My 1999 Year end forecast: 70
I don't think any of us can estimate the earnings stream accurately. But I think its probable that they can do somewhere around $100M in quarterly revenues by the DecQ of 1999 (this should be easy from 3-4 lines plus some JV revenues). This is a $400M annualized run rate.
Taking a PSR of five times that leaves us with a $2.0B market cap, and still trade less that the average S&P stock PSR. Using 30M shares out, gives somewhere around 70 per share.
Looks good but there were some risks, although significantly less than a year ago:
The major risk for this stock was the ability to make the batteries. This risk is now essentially past.
The next largest risk was whether the battery specs were good enough to be competitive with other commercial batteries out there. Based on the published specs, and promises of even better versions in the pipeline, this risk has decreased significantly since the beginning of 1998.
The next largest risk was the market penetration rate. It took three years for Li-ion to take a 20-30% market share in the laptop arena. I expect a faster penetration for Li-poly. Given that the portable computer market is expected to grow over 25% yearly over the next five years, this translates into some big numbers down the road. I suspect much of the incremental production capacity added each year will be Li-poly. The entire portable computer battery segment will need incremental production of about 5M batteries this year, 6M batteries next year, and 8M the next. My guess is that Valence will take at least 50% of the incremental production. No shutdown of existing plants required, simply a curtailment in new Li-ion or NiMH plant construction for portable computer batteries. The fast growing market makes the penetration easier.
Similar reasoning holds for the cellphone market. Again this market is growing over 25% annually. This means new capacity of somewhere around 40-50M new cellphone batteries added this year, 50-60M next, and 60-70M the following year. I guestimate that Li-poly will comprise over half of the incremental production over this period.
Given all of this, my stock price targets are really pretty low. If the future works out the way I expect, I will lose this game... the stock will easily exceed my targets and someone else will win. This is a game I hope to lose.
Incidentally, the balance sheet and working capital risks are quite a bit smaller than these other risks. If they can make good specification batteries and penetrate the market, raising capital or borrowing money for working capital will not be a problem; especially with the NI grants available.
Paul |
