Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : VerticalNet, Inc. [VERT] -- Ignore unavailable to you. Want to Upgrade?

To: Sarkie who wrote (914)	7/17/2000 8:45:11 AM
From: allen menglin chen	Read Replies (1) \| Respond to of 1094

VERT UPGRADE !! Makes Goldman Sachs Recommended List !! * * FULL ACTION in the A.M. - U.S. * * New York Investment Research (New York) - - Investment Research ===================== NOTE 7:33 AM July 17, 2000 ====================== 2. VerticalNet, Inc. (VERT) $51.13 Jamie Friedman 1 650 234-3341 EPS (FY Dec): 2000E US$-0.89, 2001E US$0.06 - Reccomended List * UPGRADING VERTICALNET TO RECOMMENDED LIST. Over the last 6 months VERT entered into a new line of business (electronic component trading), for which we believe the Street has yet to give them credit. This has created a hidden asset whose value we believe will surface over time. In addition, VERT's core business is ramping faster than expected. We toured VERT facilities recently and believe the storefront business (w/MSFT support) is ramping ahead of expectations. Simultaenously VERT is winning a seat at the table with both tech cos and consortia that should lift the stock. Due to the hidden value of the exchange, and the strength in the underlying business, we are raising our rating to RL, price target $75. * MAKING MARKETS WERE THERE WERE NO MARKETS. VERT'S GLOBAL ELECTRONICS EXCHANGE IS A HIDDEN ASSET. In the last 6 months, VerticalNet has acquired 3 electronic component and hardware exchanges, New England Chip Exchange (NECX, 12/16/99), Real World Electronics (RWE, 2/22/00), and American Integrated Circuit Exchange (AICE, 7/7/00). Proforma for the acquisitions, we estimate 40-50% of VerticalNet's revs in the next 12 months will come from its chip exchanges. Moreover, VerticalNet will now have $800M of the domestic chip spot market of $8B, or ~10%. Under one fold, these three companies (NECX, RWE and AICE) will earn a higher seat at the table, creating an increasingly powerful force in the tech marketplace. We believe this increased concentration warrants a reappraisal of the valuation of the VERT shares. * WHAT ARE THE COMPARABLE COMPANIES AMONG B2B EXCHANGES? As described above, VERT is emerging as a principal market maker in electronic components. We believe that this new electronics exchange business commands a premium to Vert's underlying business, which argues for a multiple expansion. There is no perfect comparable public company to this business, but we believe an appropriate universe includes Enron (covered by David Fleischer, principal market maker in oil and gas and bandwidth), Consumer Electronics (covered by David Abraham, is a German company who has a chip exchange similar to VerticalNet), Universal Access (which I also co-cover, is a market maker in bandwidth). While we recognize that none of these is a perfect comparable, we believe that the mix of companies can be illustrative when valuing VerticalNet's chip business.Performing a detailed analysis on the valuation of the Electronics Exchange as a standalone business suggests the Street is failing to recognize its full value. The multiple of 2000 and 2001 for the comparable exchange business includes 45 and 25 times for Enron, 101 and 37 times for Universal Access, and 35 and 20 times for Consumer Electronics. This yields an average of approximately 54 and 27 times 2000 and 2001, respectively. For a variety of reasons (discussed in the risks section), we believe that the VerticalNet Electronics Exchange should trade at a discount to these comparable companies. Even so, we think that the VerticalNet Electronics Exchange is worth between $1.5B and $2.5B. We also reconfirm this analysis of the Electronics Exchange business with a DCF analysis. Using conservative assumptions regarding growth rates (we condition for cyclicality), gross and operating margins (<11% and ~35% of gross revs, resp), and discount rates 11%, and a terminal year multiple of 20 times, we believe this business is worth a minimum of $1B. * SO WHAT ARE THE VERTICALNET SHARES WORTH? VerticalNet as a whole trades at 22 and 12 times 2000 and 2001 revenues, respectively. VerticalNet has three distinct lines of business; storefronts (with content-like characteristics), exchanges and e-commerce. To better evaluate the Vert shares we analyze the competitors in each area of business and their respective revenue multiples. For the content group we used CNET and ZDNet, which trade at roughly 9 and 6 times sales for 2000 and 2001. We believe that Vert's content business is worth a minimum of $1.4B. Important Disclosures (code definitions attached or available upon request) VERT : CF Copied from RB ragingbull.altavista.com