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 : Safeguard Scientifics SFE -- Ignore unavailable to you. Want to Upgrade?

To: ncs who wrote (1080)	2/7/1998 1:35:00 PM
From: John Arnopp	Read Replies (1) \| Respond to of 4467

Neil, $125! I'll look for it on Monday. Seriously, I don't think we're that far apart. I believe all the NM that SFE owns now is in the form of warrants, with an exercise price higher than the stock price, so they are not counted in NAV. Similarly, we have the same number for BDN, but I show that 241,560 of the "share equivalents" that Safeguard shows on their web page are warrants with an exercise price of $19.50, so that reduces NAV a little. Hey, if the NPV is $125, what's a few pennies here or there? I hope the general up tone of Safeguard's presentation at the Groundhog Day investment forum will bid well for the conference call on Feb. 17th. Thanks, --John

To: ncs who wrote (1080)	2/22/1998 3:00:00 PM
From: John Arnopp	Read Replies (3) \| Respond to of 4467

Neil, I've been trying to work the Safeguard valuation model from different angles, and I'd like your (others) opinion of this: In my estimation, Safeguard has two parts. 1, the publicly traded companies, which can be valued at NAV, like a mutual fund; and 2, the private portfolio, which is difficult to value. However, if we look at the private portfolio as a perpetual dividend stream, we can come up with a value. The "dividend" would be equal to one year's payout. Assume 3 offerings per year, with the same 1-for-5 ratio and $5 exercise (a formula Safeguard recently said they think works best). Next, assume the value of the offering is $5 (meaning the new company would trade at $10, subtracting out the exercise price). This is a fair approximate value, but you could substitute whatever value you wanted. Then, with 3 per year, you would have $15 dividend value for every 5 shares of SFE, or $3/share of dividend value. Then, you can use the stock valuation formula for a perpetual, constant dividend: Price = Dividend / r, where r is the required rate of return Again, you could pick any return you like, but I'll use 30%, since Safeguard is basically a VC firm, and they themselves strive for a 30% IRR. Given that, the price is $3/.3, or $10 per share. So, I would propose thinking of Safeguard as 2 components: The public portfolio, valued at NAV + the private portfolio, values at an additional $10 per share. (Your amount may vary, depending on your rate of return and what you feel the new companies will be trading at within 1 year of offering.) Other factors affecting the private portfolio would be the number of offerings per year and how well you feel Safeguard can continue to supply companies for rights offerings. This would give Safeguard a valuation of about $46 per share! I hope this is useful. --John