple on this business, what with declining sales, the threat of digital imaging, etc. How about a 10x PE, or about 6x operating profit. $720 total value against $680 of debt. $40.
Perhaps a stock price of 1/2 is right.
OK, you guys do deeper work than I do - where did I go wrong?
Peter |
