Painting a Vignette for profit
Software developers to join paper chase
By Thom Calandra, CBS.MarketWatch.com
Last Update: 11:33 AM ET Jan 7, 2003
SAN FRANCISCO (CBS.MW) -- From the low-hanging software patch:
Getting rational
Several software companies are raising their internal expectations for quarterly sales, among them Vignette (VIGN) and WebMethods (WEBM). The more optimistic outlook from executives could lead venture capitalists and private buyout firms to chase low-hanging fruit: software developers with battered shares. Look for deep-pocket venture funds ($1 billion or more of available cash to invest) to make offers on a range of onetime Internet high-fliers, especially after IBM said in December it would buy tool developer Rational Software for $2.1 billion, or more than three times yearly sales.
Vignette, a developer of Web-based applications for corporations, and Broadvision (BVSN), a portal software company, top the list of candidates for hungry venture vultures, investment banking sources tell me. Vignette shares on Nasdaq sell for a bit more than two times sales right now. But more than $300 million of the company's $375 million market worth is cash and cash-equivalents, like Treasury securities.
Starry-eyed from IBM's Rational Software chase, venture capitalists and investment bankers are looking for more big-name affirmations of the 3x revenue multiple for software takeover targets. "I really think the markets are inefficient right now," says financial author Tom Taulli, who penned "The Complete M&A Handbook" and operates MergerForum.com. "There is lots of money to be made on consolidation in software."
Getting randy
Shares of gold company Randgold Resources Ltd. (GOLD) are on a roll since the company won a full Nasdaq listing under the ticker symbol GOLD and was made a member of London's FTSE gold index in early December. Since Mark Bristow, a geologist and Randgold's chief executive, made the announcement at the San Francisco Gold Show in early December, tiny Randgold's shares have doubled to more than $30. That beats the performance of any midsized gold company in the past six weeks.
The company, which for years was listed just in London, "has an enormous amount of headroom to do a deal, and it will have a monster fourth quarter, more net profit than most of the majors," Tim Wood, gold writer with MineWeb.com, tells me.
Bob Bishop of Gold Mining Stock Report says South Africa's Randgold may make a run at a North American gold producer, namely Nevsun Resources (NSU), a Canadian company digging deep in western Mali, Africa. Nevsun's Toronto-listed shares are also on a tear, up 110 percent in the past three months. Bishop's Gold Mining Stock Report, one of the oldest industry newsletters, has been on target about Nevsun for well more than a year. Nevsun shares were the world's best-performing gold stock in 2002, according to MineWeb.com.
Getting even randier
One more actionable take on Randgold Resources: Randgold & Exploration (RANGY), another South African company whose shares trade on Nasdaq and the Johannesburg Stock Exchange (RNG), holds about 48 of Randgold Resources. Randgold & Exploration considers Randgold Resources its international mining subsidiary, with special interest in western Africa. At current prices, Randgold & Exploration's stake in Randgold Resources is worth $213 million yet the company's Nasdaq shares are worth just $137 million. And the South Africa-traded shares are even more undervalued.
The eighth annual Investing in African Mining Conference takes place Feb. 18 in Cape Town, South Africa.
No kiss of death in gold
Gold's price may be petering out this week, but one gold investor sees more fireworks real soon. James Turk of Freemarket Gold & Money Report tells me he is not worried about reports that a great majority of gold investors -- and the media -- are too bullish on bullion. That is a so-called sentiment indicator that often can be the kiss of death for a rallying security or commodity. Spot gold's price was down below $348 an ounce Tuesday morning in U.S. trading. "Bear markets can stay oversold for long periods of time," Turk tells me. "What's more important to me is the action of the market itself, which remains bullish. All it will take is another day or two for gold to work off its overbought condition. I expect that we will see more strength in gold by the end of the week."
XAU divided by grams = profits
Turk's indicator for the relative value of gold mining stocks also is pointing toward higher ground -- even as mining stocks have become stuck in the mud. Turk, who founded payment system GoldMoney.com, uses as a model the amount of gold grams it takes to buy shares in the XAU, the Philadelphia Gold & Silver Index (XAU). There are 31.1034 grams in a troy ounce of gold. If it takes 6 gold grams to buy the index, that's cheap in Turk's view of the world. 10 grams is expensive. On Tuesday morning, it took 6.9 gold grams to buy the XAU, which was at 77.38. Turk sees as a "reasonable target" the level of 128.60 for the XAU, which is 64 percent ahead of the current price. That's what the XAU should trade at when gold reaches $400 an ounce, Turk says. For more, see Freemarket Gold & Money Report.
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