Repost
Subject: ACRT about to move to new highs
| Previous | Next | Respond | Show Navigation
You have 2 unread messages
To: "Z man" (1218 )
From: John Chew
Monday, Jan 26 1998 7:57AM EST
Reply # of 3882
ACRT Expansion plans as of May 1997. This is stale news, but there could be better
insight. Do you own thinking.
Management has a three-phase expansion plan.
Domestic TAD Program
Phase 1: The most significant portion of the proceeds of this private placement will go
towards expansion of the TAD Program for the U.S. market. Currently, the largest
portion of Actrade's client base is mid-sized companies ($10-$50 million revenues)
which use the TAD for a marketing tool by offering extended terms to their slow
paying customers or customers who want extended terms. Also, Actrade is providing
additional financing to asset based lenders. This customer base is sophisticated in
financing techniques and has a large client network. Actrade's TAD Program helps
asset based lenders prevent charge backs to their clients while not encumbering their
UCC filings or other liens on assets. Management believes this new customer segment
may result in a significant increase in business. Actrade will increase its marketing
efforts to this market as well as purchasing TADs with its own capital.
Over the past few months, management has discovered that the TAD Program is being
used by some of the largest companies in America to manage their slow-paying and
delinquent accounts. This has opened an entirely new market for the TAD Program in
the U.S. and management will aggressively pursue this market segment by educating
these large companies as to the various ways TADs can lower their current collection
costs and reduce delinquent customer accounts. Management believes that one factor
which makes the TAD Program appealing to large companies is that TADs can be
used with other forms of financing and only for those accounts which have been slow
paying, but dependable customers.
The proceeds from this offering will increase the net worth by 100% from
approximately $9 million to $18 million. Management believes a stronger, larger
balance sheet will provide more comfort to larger companies. One common question
from these potential customers is, "Do you have enough financial capacity to handle our
business (purchase TADs and return our reserve)? Actrade response has been that it
can post its customers' TADs as collateral and extend its credit line. Actrade's
management and sales executives believe that a larger balance sheet would strengthen
its marketing efforts to larger clients.
Actrade has two credit lines with Summit Bank of NJ (Actrade has not yet used this
credit line) and Banco de Portuguese in NY totaling approximately $6 million and $9
million in equity. Deducting $3 million for international trade capital, Actrade has about
$10 to $12 million in capital to directly finance its TAD business. Since Actrade
advances to the Seller of TADs 75% of the face value, and is turning over its capital
every 72 days (5 turns per year), Actrade could purchase ((12 million/0.75) x 5) =
$80 million in TADs annually not including any additional accruing capital throughout
the year. Therefore, Actrade has enough capital to handle a doubling of this year's
TAD revenues without the $10 million Private Placement. However, management
wants to be prepared in case its TAD Program and Actrade, S.A. business increase
faster than expected. As an investor, the risk I see is if Actrade is unable to employ its
added capital.
For example, if Actrade could fully utilize $10 million in its TAD Program, then $67
million in TADs could be purchased which would give a gross profit of $4,355,000
with a 6.5% gross margin. Then deduct 10% for sales commissions, which gives us
$3,919,500, and then deduct $1 million for fixed costs, leaving $2,919,500. A tax rate
of 40% would leave $1,751,700 in net income. Then divide by the weighted average
fully diluted shares of 7.4 million to produce an estimated $0.24 per share in extra
earnings. Though possible, as an investor I would not count on Actrade being able to
employ the full use of proceeds in the TAD Program within twelve months. But
Actrade's business has the potential to dramatically increase, particularly in the large
company market. One reason for raising money now is that management can be
prepared. However, management believes it can earn at least 10% on $10 million
through pending and probable business with Actrade, S.A. A 10% gross profit on $10
million produces $ 1 million pre-tax. Then, to be conservative, use a tax rate of 40%,
(though Actrade's tax rate has averaged under 20% for the past four years) giving net
income of $600,000. EPS would be $600,000 divided by 7.4 million fully diluted
outstanding shares or $0.08.
I believe $0.08 to $0.13 in additional earnings to my March 5, 1997 EPS estimate of
$0.42 EPS is realistic. I do not assume any additional sales growth in the domestic or
import TAD Program.
