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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: John Curtis who wrote (3240)	7/1/1998 7:17:00 PM
From: FMK	Read Replies (3) \| Respond to of 27311

Did we find yet another topic to worry about? I am not worried about financing because I have thought for some time that dilutive effects would be minor. I believe a major shareholder has plenty in reserve if needed, but only if necessary to supplement debt financing which should be available from more than one source. If dilution should occur, I agree with an example posted earlier of $10 Million for $5 per share which would increase outstanding shares to 26 million from 24 million. Let's compare a recent (simplistic) earnings projection for two production lines, neglecting joint ventures and other forms of income. Laptop batteries sold at $75 each, 50% profit, conservative 80% yield assembly lines 1 & 2 at 2 shifts per day at less than 100% speed Line 1-------- 1.5 mln/yr x $75 x .50 x .8 = $45 mln/yr Line 2-------- 3.0 mln/yr x $75 x .50 x .8 = $90mln/yr -----------------subtotal--------------------- $135 mln/yr -----------------operating cost---------------($30.0 mln) -----Irish taxes-offset by rebate----------------($0 mln) other taxes offset by loss carried forward--($10 mln) -------------net profit------$95 mln/24mln sh = $3.95/sh if we divide instead by the diluted 26 million shares it comes out to $3.65 earnings per share. We may see earnings like this next summer. If so, a conservative PE of 20 would indicate a share price of $73, down from $79 before the 2 mln share dilution. The $73 share price does however, fall a little short of Don Wolanchuk's target of $80 to $100 but just give it a little more time! The company may start up a few more production lines and have some joint venture income by then! Another note on the financing- The company has many years of tax losses to carryforward so we shouldn't have to pay much tax until about $150 million in revenue. Also, after the first $4 million of product is shipped from NI, the Irish government will kick in the pro-rated $37 million or thereabouts which should cover considerable operating expense as production ramps up. IMHO the stock is a steal at today's prices.