I made the same comments here two weeks ago. Growth and profitability are the two key characteristics that will improve value for a company. However, growth and profitability will tie back to the economy of the country where the trasaction is planned to take place.
If you look at my risk to return analysis for PWAV,
mindspring.com
you will see that by acquiring PWAV at $15, you are betting that the company will have about 40% chance of growing its EPS by 30% annually for 1998. In other words, you are 100% sure that earnings will grow by at least 13%.
I estimate that, at the best case, earnings will grow at no more than half the projected rate of 25%, or 12.5% for 1998. I think that it is more likely to grow at around 8.3% after 1998 unless PWAv is able to develop new markets outside of Korea. Why? The Korea economy has been enjoying economic growth of around 7% until the recent collapse. Thailand, a little over a year ago, was growing at a similar rate. After the collapse of Thailand's economy, and the subsequent bail outs by the international communities, the economic growth of the country contracts and slowly recovers by -9.4% for 1998 (economic growth rate of -9.4%). Since Korea is substantially modern (developed) in comparison to Thailand (its GDP per capita for 1994 is 3.5 times Thailand's per capita GDP), I expect the overall contraction to be less for Korea. I calculated an economic growth for Korea in 1998 of 2.3%. Granted that some companies are more likely to less likely impact by the economic conditions, overall companies as total aggregates should expect an overall earnings decline of 67%. I wish I could locate an independent source to compare my revised economic growth. If you know of a good site for this type of thing, let me know .
Tuan |