Expansion into International Markets
Management has developed a new marketing program to expand the TAD Program to
the import/export market and ultimately, to the international market.
Phase 2: The second expansion phase, which has already begun, consists of marketing
the TAD Program to foreign sellers of products to the American market. By adapting
the TAD Program to this market segment, an American importer of foreign products
can, with the cooperation of its foreign suppliers, have access to trade financing not
typically available in the import market today. Actrade's management believes this is
the logical first step in expanding the TAD Program internationally.
The Import TAD will provide an important fourth alternative to the current three
available methods for financing foreign trade. At present, there is Letter of Credit
(L/C), Cash against Documents (CAD) and Open Account financing methods.
Actrade will fill the niche between CAD and Open Account. The Seller can receive
payment from Actrade when the Seller (exporter) sells Actrade a TAD from a Buyer
(importer) instead of waiting for payment on the due date, while the Buyer can have
terms extending beyond a typical due date. The Buyer receives extended terms while
the Seller has more security and gets paid faster. Management believes the market
potential is in the $ billions, but it is too early to predict potential sales growth.
For example, Actrade completed a $400,000 import TAD transaction this May from a
Belgium exporter to a large U.S company. Management believes the typical import
transaction will be much larger than domestic transactions. Also, the foreign market is
already familiar with the use of bills of exchange so Actrade will not have to invest as
many resources educating this market as it must in the U.S. market. Through Actrade
International and Actrade, S.A., management believes it will have a large customer
base.
Phase 3: The third phase will involve the export market. This strategy will allow
American companies to offer trade-financing terms to their foreign buyers, which will
help the U.S. suppliers' position in the export market.
In the export market, however, the primary difference from Actrade's perspective will
be that the TADs which Actrade will purchase will be issued by foreign companies and
be drawn on foreign banks. To mitigate the potential risk involved, Actrade has
developed a policy that will, in most cases, require transactions financed by the use of
TADs to be:
1. Insurable in a manner similar to that currently used by Actrade in the U.S.
2. Be subject to the laws of a jurisdiction which recognizes the concept of a holder in
due course. Further, where possible, Actrade will seek to have TADs denominated in
US dollars.
3. Actrade intends to have the parties to the transaction contractually waive their right
to commercial dispute in an action by Actrade so Actrade would be further protected
against loss.
4. Additionally, if the foregoing safeguards prove insufficient to fully protect Actrade
against loss, Actrade would have recourse to the U.S. exporter.
Actrade's management would probably devote $200,000-$300,000 to further
developing the Export TAD Program. Mr. Amos Aharoni has already tested this
market, but Actrade would need several months to develop the proper banking
relationships and personnel to properly begin this program.
The final phase of Actrade's expansion program is expansion into the international
market by introducing the TAD Program to companies without any tie to the U.S. This
phase would not begin until the successful implementation of phases 1, 2 & 3.
As an investor, I would view Actrade' international expansion program as a low-cost
option. Approximately, $500,000 to $600,000 of the $10 million private placement
would be used for this development. Of course, these markets are large and the
potential great, but I would assume NO additional sales or revenues for next year.
Actrade would have no competitive advantage in the international markets other than
its ability to develop customers. Actrade would be offering an instrument (TADs)
similar to negotiable bills of exchange. Bills of exchange are a collection item like a
promissory note, but the TAD goes through the electronic banking system-processed
like a check. Not every country would be able to process TADs electronically.
Actrade might develop a separate division to develop and administer the
export/international TAD Program. Having an offshore subsidiary would lessen the tax
implications of this potential business.
| Previous | Next | Respond |
View SubjectMarks
Bookmark this Subject
Quotes - Chart - News - Discussion - Return to Five Dollars and Under
ACTRADE INTL LTD (NASDAQ: ACRT)
Time: 3:58PM
Last Trade
13 00
Change
- 3/8 (-2.80%)
Bid
12 15/16
Ask
13 00
Volume
0257,2000
Prev.Close
13 3/8
Open
13 3/8
Day Range
12 3/4 - 13 3/8
Last Tick
0Up0
Avg.Volume
0402,0000
One or more words separated by spaces:
Subject Titles Only
Full-Text
Messages with Links
Send questions and feedback to webmistress@techstocks.com
Terms of Use |
