Amidst all the excitement of recent weeks, only a few people have tried to put together some numbers with regard to Tava's prospects.
It seems a natural division to distinguish between Y2K revenues over the next few years (even if it is not clear how many years we are talking about) and the business that may follow after some new equilibrium has been established.
There are so many unknowns about potential revenues from Y2K, including of course the number of CDs sold, revenues from accessing the database and providing reports, the number of billable hours for the engineering staff, the hourly rates, and the issue of how much business might eventually be subcontracted. It seems so difficult to attach values to these numbers, but to many of us it seems very likely that Tava will have a substantial windfall from this business.
However, at least in some important ways this could be considered nonrecurring business. But what will follow? Many have made the point that this nonrecurring business may provide the access and track record that will lead to very profitable RECURRING business.
What are the possibilities? I want to make some guesses about what could develop for Tava and ask others to critique the following:
Along with others, I am suggesting that Tava's new-found business connections, their increased contacts with high level executives, their growing understanding and mapping of factory floors, and their developing capabilities with regard to systems integration will lead to a larger company that successfully employs a larger number of engineers at high rates for their billable hours. This does not take into account that the Y2K windfall may provide Tava with financial resources that could lead to unexpected business developments or at least to the possibility of further acquisitions.
Assumtions: 400 engineers (currently the numbers coming from Tava have been all over the place, but I am deliberately picking an optimistic number)
$150 per billable hour (a few years down the road)
1600 billable hours per engineer-year (based on the recent Tava estimate of 77% for billable hours)
54% gross profit margins (based on last conference call, though it was noted that this may increase)
400 X $150 X 1600 X 54% = $51,840,000
These assumptions may be too optimistic and do not take many things into account, including SGA, debt obligations (if they have any debt at that point), taxes, and possible further stock dilution, among others.
However, it does yield an annualized gross profit of about $2 per current share for that part of the business. What P/E would you assign to that?
As noted above, this is a request for comments and critiques. |
