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Technology Stocks : TAVA Technologies (TAVA-NASDAQ)

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To: C.K. Houston who wrote (6423)	11/22/1997 2:27:00 PM
From: paul e thomas	Read Replies (2) of 31646

Cheryl- MY VALUATION OF TPRO I have a great deal of difficulty in using coneventional market valuation methods for TPRO because of the abnormal 2 year runup in earnings predicted on this thread . I believe the prudent methodology is to treat the 1998-1999 cash flow as an abnormal and value it only at the cash value. This would be equivalent to assuming TPRO uses the cash for a cash based aquisition and the market agrees the price paid was correct.I estimate TPRO will generate 300 million $ in front end assessment revenue with 85% margins and after tax earnings of 120 million $. I estimate an additional 400 Million $ over the 2 years will be realized from 50% gross margin services and other people intensive work. I esimate net earnings at 80 million $ for the 2 years on this business. Therefore the next 2 years will add a total of 200 million $ in cash.I am assuming that beyond the year 2000 TPRO will reduce their manpower and costs by 25% and will generate 150 million $ per year business when the y2k remediation work is completed. This is 4.5 times the level of business in the September quarter. I estimate a market value of the ongoing business at 2x annual sales . This is a reasonable multiple. Accordingly the ongoing business has a market value of 300 million $.Accordingly I predict TPRO will be worth 500 million $ on 1/1/2000. I realize this is a lot less than I have I have others predict. Fundamentally I don't believe the market will use a high multiple for 1998-1999 results as others have assumed.I welcome peoples comments as I am still resting with the issue of how much additional $ to invest in TPRO as I have the potential to atleast quadruple after the first of January my existing position. TPRO has the best upside potential of any stock I know.While I have burnt once badly by taking an aggressive position in a stock without a lot of history my 40 years of business experience makes me strongly believe in TPRO. The only issue for me is what fraction of my portfolio to invest. I currently have 82% of my money in IMRS and expect to ride it up for a while. inss

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