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

To: FMK who wrote (3243)	7/2/1998 4:04:00 AM
From: kolo55	Read Replies (1) \| Respond to of 27311

I threw everything I could at the revenue flow. Thanks for the quick response. Let me respond to a few of the points: 1-The NI tax is based on 8% of the cost to produce multiplied times a general tax rate of 33%. This amounts to about 2.6666% of the cost to produce so it is nil. Your overall tax estimate is therefore quite high. Wow, didn't realize the tax was that low. Are you sure that's all the significant tax Valence pays, a VAT (value-added tax), and no income taxes or other taxes? Using 8%x33% of total cost to produce for my forecast numbers, I get about $4M per year in taxes. 2-I also believe you are light on the laptop market size for Valence - they should be able to sell 4.5 million the first year, especially if you count spare batteries and add the replacement market for LiIon. I don't believe the replacement market will be all that big by the end of the first year, so I stand by my forecast (until we can get better estimates). Your estimate is over 20% of the total laptop battery market for new and spare batteries. Remember I'm trying to err on the side of conservatism, and anyway, my forecast hits your estimate six months later. In the long haul, not much different considering where the stock trades today. 3-The cost of financing shouldn't amount to much more than interest because an offering is not in the picture as I see it. They should need to raise capital to pay for more assembly lines they are putting on order, but this will likely be 90% debt financing and perhaps 10% convertible options that would not be exercised at today's price. I believe it would be perhaps $12 or $18 several months in the future so raising $10-$20 million this way would not have much dilutive effect. The gist is, financing is not a problem, just obtaining it at the least cost. I agree, obtaining it shouldn't be a problem if they can produce. I thought in the conference call Lev mentioned preferred shares that involved some dilution, so I assumed convertible preferred. To be truly conservative we should use current interest rate and a conversion rate not too much above the current stock price. That's what I did. I agree that the financing could end up costing less. 4-You mentioned $15 million per year additional operating costs but you didn't take the $37 million from the Irish government into consideration. Since I'm estimating continuing earnings that I planned on applying a PE multiple to, it is appropriate to charge for interest, depreciation, and start-up expenses, and that's what I did. It would not be appropriate to add non-recurring income such as the NI gov payments. However, this $37M will come in mighty handy to pay for expansion efforts, and avoid a lot of potential dilution down the road. Also, since I believe we can forecast the revenue cases better than earnings, I tried to check my stock valuation using PSR and based on revenues. 5- Neither of us considered Joint Venture income. I agree, this is significant. On my previous posts, I said I considered the Hanil JV as worth at least $50M and could be worth as much as $100M. Otherwise, why would Hanil pay $50M in hard cash just to earn 50% interest in the JV? Answer: Only if the JV was worth a lot more than that! 6-Neither of us considered production beyond the first two assembly lines. Another big hole in my estimates! If the initial market for laptop batteries is only 3M per year, this leaves Valence with a lot of capacity to produce other kind of batteries, such as videocam or cellphone batteries. I don't have as good numbers on these markets, except that Ultralife's secondary mentioned 80M cellphones per year. And I understand the pricing is much tougher here, with a much smaller margin for Valence. Still these products should add appreciably to the bottom line, if they fill out their plant with these products, as they penetrate the laptop market. 7-If you adjust your calculations for the above, perhaps you will come back with $2.80 per share earnings and a $50 share price! This could happen. The company would have a market cap of $1.5B and this isn't outa sight if they are producing revenues at a $225M-300M run rate and showing the kind of profits we've been estimating. But there will be competition and eventually pricing pressure, so I'm not counting on this. 8-Remember Don W was thought to be more than a tad optimistic when the dow was 3000 and he predicted 9000! I don't find Don W particularly credible. I'd much rather do my own research and form my own conclusions. Paul