I was EMed this by an avid lurker and investor...
I am a lurker at the SI FAMH thread with no access to posting. If after
reading the following, you feel it is worthy of posting, I would appreciate
it. I think that the thread often produces some good DD, but they've lost
focus in the past two days. This info on the Myriad Acquisition may help to
refocus discussion.
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I have been lurking on this thread since Thanksgiving. I am also a
shareholder who is concerned that many FAMH investors will dump their shares
when they realize that Myriad is not the "Goliath" they have been led to
believe. While I still believe that FAMH has great potential, Ira's
Achilles heel is his use of hyperbole. IMO inflated claims cheapen the company.
At first the plausibility of FAMH acquiring a $60MM company concerned me,
for as some on the thread have pointed out, I would now own a company I knew
very little about and had not originally planned to invest in. However, it
was Carol McIntosh's posts that woke me out of my slumber and got me doing
some pertinent DD.
The plausibility of this acqusition now makes sense to me. There is a huge
difference between Temporary Staffing (FAMH) and Employment Leasing
(Myraid). The margins in the employment leasing business are razor thin,
i.e. under 1%.
The following are examples:
Nova Care (NCES)Profit Margin= .1%
Staff Leasing (STFF)Profit Margin= .7%
Administaff (ASF) Profit Margin= .5%
Staff Leasing in the past nine months had revenues of 1.3Billion but
earnings of only 13.9MM; Administaff in the past nine months had revenues of
839MM but earnings of 3.9MM; and NovaCare in the past three months had
revenues of 267MM and earnings of 937,000.
Applying these margins to a $60MM company we get earnings of between $60,000
to $420,000. In other words, Ira could buy this company for cash if he were
so inclined. At five times earnings, Myriad would cost between $300
thousand and 2MM. If you were worried about FAMH assuming a lot of debt to
purchase Myriad, I think you can relax.
But don't get me wrong, just because Myriad isn't a Goliath doesn't make
this bad news. I am still long on FAMH. Consider that Zach's rates all three
of the above companies as "Strong Buys." They are in a young industry
experiencing explosive growth and in my book, I pay more attention to Return
on Equity than I do to profit margin anyway. Nova Care ROE=68%, Administaff
ROE=15%, and Staff Leasing is listed as N/A (I suppose because they are a
fairly new company and only recently turned profitable).
Please be advised that I am not an expert in this field, and my logic may be
seriously flawed. Please do your own DD.
By the way, where did the figure on 22 branch offices come from. They are
not mentioned in the press release, and I can't imagine Ira passing up a
chance to mention something like that? As Carol has pointed out, Long Beach
alone already accounts for $60MM.
Also, if I make any money on FAMH, then I'll pay up and post in the normal
fashion. Promise.
Jamie Orr |
