Live Deal, Inc (LIVE)

[rgg_1120]

BCarter and anyone else who might be interested (but for most posters here I think this will be old hat):

Sorry for the delay in posting this. You asked me if I could share what (little) analysis I did on ypnt before I bought. Here are some of my notes from 9/30/06. As always, I use "M" for millions.

Mkt cap: $44.35M
EV: $35.84
Debt free
$8.52M cash
EBITDA (ttm): $4.5M
Net Income (ttm): $1.67M
Shareholders equity: $27.2M (includes a lot of intangibles).

To try to forecast earnings and valuation in a simple-minded way, I used the earnings for the most recent quarter (mrq) and annualized them. This keeps any growth as a margin of safety (and assumes earnings will not go down!?).

Earnings (mrq): $1.232M
Earnings Run-rate: $4.928M per year.

Earnings yield on the run rate: $4.928M/$44.35M = 11%
ROE on the runrate: $4.928M/$27.2M = 18%.

EBIT (mrq): $1.876M
EBIT runrate: $7.50M per year
EBIT/EV: $7.50/$35.84M = 21%, which is good for a value play.

Tangible capital employed :
1% rev : $4.1M
Receivables: $8.2M
Pre-paids: $0.6M
P&E: $0.2M
TOTAL: $13.1M

EBIT(runrate)/TCE = 57%. A number this high indicates that any growth would add to the value of the business.

These last two ratios, EBIT/EV=21% and EBIT/TCE = 57% are good enough to put ypnt in the top 100 stocks using Joel Greenblatt's "magic formula". So, insofar as the runrate is realistic and the quality of earnings is good, this looks like a good value play before factoring in growth. If growth is going to be as good as Rawnoc projects, then the upside should be very promising.

CAVEAT: How good are the quality of earnings? If they expensed all their cost of sales, they would have negative earnings. Instead they capitalize a big chunk of them and amortize them over 12 months. So, the quality of earnings depends on the stickiness of the customers relative to the amortization period of the capitalized portion of the cost of sales. Also, as long as they are adding net customers, cash flow will be tiny compared with earnings. The 12 months is said in the 10Q to reflect the expected stickiness of the customers. 12 months doesn't sound very good to me. On the other hand, if they're being conservative with the 12 months, that improves the quality of earnings.

Comments welcome.

all the best,
rgg