Shane, I do not think they will bid it up for long. Here is my take, the net book value on 32.5 MM shares is 198/32.5 or about $6/share. But, the book contains $52MM of "goodwill", so real book value is only $.5. Now that looks good right?. Yes, but they decided to present their data based on actual rather than fully diluted shares. If we assume conversion of the $100 MM shares at $2/sahres, we will have 82.5 MM shares and thus the true book value is $1.75/share.
As for future earnings, that is tough to phatom, it will depend on the economy and how many more delinquencies they experience. The rate of loan origination stayed constant in the US q over q, but grew in the UK. I'd like to assume that they have taken everything possible in the losses. Under these circumstances, we could assume that the next quarter (barring major increases in loan default due to a weakening economy) might reach some $10 to $15 MM, or on an annualized basis some $40 to $60 MM, which really does not look too bad. The major questions still outstanding are what additional losses they may incur in face of a bad economy (and by the way, if H-K gets into deep trouble, the UK will be affected at the margins).
Taking these factors into consideration, the current price is quite fair (no guarantees it will not go lower) and will be affected mostly by the general expectations in the economy. If you feel we are not going to experience a slow down in the next few quarters, CTYS might actually be a fair speculation, otherwise, you may want to wait for better prices.
Zeev |
