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Technology Stocks : Safeguard Scientifics SFE
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To: michael r potter who wrote (1405)5/21/1998 2:33:00 PM
From: still learning  Read Replies (4) of 4467
 
Addressing the issue of SFE at a premium over NAV. Short term, we may be able to sustain it, but long term no way.

This is always going to be a pretty thinly traded stock, so it's hard to imagine 500k shares a day in volume because SFE is so closely held by insiders and there isn't that much float available.

The people who currently own it mainly hold the stock. So how will volume go up? A logical suggestion would be more shares outstanding.

Of course SFE could split, but one point that's never been discussed is the impact of limits (real or percieved) on the # of SFE shares outstanding.

Let's look at history: Since the last split about 18 months ago, SFE has said they'll have fewer IPOs, more shares per IPO, and that they want to get away from the old 1:10 offerings and stay with 1:5 ratios for rights. That said, it will be very difficult for SFE to split again any time in the near future unless they are able to come up with enough shares to go around for a 1:5 ratio.

Many current private portfolio companies simply don't have enough shares to do that. If the portfolio co. split, the IPO stock price might not justify a $5 rights offering. That means SFE will likely not split.

As a result NAV will drive the stock price higher. And if they are successful in NAV they may someday have a $100 or $200 share stock. What do they do about that? The rights offerings would no longer be worth $1 a share, more like a $.10 dividend.

How does SFE get around this long term? Do they become a berkshire Hathaway, priced in the thousands per share? Or what?
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