OK guys - here's my CPAK analysis:
I tried to be extremely conservative in this analysis, so keep this in mind as you review. I have attempted to value the Company based on future cash flow and current assets - my analysis is as follows:
In order to estimate pre-financing decisions cash flow per quarter, I took ]pretax income of $959K + interest expense of $71K] * 60% (assumed tax rate of 40% because they should be paying taxes soon) + Depreciation/Amortization of $575K, less assumed quarterly CapEx of $175K to estimate a total of approximately $1,017K per quarter. I then divided this by (1.12^(1/4)-1), which is an assumed annual discount rate of 12% to estimate an enterprise value based solely on discounted future cash flows of $33 Million (assumes constant cash flow). Adding back net debt of $0.9M (basically subtracting a negative amount because cash is greater than debt) and subtracting committed dividend of $350K results in an approximate Market Cap of $33.55 million, or $6.77 per share.
Next, the market should also give CPAK credit for an outstanding balance sheet. Therefore, knowing that the working capital of the Company is $30.0M from the press release, I proportionately added the increase since last quarter's balance sheet to A/R, Inventory, and Prepaid items and applied liquidation rates to "sellable" assets. This resulted in a total increase of $11.47M to company value ([$7.7M cash x 100%] + [$11.9M A/R x 85%] + [$21.9M Inventory x 25%] + [$2.3M Prepaid Items x 25%] + [$13.7M PP&E Book Value x 50%]). This increases estimate share price by $2.32, for a total of $9.08 per share, which I think should be the minimum of the fair market value of the Company.
Other observations related to CPAK:
* One reason the stock may not be getting the respect it deserves is because digital cameras are replacing tradional photos. However, the Company claims it is achieving growth in this segment.
* As everybody knows, there is a lot of one-time costs during the restructuring process (severance, contract termination payments, etc). If the last quarter included any of these costs, then cash flows will increase in future periods.
* My estimated quarterly cash flow may be extremely low. Last quarter, cash balance increased by $1.55M and a dividend was paid of $.35M. This suggests that pretax cash flow was approximately $1.9M, vs. my assumed pre-tax cash flow of $1.4M. For every $100K increase in quarterly cash flow the estimated value of the stock will increase by $.83.
* I really like the fact that share count has remained the same for several quarters in a row. If I were management, given that the stock seems undervalued, I would consider buying back shares in addition to or instead of issuing dividends.
* Finally, I don't see the advantage of CPAK being a public company given what is a ridiculously undervalued share price (in my opinion). Unless they plan to acquire other companies with stock issuance, there isn't much value in remaining a public company. It seems to me that management could buy out the Company at a premium to the current price and extract the value for themselves. If they did this, this would also reduce their obligations of being a public company and increase cash flow. In fact, I might fire off this posting to the CFO and see what he thinks.
Sorry for the long posting. If anybody is still awake after reading this, I would love to hear your thoughts on this summary.
AI
