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Non-Tech : Delias (DLIA) -- Ignore unavailable to you. Want to Upgrade?

To: Lane Hall-Witt who wrote (204)	4/3/1999 9:53:00 AM
From: Lane Hall-Witt	Read Replies (1) \| Respond to of 367

I agree with those who say that it's absurd to try to "value" these IPO back-door plays. But I was curious about TURF/DLIA and so ran some numbers. Basic background figures are: DLIA market cap is a shade under $408.3 million ($28.875 share price, 14,138,790 shares outstanding). DLIA will own 77.2 percent of TURF after the IPO. TURF is selling 3.7 million shares and will have 16.2 million shares outstanding after the IPO (3.7 million Class A sold to public, 12.5 million Class B retained by DLIA; Class A and Class B shares hold equal equity, but different voting rights). Here are four valuation scenarios: (1) "Worst case": let's say that DLIA's non-TURF business is valued at zero -- i.e., all of DLIA's market cap is given over to the valuation of TURF. Then we have TURF's projected market cap as $528.9 million, or a TURF share price of $32.65. TURF Cap = $408.3 million / 0.772 = $528.9 million (2) Let's assign a P/E of 20 to DLIA's trailing earnings. FY99 EPS was $0.40, of which about $0.03 was contributed by TURF. So let's assign P/E=20 to $0.37 EPS in order to give DLIA an "intrinsic value" of $7.40 per share. That would make the TURF portion of DLIA's share price $21.48; restated in terms of market cap, the TURF portion is $303.7 million. Then we have TURF's projected market cap as $393.4 million, or a TURF share price of $24.28. (3) Let's assign a Price/Sales of 1 to DLIA's trailing sales, a common measure of value in the specialty retail industry. Overall DLIA sales for FY 1999 were $157.5 million, of which $4 million was contributed by TURF. So let's assign P/S=1 to $153.5 million sales in order to give DLIA an "intrinsic value" of $10.86 per share. That would make the TURF portion of DLIA's share price $18.02; restated in terms of market cap, the TURF portion is $254.8 million. Then we have TURF's projected market cap as $330.1 million, or a TURF share price of $20.38. (4) Finally, let's assign a P/E of 20 to DLIA's projected FY 2000 earnings of $0.59 per share. I don't have a breakdown showing the effect of TURF on this projection, so I'll just use the $0.59 EPS. This gives DLIA an "intrinsic value" of $11.80 per share. That would make the TURF portion of DLIA's share price $17.08; restated in terms of market cap, the TURF portion is $241.5 million. Then we have TURF's projected market cap as $312.8 million, or a TURF share price of $19.31. In short: these four scenarios assign TURF a projected share price ranging from $19.31 to $32.65. (TURF currently is slated to price between $10 and $12.) I'm expecting TURF's profitability (FY99 EPS $0.04) and its strategy of providing a portal and commercial center for the highly desirable Generation Y demographic to generate some excitement and carry its share price well past $32.65. Of course, the most important thing to remember is that valuation exercises like these are overly rational in speculative contexts where irrational behavior rules the day. (As a DLIA long, I hope irrational exuberance rules the day!) This is just for fun and for the sake of discussion.