S W, REVIEW of SFLK investment merits by a shareholder: what is it worth?
I own 9,800 shares of SFLK bought at an average of $3.00. As a result of the share price drop from a high of $8.00 to $3.60, I felt it was appropriate to spend some time over this weekend to re-appraise the Company and decide whether to sell or hold for future appreciation.
1) Background: Press Releases: sonk.com
The Company was doing quite well and so were its shares, until an unfortunate announcement was made 2nd February to the effect that a News release would come the following day containing an upward revision of anticipated revenue for 1999.
It is believed that certain parties wishing to short the stock reported the Company to the SEC which stopped the news release until it could complete an informal enquiry to ensure that the projections were reasonable.
As a result of negative publicity and what appeared as concerted negative postings on various Bulletin Boards, the stock went down below $4.00 before eventually stabilizing in a trading range between $3.50 and $5.00.
One of the most vocal critics of SFLK on SI Board, recently sent 150 pages of documents to a lawyer who posts on the thread, Eric Fader. On that basis, Eric could not find anything wrong with the Company and said so in two recent posts on the thread. In addition, SFLK appointed W. Huan as its new President and CEO and changed PR firm.
2) What is the current situation?
I called Gerard d'Amaro in charge of Investor's relations for SFLK to find out what was happening. Obviously, he is very limited in what he can disclose. He feels that the Company has done nothing wrong and that it will soon be cleared by the SEC on completion of its informal enquiry. The very fact that the ENQUIRY HAS NOT BECOME FORMAL and that the Company and its shares have been allowed to continue trading would seem to indicate that everything will end well indeed.
He also confirmed that the business is progressing according to plan. which seemed reflected in the various recent press releases regularly announcing new marketing agreements, such as those with Hi-Val and Cyber Acoustics. As a result, besides several distribution channels in the USA, the firms products are now aggressively marketed in South
America, Europe and Asia.
The reason, as I understand it, for the increased earnings projections, was the fact that, not only the Company profits from its E-Mail enhancing products, but it also now receives financial benefits from the licensing of its compression technology in multimedia applications (NIC Ltd of Japan being the first licensee).
3) Estimates of earnings and Company value:
This is obviously a "guesstimate", based on the Company's own projections on December 22nd and the fact that business is progressing according to plans. It does not take into account the potential increased earnings derived from the compression technology licensing.
Softlink Joins the Ranks of Netscape and Symantec in TDK Bundle
With $6 Billion in Sales, a Major Electronic Communications Player
SANTA CLARA, Calif., Dec. 22 /PRNewswire/ -- In the first of a series of bundling agreements presently being negotiated with major computer and peripheral manufacturers, Softlink Inc. (OTC Bulletin Board: SFLK) today announced that it had reached agreement with modem manufacturer TDK to bundle its revolutionary Voicelink software with the new TDK 56k modem. Softlink's revolutionary Voicelink software enables users to send voice messages in lieu of text-based e-mail. The bundling deal is focused on the Japanese market, where Voicelink is the fifth-largest selling software product in its class and is increasingly establishing a new standard for voice-based Internet communication.
TDK was the #1 modem manufacturer in Japan in 1997.
With $6 billion in sales, TDK is a major player in the electronic communications field. Its 56k modem sells for $230 MSRP and runs on Windows 95/98/NT/CE. Along with Softlink's e-mail Voicelink, the modem will include: Symantec's Anywhere, Netscape's Communicator 4.0 and Adobe's Acrobat Reader. Since Voicelink includes a built-in demo of Softlink's multi-media package, Powerlink, follow-up sale onto Powerlink is anticipated from the initial distribution of Voicelink. The initial forecasts for these sales suggest that over 5,000 units a month of the software-bundled modem will be sold.
Since all future TDK modems will include Softlink's Voicelink, the agreement reached today represents an important long-term affirmation of Softlink's voice-enabled Internet communications technology. It is also an important milestone in the evolution of Softlink from a development stage company to its growth stage. Softlink forecasts the following two years of sales at $11,925,000 and $27,400,000 with gross profit of 88% and after-tax profit of 30%.
For more information about Voicelink, Powerlink and the range of products and services that the company offers, visit the Softlink web site at sonk.com.
For further information, contact: International Buying Power Corporation, 561-482-0004 / Fax 561-488-2602. This material was prepared by International Buying Power Corporation ("IBP") for the company discussed herein, based upon information supplied by the client or other sources believed to be reliable. The company's actual results could differ materially from those described in the forward-looking statements discussed in this press release. This material is for information purposes and should not be construed as an offer or solicitation of an offer to buy or sell the securities. IBP, its affiliates, and/or its officers, directors and employees may from time to time have a position in these securities. IBP has received compensation for the preparation of its reports.
Forward revenue for 1999 (rounded): $12 Millions
Net earnings after tax: 30% x 12 millions = 3.6 Millions
Outstanding shares confirmed by d'Amaro: 10 Millions
Anticipated net EPS: 3.6 Mil. divided by 10 Mil. = 36 cents/share
What is a fair PE for this "Computer/Software type of business? I took the example of another small size software Company, Softworks Inc, and looked up the "earning growth" heading in the detailed research available on Yahoo:
biz.yahoo.com
This gives us an average PE of 50.3 for the "Computer/Software" sector, as a whole and 59.4 for Softworks. Thus, to get an idea of the value of SFLK, going forward in 1999, I multiplied the EPS by the rounded PE:
36 cents X 50 = $18.00/share
Obviously, this is a lot more than what the shares are now selling for. Even, if the PE ratio was reduced to, say 25, the share price would still be at $9.00, which is just one Dollar higher than its recent high.
4) Conclusion: I have to conclude according to the foregoing that SFLK shares are currently grossly undervalued. There no reason to believe its business has been affected by the current situation. It seems reasonable to expect that, as soon as the SEC concludes its informal enquiry and quarterly or yearly earnings are released, the price of the shares will return to their former glory. As a result, I intend to keep my shares and perhaps add to my position.
Disclaimer: this analysis (for which I was not compensated in any shape or form) was done for my own benefit and should not be used to invest in SFLK, as it only represents my own opinion and uses a number of assumptions that might be incorrect. Any investor should do his/her Due Diligence before investing in any type of security.
A few FAQ's about SFLK:
biz.yahoo.com
Gerard d'Amaro: 561-367 0363 + + E-Mail: gerardamaro@hotmail.com
Regards, F. Goelo + + +
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