IDTC Quick Valuation Analysis
IDTC is a typical spinoff case which could make a good return for many investors who invested in IDTC today. Here is my quick revisit of IDTC valuation.
(1) Sales: $150 mil x 4 = $600 mil in 1999. A comparable company is Pacific Gateway Exchange (PGEX) which traded at 1.5xP/S and has an even higher P/E. Value for IDTC in 1999: Market cap = $900 mil.
(2) $1.8 million loss for IDTC internet access section + $1.9 mil loss for IDTC Net2Phone business (last Q numbers, this Q could be higher). After spinoff, this $3.7 mil loss is removed from IDTC balance sheet. With 36 mil shares, it translates to $0.10 earning per share improvement. A big help to IDTC's P/E. With P/E = 20, this value = $2.
(3) IDTC does not want to keep internet access business and it is a "bad" business to IDTC but its 200,000 subs has value to others. In the worst case, we assume IDTC ends up with only 166,000 subs when it finally sell these subs. With a cheap street price = $600 per sub account, the IDTC value here = $100 mil.
(4) Net2Phone. I conservatively believe that it worth 2x more than VocalTec because it is a Net2Phone (a 1-800 number business model)instead of Net2Net and IDTC is the first and the largest. It has the alliances have been set up very well over the last two years (no one else has done that). The IDTC value here: I would take a very low $200 mil.
Add the above $900 + $100 + $200 = $1,200 mil market cap value
Assume 40 mil shares (5 mil reserved for new initiatives) gives IDTC value in 1999 = $30 per share + $2 = $32 by the end of 1999.
The above is a very conservative valuation. So why the low price today and why registered 173,944 shares planned selling. Here is what I have found out:
(1) In IDTC's SEC filling Feb 8 1999. 73,944 shares are related to IDTC's acquisition of InterExchange, Inc. in 4/98, and 100,000 shares are related to its acquisition of an interest in Unioon Telecard Alliances, LLC. Insiders are not selling at present. There is misunderstanding here.
(2)Institutions are selling so that the price is low. The reason for institutions' selling is simple to Wall Street know-hows. Fund managers do not want to get involved in spinoff situation. This is a common practice on Wall Street because it relieves the institution from having to sell the stock of the unwanted spinoff (too small? too risky? etc...).They want a clean business and get paid by doing so. Sooner or later, they will buy IDTC again when it is cleaned up. This is why this period is historically the best opportunity for individual investors to find the cheap spinoff stocks and make great money in 6 - 24 months period.
(3) Finally, I would like to correct one wrong expection here on this board. Please expect that a typical spinoff completion process needs 6 - 9 months. Since IDTC intended to spin Net2Phone in 12/98, I would expect the spinoff completion sometime in 3Q 1999.
In IDTC's case, with Net2Phone's management team already in place, I see the risk that spinoff will not happpen is small. The insiders are committed to the spinoff, period.
In summary, IDTC is a >$32 stock by the end of 1999. The current price is a typical historical period for spinoff companys and this is exactly the best time for individual investors to step in and make great money. I am talking about investment here, just like I did for PSIX a year ago when it was <$10 and most said PSIX is bad investment and now is >$30.
When you understands IDTC, you will sleep well and let shorts and day traders doing whatever they want to do. TA may help sometime, but also wrong many many times in my experience. Comments always welcome.
Happy investing.
Charlie |
