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Technology Stocks : komag -- Ignore unavailable to you. Want to Upgrade?

To: LTK007 who wrote (692)	7/11/1998 1:36:00 AM
From: E_K_S	Read Replies (3) \| Respond to of 848

Hi MAX - I have not bought in but have been evaluating KMAG from a value point of view. According to my research, book value for the company is around $11.85 per share. The company plans to increase the authorized treasury stock from 85 million shares to 150 million shares. This company needs cash and additional working capital. They plan to sell additional stock at (or around) "book value" to generate $350 million cash. The key to my analysis is to determine the true "Book Value" discounting older assets, inventory or other over valued assets on the books. Additionally, you need to adjust the final adjusted book value based on the new outstanding shares issued to arrive at a final per share valuation. There may be some company assets that may be over valued based on my observations including manufacturing facilities in Asia, older facilities and perhaps other fixed assets that are out of date and have not been depreciated using an accelerated schedule. From the most recent 10Q report: Current Capital Requirements "...Total capital expenditures for 1998 are currently planned at approximately $120 million. Three-quarters of the capital expenditure plan is targeted for process improvements, including costs to modify the Company's in-line equipment for the new epitaxial sputtering process, and productivity enhancements...." "...Current noncancellable capital commitments total approximately $68 million. The Company currently has $85 million available under its $345 million unsecured, multi-year bank lines of credit..." Therefore, It appears that $120 million to $188 million of this new capital is committed funds for targeted fixed asset improvements and the balance would be used to replenish their unsecured credit line and perhaps cover their expected future loss. If I assume that $120 million of the $350 million generated from the issuing of new stock is spent on upgrading their fixed assets, we can add this amount to the stated book value (from the March 1988 financials) of $627 million. Based on my back of the envelope calculations, the new book value after the equity financing would be around $750 million. To obtain $350 million in new capital, KMAG must issue another 47 million shares at a price of $7.50 per share. This price would be close to the overall "new book value" of $750 million with 100 million shares now outstanding (53 million current shares and 47 million new shares). According to KMAG's management, they would issue stock "...in equity and/or equity-linked private financing transactions at a price below book value but at or above the then current market price of the common stock. new shares...". IMO after this capital infusion the stock should be valued no more than $7.50 per share (my estimated book value AFTER the capital infusion). The earnings growth or loss looking forward is still dictated by the overall industry and specific demand for disk drives....that's another analysis that is much more difficult to forecast. Hope this point of view helps. EKS