JC...ONTR info....
found this on the RB board...
ONTRO's Market Capitalization
A rough estimate of the future market capitalization of ONTRO can be calculated using information that is readily available on the web. ONTRO's business model is based on collecting a royalty fee for each self-heating container that is sold. As a result, the future market capitalization of ONTRO can be estimated in terms of the number of self-heating containers that it expects to sell (NUMBER), the average price per container (PRICE), the royalty fee per container (ROYALTY), the after tax income (TAX), and the expected price earnings ratio (P/E):
ONTRO's Market Capitalization = NUMBER x PRICE x ROYALTY x TAX x P/E
First, let's provide estimates of ONTRO's market capitalization during the first year of sales and after three to five years of sales of self-heating containers.
Then we will discuss the assumptions and research that have been used to derive the estimates.
Consolidated Container Company estimates sales of 120M containers in the first year and 480M containers in 3 to 5 years (see Reference 2). I assume that the average price is $2.00 per container and the royalty fee is 5% of retail sales. If the after tax income is 60% and the P/E ratio is 40, then the market capitalizations of ONTRO in the first year and in 3 to 5 years are
ONTRO's Market Cap. (first year) = 120M x $2.00 x 0.05 x 0.60 x 40 = $288M
ONTRO's Market Cap. (3-5 years) = 480M x $2.00 x 0.05 x 0.60 x 40 = $1,152M
Based on ONTRO's current market capitalization of $10M, there is a significant potential for growth. After the first year, ONTRO's market capitalization is nearly 30 times its current value, and three to five years from now, ONTRO's market capitalization is potentially 110 times its current value.
Assumptions: The proceeding estimates of market capitalization do not account for sales of self-heating containers in either Europe or Asia. I have assumed that ONTRO's sales in these markets are more than adequate to cover the future operating expenses of ONTRO. ONTRO's current operating expenses average about $4M per year (see Reference 1). Future increases in operating expenses should be offset by future sales in Europe in Asia. I believe that this is a conservative approach because the future operating expenses of ONTRO are expected to be much less than its future earnings.
The number of containers sales (NUMBER) is based on a Business Wire that was dated December 1, 2000 (see Reference 2). In this Business Wire, Consolidated Container Company projected sales of 120 million containers in the first year and 480 million containers in three to five years. Based on this Business Wire, it appears that small market tests will commence in the third quarter of this year. In a later addendum to the Business Wire, James Bernstein, the executive vice-president of ONTRO, indicated that ONTRO's containers will be readily available in the fourth quarter of 2001. These numbers are consistent with an earlier BASES (Booz Allen Sales Estimating System) study that ONTRO provides on its web site (see Reference 3). The BASES study projected first-year sales of 190 million containers. It is worth noting that these sales projections are small compared to the current sales volume of 4 billion containers for Consolidated Container Company (see Reference 4).
The price per container (PRICE) is based on an interview of James Scudder, the president of ONTRO, that appeared in the Wall Street Transcript on September 18, 2000 (see Reference 5). In the interview, Mr. Scudder indicates a price range of "... $1.69 and $2.49 depending on the product and the brand cache." The price that I used in the preceding formulas of $2.00 per container is an average sales price.
The royalty fee (ROYALTY) is based on a royalty fee that is paid for tamper-evident packaging (see Reference 6). Carter Holt Harvey Limited (http://www.chh.com) charges a 5% royalty for its tamper-evident packaging. I believe that tamper-evident packaging is less complex and less innovative than ONTRO's self-heating container. As a result, the 5% royalty that I used in the preceding formulas is probably conservative. Other evidence that is available on the web indicates that ONTRO's royalty fee could approach 7.5%.
The P/E ratio (P/E) is based on the Starbuck's (see Reference 6). The market pays a premium for companies whose main source of income is based on royalty and licensing fees. The current P/E ratio of Starbuck's is about 75. I used a P/E ratio of 40, which is nearly half of Starbuck's. For comparison, the current P/E ratio of McDonalds is about 17.
REFERENCES:
1. sec.gov, ONTRO's 10QSB, 11/14/2000.
2. Business Wire, 12/1/2000. Copies of this Business Wire are available on the Yahoo and/or Raging Bull message boards. See messages.yahoo.com and/or ragingbull.lycos.com.
3. See the results of the BASES study at ontro.com under the company and marketing info and the marketing strategy sections. See ontro.com.
4. See the analysis of Consolidated Container Company at hoovers.com.
5. See the Wall Street Transcript Interview at ontro.com under the What's New and Awards/Press Coverage and Links to Published Articles Sections. See ontro.com.
6. See ipresearch.com, Royalty Rates for Technology, 2nd Edition, Intellectual Property Research Associates, 2000. Near the bottom of the web page, the royalty fee is provided for tamper-evident packaging.
7. See quicken.com and quicken.com. |
