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Strategies & Market Trends : Roger's 1997 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Pancho Villa who wrote (9064)	12/29/1997 11:36:00 PM
From: Roger A. Babb	Read Replies (1) \| Respond to of 9285

Pancho, BFIT and WDRY are being considered for 1998 shorts.

To: Pancho Villa who wrote (9064)	12/30/1997 1:15:00 AM
From: CalculatedRisk	Read Replies (2) \| Respond to of 9285

Pancho, RE: WDRY. First a review: They just completed a secondary offering (12/19) of 4.6M shares (if the over-allotment is exercised) at a price of 19.75/share. This gives an enterprise value of about $640M (12.2M shares X 23 1/2 AND $400M in debt MINUS $50M excess cash). Of course, this seems outrageous for a laundry company with sales of $300M! Looking at FCF (excluding interest), they do seem to have a nice reliable cash stream. Their cash is negative (definitely ignore earnings for this type of company - cash is king) when you include $29.5M in new equipment and interest. I assume they have to upgrade their washers & dryers on a regular basis - so these capital expenditures will continue. But they may not have to continue to pay 11.75% interest on their debt. There are two call features for the subordinated debt: the first in '98 (at a premium) and the second in '00. If they can lower their interest payments, they may have a nice positive free cash flow. So my reaction is: WDRY is NOT a screaming short. If you do short, I recommend waiting until after the "green shoe" is exercised (usually a 90 day period - so by Mar 19, 1998). In the interim, the underwriter can use the green shoe to support the price above 19.75. Best Regards, Bill