Todd:
After lurking for the last six months I throught I'd begin to pay my dues here.
I'm in at $11 and am looking to ride this a bit further into the next year. Did
a simple analysis of the income statement to see what $100 million in revenues
would mean. Here is what I came up with.
First, I looked at the income statement going back in time to see how
stable the relationship between expenses and revenues has been. Here it is:
THQ 1995 Mar-96 Jun-96 Sep-96 Dec-96 Mar-97 Jun-97 Sep-97
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 58.6% 57.1% 60.3% 51.7% 61.1% 61.2% 53.0% 54.5%
Royalties 11.0% 18.2% 15.2% 18.4% 14.1% 13.0% 15.8% 14.6%
Selling,G&A 19.2% 20.9% 14.1% 17.9% 14.6% 16.5% 19.1% 18.1%
Other Expenses 8.9% 6.6% 5.6% 5.6% 4.7% 3.5% 4.3% 2.8%
Total Expenses 97.7% 102.8% 95.2% 93.6% 94.5% 94.1% 92.2% 90.0%
Operating Inc 2.3% -2.8% 4.8% 6.4% 5.5% 5.9% 7.8% 10.0%
Interest Inc -0.4% -1.1% -0.7% -0.5% -0.5% 0.3% 0.8% 1.2%
EBIT 1.9% -3.9% 4.1% 5.9% 5.0% 6.1% 8.6% 11.2%
Income Tax Prov 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.5% 2.5%
Net Income 1.8% -4.0% 4.1% 5.9% 5.0% 6.1% 8.1% 8.7%
The major components have remained pretty stable through time. Given that, I then used the
Sept-97 structure to project 1998 based on several revenue scenarios (I am making no predictions
as to which scenario is more likely but given THQ's conservatism in investor relations matters I
have to believe that at to publicly project $100 million for 1998 means they are VERY comfortable
with the figure.) Here are the various scenarios:
THQ Sep-97 % 1998 A 1998 B 1998 C 1998 D 1998 E
Net Sales $16,355,000 100% $90,000,000 $100,000,000 $110,000,000 $120,000,000 $130,000,000
Cost of Sales $8,906,000 54% $49,008,866 $54,454,295 $59,899,725 $65,345,154 $70,790,584
Royalties $2,389,000 15% $13,146,438 $14,607,154 $16,067,869 $17,528,585 $18,989,300
Selling, G&A $2,956,000 18% $16,266,585 $18,073,983 $19,881,382 $21,688,780 $23,496,179
Other Expenses $464,000 3% $2,553,348 $2,837,053 $3,120,758 $3,404,463 $3,688,169
Total Expenses $14,715,000 $80,975,237 $89,972,485 $98,969,734 $107,966,983 $116,964,231
OPerating Inc $1,640,000 $9,024,763 $10,027,515 $11,030,266 $12,033,017 $13,035,769
Interest Inc $198,000 1% $1,089,575 $1,210,639 $1,331,703 $1,452,767 $1,573,831
EBT $1,838,000 $10,114,338 $11,238,153 $12,361,969 $13,485,784 $14,609,600
Income Tax Prov $410,000 3% $2,256,191 $2,506,879 $2,757,566 $3,008,254 $3,258,942
Net Income $1,428,000 $7,858,147 $8,731,275 $9,604,402 $10,477,530 $11,350,657
NI per share $0.20 $1.09 $1.22 $1.34 $1.46 $1.58
# of Shares 7,184,000 7,184,000 7,184,000 7,184,000 7,184,000 7,184,000
P/E Ratio 25 25 25 25 25 25
Fair Value $19.88 $27.35 $30.38 $33.42 $36.46 $39.50
If you think P/E of 25 is reasonable then it looks like low $30s might be in the cards. Of course, there are a ton of assumptions underlying this very simple model. I am comforted,
however, by the fact that your estimate of $1.65 is not far from mine of $1.58 for $130 mm in sales. I am going to continue to update the model
and its assumptions (the tax issue, possible dilution form the exercise of options, etc.). I am also turning my attention to the cash flow statement and the
balance sheet to see what a sustainable rate of sales growth might be. Will post findings as I dig.
Regards,
Gene |
