P10 Industries Inc. (PX)

[Tim Eriksen]

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.