HCPC Valuations:
Developed some quick valuations based on Assets (real estate loans funded by selling the convertible preferred shares) and the potential Earnings, assuming the credit market improves and they are able to pool their loans and sell the BCLOC securities to institutional investors and so free up their capital to close more loans. Also we have to factor in the preferred shares which need to be converted into HCPC common shares within 12 months of purchase. The price that these are converted at is critical. How the share price increases in value before that conversion is something we are all interested in.
I will offer some caveats. I may be wrong in some of my assumptions and I am putting this on the board for discussion.......there are two scenarios here, the second one (Scenario B) involves a reverse split. If you are closed to this possibility then best to leave now:) However, if you do read further, it may spark discussion and some may actually see the merits of it......imo of course.
Scenario A: Without an RS
Current OS c. 7.5 billion
Insiders 2.0 billion
3rd Party (future merger partner (s)?) 3.5 billion
General shareholders 2 billion
Ok, look at Assets but excluding earnings for now (Total real estate funded by sale of preferred shares):
$700 million divided by 7.5 billion OS = c. $0.093 share = Market Cap of $700 million (Realistic/ fair market valuation?)
Now earnings:
So with assets of $700 million, the potential Earnings on these are :
Earnings on $700 million, assuming they could pool and sell the BCLOC securities when the markets improve:
= $30 million (based on 4% fee) divided by 7.50 billion shares OS = $0.004 share.
If take PE 5 (conservative) = $0.02 share (based on 7.50 billion OS) = Market cap of $150 million (5 times earnings)
If take PE 10 = $0.04 share (based on 7.50 billion OS) = Market Cap of $300 million (10 times earnings)
i.e. Market Cap supported by Assets + Market Cap supported by Earnings:
$700 million + $150 million (based on PE 5) = $850 million Market Cap
$700 million + $300 million (based on PE 10) = $1 billion Market Cap
So if OS = 7.5 billion
$850 million Market Cap = $0.11 share
$1 billion Market Cap = $0.13 share
However, this is before the preferred shares are converted.
At a price of $0.10 this would mean that upon conversion of $700 million worth of preferred shares, there would be:
$700 million divided by $0.10 share = 7 billion extra common shares
In effect, the OS shares would be increased to c.15 billion shares.
So if OS = 15 billion shares
$850 million Market Cap = $0.056 share
$1 billion Market Cap = $0.065 share
This is not enough to uplist to OTCQX, where the minimum bid size is 25c. They would either have to reduce the share numbers through a major buyback and/ or develop the business to a much greater size……market cap approximately 4 times bigger…..c. $3.5 to 4 billion worth of business rather than $1 billion. That also raises the question of where the additional capital would come from and how would the HCPC fund it? Extra preferred shares? Or merger with a company that can bring that kind of money to the table??
Another option that some may not like involves a reverse split. If this enables the company to uplist quicker onto OTCQX, should we be against it…..if the developing fundamentals support the price?? I put this option up for discussion, keep an open mind and lets explore ideas rather than burn me at the stake straight away…..can do that later on…:)
Scenario B: With a 10:1 Reverse split
Current OS say 7.5 billion
Insiders 2.0 billion
3rd Party (future merger partner (s)?) 3.5 billion
General shareholders 2 billion
Then say RS 1:10
OS 750 million
Insiders 200 million
3rd Party (future merger partner (s)?) 350 million
General Shareholders 200 million
Insider Ownership % (including 3rd party) remains unchanged at c.75%.
Rather than looking at assets first, I've looked at potential earnings first here as I wanted to look at the share price/ market share price that could be supported by them, before factoring is assets and the possible conversion price for preferred shares
So with assets of $700 million, the potential Earnings on these are :
Earnings on $700 million, assuming they could pool and sell the BCLOC securities when the markets improve:
= $30 million (based on 4% fee) divided by 750 million shares OS = 4 cents share.
If take PE 5 (conservative) = 20c share (based on 750 million OS) = Market cap of $150 million (5 times earnings)
If take PE 10 = 40c share (based on 750 million OS) = Market Cap of $300 million (10 times earnings)
However:
We also have to factor in the future preferred share conversion. Now there are two ways that I could approach this. I could first factor in assets ($700 million) and see what effect that has on share price before working out the preferred share conversion to common shares (best case scenario) or I could base the conversion on the share price supported by potential earnings only on $750 million worth of loans/ assets (worst case scenario)…..I’ve taken the worst case scenario first:
Worst Case Scenario
If the $700 million is assets was paid for by the preferred shares, the conversion would be to $700 million worth of common shares.
- If HCPC price was at 20c share (PE 5) that would equate to 3.5 billion additional shares.
