Not to burst anyone's bubble, but I think Munch was a little
aggressive on the back of the envelope. First, per Ira Monas,
their margins on business is 15-18% not 25%. Second, the IRS
and state taxing authorities require taxes to be paid on earnings.
This will generally run 40% of pre-tax income. Third, when you buy
a company you usually end up with some intangible assets that
must be amortized. Fourth, the settlement with the IRS will impact
EPS by $.025.
The final points I'd like to make relate to the financing division and
the Morton Downey show. I have trouble understanding the
concept of payroll financing. Most companies would use a line of
credit from their bank to fund working capital requirements. The
interest rate would typically be lower unless the company was a
major credit risk. Counting on $1.5 million in pre-tax income would
scare me. As for Morton Downey, one way for any company to
fail is to lose focus (more so with a small emerging company). There
is absolutely no synergy between these two. Something smells
fishy here!
Based on my back of the envelope, Core business with $1.8 million
in profit and Myriad at $2.7 million in profit, assuming $0.0 from
Finance division and Morton Downey,$1.0 million IRS settlement
payment and finally 40% tax rate ..... I'm left with EPS of $.0425.
A lot lower than the $.26 by Munch, but if you use a 30 multiple
a stock price of almost $1.30. Over 100% from today's level.
Now before everyone starts assuming (incorrectly) this is Little
Engine, it's not. I don't own any shares yet, but I am looking into
this a little further. I'm neither a short or a pump and dump, just
someone who works with numbers every day and sees things a little
differently than Munch.
Good luck to all. |
