Rick: here's one way to approach TAVA valuation that I worked out a few months ago:
TAVA worth $44/share: If we assume that TAVA will earn a pretax profit of $50,000,000 million over the coming two years, we can ask the question: How much must I invest in a 2-yr T-bill paying 4.5% to generate $50 million. The answer is $1.111 billion. If we divide $1.111 billion by 25 million TAVA shares, the value of TAVA is $44.44/share. Since it is 2 yrs., divide by 2 = TAVA at $22.22/share. So the market is telling us that there is a $17 risk factor in owning
TAVA, an absurd discount. The time value of money dictates that the gap between $5 and $22.22 must close as the profits pile up.
I heard that Mangan is priced at $1 millon in cash and stock, and generated about $10 million in sales last year. So TAVA is getting $10 in revenues for each $1 it spends, and Mangan is supposed to be accretive to earnings even with stock as part of the purchase price. If TAVA spends $50 million in cash over the next two years for acquisitions, then it should buy about $500 million in revenues. These will be in addition to the revenues from the core business. If TAVA brings 10% of $500 million in revenues to the pretax profits (and it should since it is paying cash), that's $50 million dollars on the acquired businesses, plus the profit from the core businesses. With that kind of profit, and a pristine balance sheet, TAVA should be worth north of $20 long term. |
