Jim: Let us assume that all these numbers are correct. So Dawson is selling at 10 PE of future earnings, what is the big deal?
But look at the financial structure and you will see that things are not as rosy as they seem. What is the equivalent number of new shares created when you add the $100 MM buying price? I would say something of the order of 25 to 30 MM shares, this on expected profits of 7.8 MM, a far cry from $.58/share. Look at the return on assets, if DWSC assets are indeed $100 MM and potential earning $7.8 MM then the return on equiyt is 7.8%, is that good in view of secure 7% on no risk treasuries?
I say that the following scenario is likely to evolve, those convertible debentures and stock are going to be cashed in (Reg S) and poured on the market, by shorting against the block, the stock will decline sharply and the conversion will occur at prices a fraction of the current price (my guess, well under $2/share, but who knows), and then the equivalent number of shares will be more like 50 to 60 MM shares and the "potential" earnings per share decline sharply to less than $.10/share annualy.
Be careful and do not blindly jump into this one. Growing economies such as China's have a lousy habit of undergoing, from time to time, major secular slowdowns, such an operation better have the financial depths to whistand such slowdowns, and it appears that there is very little actual cash in the whole deal left to run the company through a stretch of bad times. This appears to be what we used to call a "smoke and mirrors" deal.
Zeev |
