Looks like without their main asset that they are selling off, the rest of the business does not really have any value and is just a cash drain....
That's certainly how the market appears to be valuing the rest of the business as "no value". Post deal with approximately $.19 per share, the fact that the SP is below this cash value suggests investors don't think the deal will go through, And at the Same Time think that the company will still sell GFI and lose their main income producing asset.
This next quarter probably be similar and they will lose another 1 million dollars from continuing operations and pretty much burn all the cash they have....
If the deal doesn't go through until January 4, then Q4 is still going to have revenue from GFI, therefore the company won't lose "another 1 million dollars". The purchase agreement says GFI has to continue as usual. Post deal, 1.5 million annually will come to the company which cuts down the annualized loss of continuing operations from 2,877,682 (4/3 * 9 months loss) down to 1,377,682.
Whether EUO is a buy or not I think can simply be summed up as an answer to this question: will SICPA, global leader in anti-counterfeiting and revenue recovery for governments, be able to sell this new technology to any of their more than 100 national customers? A technology that is proven to return multiples of its cost in lost tax revenue?
If you think yes, then even though "continuing operations" will run at a loss of ~1.3MM, you know that for every contract that signed, the revenue for continuing operations increases with the purchase of Xenemetrix X RF detectors. Also, with the 5% extra royalty, you can calculate that SICPA needs to earn 27,553,000 from new contracts in order for EUO to recover that last 1.3MM for "continuing operations" to be breakeven. This is pretty much exactly the size of the Philippines contract that is advertised right now. 1 contract.
If you think no, then that's fine and you would reasonably conclude that this is not a good deal for EUO, and that the company is not a buy. |
