Bob,
You are very pissed at the private placement. Like you, I didn't like the placement when the company announced it, but after speaking to management these past couple of weeks, I do see some reasoning behind the move. Besides, what's done is done, and what's important is where we're going from here. If you're that pissed, and think it's a dead stock, you should dump your shares and go somewhere else, where you think money can be made. I think this is as far from being dead as east is from west.
Why did they do the placement ? They were afraid, that after the pre-announcement, when the stock dropped (to its current level), a major DSP player would take advantage of the situation, offer DSPG
$20 per share, and be able to take the company. Management believes the company is worth a lot more than that (so do I, and I'm quite sure you'll be convinced within 6-9 months, as the proof comes with
the pudding), and wanted to make sure it had a major shareholder with a longer term perspective.
So they sold Magnum 2.3 million shares at $15 (a bit above market price), and gave them a green light to increase their position to 35% (as of today, that leaves them about 1 million shares they can buy).
They know Magnum won't agree to sell for $20, so they have a safety net.
As for doing a buy-back right after the placement. It makes sense, as management claims that raising more cash wasn't the main reason for the placement.
Another thing they could do, to increase shareholder value and to regain shareholder confidence (a move that will please all shareholders), is relating their stake in Audio Codes.
DSPG currently holds a 30% stake of Audio Codes (a small, but fast growing, Israeli company, developing IC's for Internet Telephony products, the Voice over IP industry).
There are a lot of talks of an upcoming IPO, with a hefty valuation ($200 - $300 million won't surprise me). If such an IPO takes place soon, DSPG should announce it will give its shares as a dividend
(MALL did the same thing with its stake in UBID).
DSPG has $100 million in cash, and the 30% stake in Audio Codes, which could be worth quite a lot of money. At current levels, one gets all the rest of the company almost for free.
Bob, you said that based on EPS of .13 .27 .39 and .50 (my numbers are a few cents lower, btw) DSPG won't be able to support a $40 stock price, because it would mean a PE of 31. That's why the stock isn't $40 right now. However, I'm talking about 12 months down the road (late '99 or early 2000). Today, everyone is talking about '99 earnings, but by the latter part of the year people will look at what's ahead for 2000.
In your own post, you assumed DSPG will make $0.50 in Q4 (again, my estimate is a bit lower), with huge growth rates from Q3 and Q2. At such a pace, DSPG will easily make more than $2.00 in 2000. A very conservative PE of 20, would mean a stock higher than $40. That's what I'm looking for 12 months from now (not tomorrow morning, but not so far away). Things could still go wrong, but the risk/reward situation is great. How many stocks can more than double within a year, and still trade at under 20 times 2000 earnings - not too many.
I think the street will give them an even higher PE, because by Q4, the company will be posting very high growth rates and it would be in very "hot" industry segments, and not the good old TAD market.
You think that when Magnum gets out, the stock will hurt. This could probably happen 2 years down the road, but I don't think they're thinking about the kind of exit you're talking about (i.e. sell on the open market). I won't be surprised if 12 - 18 months from now, DSPG would be taken over, but the price would be far from where we're trading today (possible bidders, a year from now, are competitors and other DSP players, like LU, ROK and TXN).
You're entitled to be pissed about the board's latest moves. However, it would be dumb to sit around and cry about what had happened. Instead, you should open your eyes, and decide what's the best move to do right now, and how can money be made. If you think DSPG won't work, there are plenty of other stocks out there, but I think that if you look closely, you'll realize DSPG is still a great place to park your money for a year or so.
Omer |