- If HCPC price was at 40c share (PE 10) that would equate to 1.75 billion shares
Total Number of OS shares could be between 4.25 billion and 2.5 billion shares after conversion of preferred shares (and taking into account the 10:1 Reverse Split):
For a market cap of $150 million based on OS of 2.5 billion = $0.06 share (before factoring in assets)
For a market cap of $150 million based on an OS of 4.25 billion = $0.035 share (before factoring in assets)
For a market cap of $300 million based on an OS of 2.5 billion = $0.12 share (before factoring in assets)
For a market cap of $300 million based on an OS of 4.25 billion = $0.07 share (before factoring in assets)
Now valuation of Assets, but excluding earnings for now (i.e.Total real estate funded by sale of preferred shares):
$700 million divided by 2.5 billion OS = c. $0.28 share = Market Cap of $700 million (Realistic/ fair market valuation?)
$700 million divided by 4.25 billion OS = c. $0.16 share = Market Cap of $700 million (Is this realistic/ fair market valuation?)
If add in the Market Cap which could be supported by Earnings as mentioned above:
i.e. Market Cap supported by Assets + Market Cap supported by Earnings:
$700 million + $150 million (based on PE 5) = $850 million Market Cap
$700 million + $300 million (based on PE 10) = $1 billion Market Cap
So if OS = 2.5 billion
$850 million Market Cap = $0.34 share
$1 billion Market Cap = $0.40 share
If OS = 4.25 billion
$850 million Market Cap = $0.20 share
$1 billion Market Cap = $0.235 share
This remember, is all based on an 10:1 RS and after Preferred Shares are converted.
In both cases, the share price gets very close to or above the 25c threshold for OTCQX Prime tier.
Ok that was the worst case scenario, with the conversion of preferred shares based on the share price that could be achievable/ supported by earnings on the overall assets/loans only.
Best Case Scenario
Current OS say 7.5 billion
Insiders 2.0 billion
3rd Party (future merger partner (s)?) 3.5 billion
General shareholders 2 billion
Then say RS 1:10
OS 750 million
Insiders 200 million
3rd Party (future merger partner (s)?) 350 million
General Shareholders 200 million
Insider Ownership % (including 3rd party) remains unchanged at c.75%.
So with assets of $700 million, the potential Earnings on these are :
Earnings on $700 million, assuming they could pool and sell the BCLOC securities when the markets improve:
= $30 million (based on 4% fee) divided by 750 million shares OS = 4 cents share.
If take PE 5 (conservative) = 20c share (based on 750 million OS) = Market cap of $150 million (5 times earnings)
If take PE 10 = 40c share (based on 750 million OS) = Market Cap of $300 million (10 times earnings)
Assets
Now valuation of Assets, but excluding earnings for now (i.e. total real estate funded by sale of preferred shares):
$700 million divided by 750 million OS = c. $0.93 share = Market Cap of $700 million (Realistic/ fair market valuation?)
If add in the Market Cap which could be supported by Earnings as mentioned above:
i.e. Market Cap supported by Assets + Market Cap supported by Earnings:
$700 million + $150 million (based on PE 5) = $850 million Market Cap
$700 million + $300 million (based on PE 10) = $1 billion Market Cap
So if OS = 750 million
$850 million Market Cap = $1.13 share
$1 billion Market Cap = $1.33 share
If the $700 million is assets was paid for by the preferred shares, the conversion would be to $700 million worth of common shares.
- If HCPC price was at $1.13 share (PE 5) that would equate to 620 million additional shares.
- If HCPC price was at $1.33 share (PE 10) that would equate to 563 million shares
Total Number of OS shares could be between 1.31 billion and 1.37 billion shares after conversion of preferred shares (and taking into account the 10:1 Reverse Split):
So if OS = 1.35 billion shares
$850 million Market Cap = $0.63 share
$1 billion Market Cap = $0.74 share
This remember, is all based on an 10:1 RS and after Preferred Shares are converted. Assets are factored in as well as potential earnings to assess a fair market valuation of share price, and it is that figure that is used for the preferred share conversion to common shares.
In both cases, the share price gets above the 25c threshold for OTCQX Prime tier.
Ok, that's it for now....hope I light a fuse and get a discussion going, only so much to talk about when it comes to the ticker movements:)
Do I have a preference? Well for me Option B has a lot of merits, gets the share structure back to a more reasonable level and probably allows uplisting to OTCQX in a reasonable timeframe.....if the reverse split is supported by strong fundamentals and pr from a group such as Gregory FCA, to support price, then we could come out ok.......the company has mentioned RS may be considered in helping to uplist but only if strong fundamentals, so we should not rule this out imo.
There may be other scenarios.....open to those as well:)
GLTA
