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Bisalloy, which is arguably AYSI's closest public comparable/competitor,

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Swick984   Thursday, 03/28/19 10:56:46 AM
Re: None
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Bisalloy, which is arguably AYSI's closest public comparable/competitor, is currently valued at an enterprise value of 6.5x projected EBITDA. To me, this is the closest and most reasonable indication of fair value for AYSI.

A 6.5x multiple of AYSI's $6.9 million of EBITDA results in an enterprise value of $45 million. Add in the company's cash balance of $11.8 million and book value of Indonesian real estate of $3.6 million, you have an equity value for the company of roughly $60 million. On a per share basis that equates to about $3.50 per share.

So how does the company actually get to this full valuation? In my opinion, the clearest way to get that value (and potentially more) is to go through a full sale process and sell the business.

Alternatively, if the family wants to maintain control, the company could purchase the remaining non-family shareholders for fair value. In Delaware, the board of directors has a fiduciary duty to protect the minority shareholders and negotiate for fair value on their behalf, particularly in related party transactions. Typically, legal counsel will want to engage an independent third party advisor to help the board negotiate with the related party and provide a fairness opinion on the transaction. At $3.50 per share, the non-family shareholder stake is worth $23.4 million (6.697 million shares). The company does not currently have the cash for that size of a transaction, but with the sale of the land and some external financing, they may come up with the funds to do it. I view this scenario as less likely, given the cash required, unless it is attempted at a lower share price (possible at $2.50 per share).

Other options to increase value are to:

1. Institute a dividend to return the vast amount of excess cash to shareholders (not particularly tax efficient)

2. Institute a share buyback to return the vast amount of excess cash to shareholders (more tax efficient). They can do this through open market purchases, negotiated purchases, or through a tender offer for shares at a certain price (say $2.00) that would provide shareholders with some liquidity.

3. Uplist to a national exchange (expensive, may not make sense in the US given their size and lack of investor interest / exposure, may make more sense in Australia)

The latter three options would improve liquidity and the share price, but I don't think that the share price would get to true fair value. Absent these actions, the share price will likely continue to trade below true fair value.

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