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Technology Stocks : Creative Labs (CREAF) -- Ignore unavailable to you. Want to Upgrade?

To: Fred Fahmy who wrote (13396)	1/26/1999 4:18:00 AM
From: Ben Beale	Read Replies (1) \| Respond to of 13925

Fred, Nice work crunching the numbers for Q2 (http://post.messages.yahoo.com/bbs?action=m&board=yahoo.55.10.4687121&topicid=0m2&msgid=78jfe3$9g4$1@m2.yahoo.com) $.70 together with resumption of share repurchase would be a nice 1-2 punch. I'm no where near as facile as you with numbers and am trying to figure out what CREAF is worth by another measure than PE. I've arrived at around $12/share in liquid assets (cash, receivables, real estate and securities); $14/shr if I value the entire product line at 1X last years earnings. I'm starting to see why Dennis G. gets frustrated at this company (ggg). At the end of last FY, CREAF had $800 mil. in cash and cash equivalents on hand and 89.9 mil. (call it 90) shares outstanding. If CREAF bought back all the shares authorized by last year's EGM, the cash horde would have been reduced by $128 mil. (at $15/shr), but I think time did not permit that. We'll hear more on Friday, or on the cc, about the execution on the buy-back, but my SWAG is $60 mil. expended for 4 mil. shares (half the authorized number). That would leave 92 mil. shares outstanding and leave $672 mil. in the till, less $150 mil. for accounts payable, taxes and misc. liabilities = $522 mil. (the annual report says no new debentures were issued during FY 98 and I doubt any were issued during Q1/Q2 '99). Net profits for FY 97 and 98 were roughly equal at $240 mil./yr. and let's say the first half of '99 was a little better and that it had a (conservative) retained profit of $130 mil. for the six months ended in December: $522 mil. + $130 mil. = $652 mil. cash on hand. This doesn't include value of inventories, plant and equipment, goodwill, etc. Assuming there are 86 mil. shares left after the buy-back, that works out to $7.58/shr in cash on hand, less $.50/shr for the dividend. Creative carries its 100% interests in Data Stream Corp, Cubic Computer Services, CTI, CTE, Creative Integration Ltd, Ectiva, Avidtek, Creative Realty, E-mu, Ensoniq, Share Vision, Silicon Engineering, Digicom Systems, etc, and its minority interests in other companies, both quoted and non-quoted, at cost: $365 mil. Together with the cash, they total a value of $1.02 bil. That's $12/shr. if I count the 'going concern' value of SB-Live!, Cambridge Sound Works, 3D Blaster Banshee, Voodoo2, RIVA TNT, and the DVD line at $0. If I recall correctly, it was a similar combination of 1/2 billion dollars in cash, plus a viable hardware channel, that made DEC so attractive to CPQ... If CREAF is still in the mid-$14 range after Friday's earnings announcement, management should have its head examined. What's the point in beating your head against the wall for $2/share in value on $2.60/share in earnings? Sim should be having serious merger/joint venture talks with some of the all-price, no-earnings net IPO's. Or, what about an on-line "alliance" with retailers like BKS (Barnes & Noble) Borders (BGP) or Musicland (MLG)? They always need cash. Gotta be a way, in addition to the share repurchase, to get more than a $2/share premium on $1 bil. in hard assets.... r/s Ben