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It is mentioned on page 3 in the management comments. It will not dampen EPS. In fact EPS is higher than the year ago period.
Another excellent quarter for P10. Next quarter will include the acquisition.
Simple way of looking at it is what is the increase in ebitda versus the increase in shareholder dilution. The dilution is about 20% if all preferred is converted and the ebitda increase is going from roughly 27 to 37, or about 37%.
Are you saying large sell orders means somebody wants to buy?
Sophisticated investors are annualizing the most recent quarter. That is why their was the big jump after the Q4 report. Thus the $40-44 million of annual revenues is already priced in. In general share price will reflect changes in revenue which reflect changes in AUM. Even with flat revenue value increases every quarter since cash increases by 4-5 cents per share.
Clearly you do not read their letter which noted higher non-recurring income in Q1.
Regarding the The Not-so-good:
1) P10 is not a shell company. They own the management contracts of RCP2 and RCP3.
2) They have clearly stated they are looking to acquire other PE firms if the price is attractive and to seed additional firms internally. They did one acquisition last year.
3) Nothing from RCP1 is in their financials. It is all RCP2 and RCP3 contracts excluding incentive fees. We know exactly what is attributable to P10. There is no non-controlling interest.
Haven't they already delivered. They paid 21 cents per share when it was a shell with no cash. It is now $1.41.
They will not be paying a dividend. They clearly stated it at the annual meeting. Cash will be used for acquisitions and funding other strategies, with a lesser possibility of debt reduction.
Due to its small size, float, listing, price etc., it is doubtful than any large institutional money is in the stock. There are a couple of smaller hedge funds that focus on micro caps and nano caps that are invested.
Another factor in valuation
The upside in P10 is huge.
If ebitda can be increased by $1 million annually and it is valued at 10x that adds $10 million to enterprise value. Since debt does not change that means the increase is attributable to the equity. $10 million of value is $0.11 per share.
The other cool thing is time. Let's assume in the June quarter they have $7 million of ebitda and $5 million of free cash flow. The $5 million is attributable solely to the equity, which is $0.05 to $0.06 per share every quarter.
So we have a $1.40 stock that even if everything stays the same, the share price should theoretically increase $0.20 to $0.25 per share in twelve months.
Putting the two together. It is not unrealistic to think ebitda ends the year at $30 million run rate, which means $0.20 to $0.22 per share increase in valuation, plus the three quarters of earnings ($0.15 to $0.18) means a total of $0.35 to $0.40 per share in possible gain.
Sorry if it upset you in any way, but valuation based on a multiple to cash is not taught in any finance class. If the market used it, companies would issue stock since every dollar raised would be worth many multiples.
If PIOE was valued at 12 times cash they should issue shares for cash even at a discount since the market will value it at 12x. For example if they are currently worth 12x the $0.12 per share in cash and they issued 20 million shares at $1.20 (a discount) they would raise $24 million. If you think valuation is based on a multiple of cash the company would now have $36 million of cash, or $0.33 per share (36/110) and the new value would be $3.76 per share (12 times $0.33).
A couple of other reasons the thinking is flawed. If they paid down debt would the value of the company decrease? If it is valued at a multiple of cash it would. If they added more debt their cash would increase and by your line of thinking the value would increase 12x for every additional dollar of debt.
What about dividends? Paying a dividend would be terrible capital allocation since the cash dividend would only be worth what was received, while the same amount of cash if it were still held at the company would be worth 12 times.
Hope this helps.
Cash on hand matters in valuation. It is just not the primary factor. The primary factor is cash flows. Stocks work the same as bonds or real estate. They are valued based on the future cash flows.
I value the company based on what one has to pay at the current price to obtain the cash flow. The total cost is market cap plus debt minus cash (enterprise value). The earnings are essentially ebitda since the NOLs mean no taxes and there is little in capital expenditures needed, amortization is non-cash and interest is excluded since the value includes debt.
ebitda is $7 million per quarter or $28 million annualized.
enterprise value is about $262 million (125 for market cap plus 149 debt, minus 12 cash).
I then think about the quality of the cash flow. Is it stable, growing, shrinking, etc.? And what the future will most likely be. The cash flow is growing very nicely as RCP is doing well. Some of that is due to favorable economic tailwinds.
Since the company has so much debt, small changes in how I value the cash flows has a big impact on the value of the equity. For example
8 times ebitda = 224MM minus debt 149MM plus cash 12MM = 87MM divided by 89MM shares = $0.98 per share
10 times ebitda = 280MM minus debt 149MM plus cash 12MM = 143MM divided by 89MM shares = $1.61 per share
12 times ebitda results in $2.24 per share. This assumes they will grow AUM 10% annually
I think fair value is 10-12 ebitda. So $1.61 to $2.24 per share. But I recognize I could be wrong.
I am not saying $1.20 to $1.38 is reasonable. 236T568 said that. I would disagree. I think it is still undervalued.
Don't know how you guys are coming up with $1.20 to $1.38 based on some multiple times cash flow per share.
Good question.
Two reasons:
1. You are using change in cash, which includes operations, investing and financing. I am using operations, which is the accepted approach. P10 used $12 million generated during the year to make an acquisition. You don't want to penalize them for that in valuing the business. They also benefited from $3 million cash from financing which you wouldn't want to include in the calculation, since the business didn't earn it.
2. Since AUM is sticky I would argue that you annualize the most recent quarter versus including a quarter prior to AUM climbing.
A range of $1.20 to $1.38 is about 6-7 times annual cash flow. That is a bit low for a non-growing company, but seems quite low for a grower.
I agree not to value a company based on a multiple of cash. I have never seen that done. Investments should generally be valued at the present value of future cash flows using an appropriate discount rate.
Tangible book is not a reliable valuation method either. Pretty sure Amazon is worth more than $59 per share.