To all - Some thoughts to help refocus on the value of our investments.
As I have understood for some time, it wasn't necessary for the company to do anything about financing until they needed it. We know from reading the 10k that a large shareholder has $20 million available if the company elects not to finance via other means.
I contend that a reasonable person should find it highly unlikely that Valence would have placed three additional assembly lines on order for September/October delivery if they had any idea they wouldn't be able to pay for them.
In fact, I find it almost impossible to believe that a company starting high-volume production of rechargeable batteries that hold 20-80% more energy than currently used in millions of portable devices, and has been selling volumes of samples that exceed customer specs to at least 12 potential customers, should have any problem borrowing money.
Enough about financing?
My own calculations indicate that the first and slowest assembly line, now in operation in NI, should easily be able to earn a profit all by itself by turning out the company's stated design capacity of 2.4 million laptop batteries per year that their customers will likely pay about $75 each for. (2.4 x 75 = $180 million in revenue).
If they sold them at a low price of $50 and made only 1.8 million the first year, revenue should total $90 million. A low 40% profit should then contribute $36 million toward a "burn rate" of $5 million/quarter before even taking into consideration the approximately $37 million rebate that should begin flowing from the Irish Government.
For anyone really concerned, I invite them to do their own computations from their own notes on just line1's earning power alone. My notes indicate that at design capacity, the company expects that assembly line1 can produce about 1.2 million laptop batt/yr with one 8-hour shift per day. From the 10k, stockholders equity dropped about $13 million last year, roughly indicating a burn rate of just over $4 mln per quarter.
Please work the numbers and you should feel much better. You may even get rather excited about your investments! I recommend you go back and check your own notes and make your own assumptions.
Remember that the joint-venture partners worked similar numbers before putting up 100% of the capital for the ventures and agreed to split profits 50/50 with Valence.
At half Valence's expected % profit, they still considered it a worthwhile investment. This implies that as Valence shareholders, we should be entitled to twice the joint-venture partner's expected rate of return on batteries Valence produces independently of the joint ventures.
Remember also that when you finished these computations, the numbers represent revenue for only the first and slowest of the assembly lines in Northern Ireland. Other lines are expected to turn out higher volumes but products such as cellphone batteries will be less profitable.
Have a good weekend! |
