I found this on the IH board today:
IMAX's Discount is too Big to be Ignored
By Nathan Slaughter
Co-Editor, Half-Priced Stocks
Source: StreetAuthority Investor Update, Volume 6, Issue #21, Oct 16, 2006
Shares of IMAX (Nasdaq: IMAX, $5.04 ) have been hammered in recent weeks after the company's pursuit of "strategic alternatives" failed to attract any generous buyout offers.
After receiving several unsolicited nibbles, the firm that has become synonymous with a larger-than-life movie-going experience decided to put itself on the auction block.
The move was not precipitated by deteriorating performance. In fact, just after the announcement, IMAX posted full-year earnings of $0.40 per share -- a strong +54% improvement over last year. Therefore, the decision led some to speculate that IMAX might fetch a whopping premium from an unknown interested party.
At the time, the shares were trading near the $10 mark, and some analysts were tossing around possible buyout figures of $12 or more.
However, when a sale failed to materialize, investors lost faith and dumped their shares. On August 10, in the span of a few hours, IMAX plummeted more than -40% to a low of $5.48. Since then, the shares have continued to drift even lower.
While it is easy to understand the frustration over not securing a bidder, one has to question the severity of the sell-off. If the company was worth $10 per share before a proposed sale, then it should be worth the same today. Last month, we pegged the firm's fair value at a very conservative $7.00 per share -- about 40% above the stock's current price.
While there have been nagging accounting questions, the company's underlying financial results have been more than solid. Second-quarter revenues announced in August jumped +34% to $41 million, while net income tripled to $3.5 million.
Much of the recent enthusiasm at IMAX belongs to two technological breakthroughs. The first is the firm's MPX technology, which allows multiplex owners a cost-effective way to retrofit traditional screens and convert them into IMAX theaters.
The second major innovation is the ability to convert regular films into IMAX format. A giant screen is nothing without a great movie, and a series of partnerships with major Hollywood studios to release blockbuster hits has helped the company shatter old box office records. For example, Superman Returns has grossed more than $30 million on just 128 IMAX screens.
Management may have balked at earlier offers that might look acceptable now. Even a buyout offer at just $6 per share -- half of what some were speculating in March -- would represent a +20% premium over the stock's current price. However, it's a safe bet that some potential suitors have been dissuaded by IMAX's leveraged balance sheet, which carries $130 million in debt (net of cash) on the books -- significantly upping the potential price tag.
Regardless, if the company can simply continue on its current track, then there's no reason to think it can't regain the ground it has lost over the past few months.
In any case, IMAX looks to be an intriguing, albeit volatile, possibility. Aggressive investors may look to pocket a few shares at this huge discount. |
