RuudG, that is a fair question about price. Consider the following...
I tend to shy away from discussions pertaining to valuation because everyone has their own method. To my team, the $10 is the most conservative range of the estimates based on near-worst case scenario dilution from Treasury exercising warrants, a reduced footprint, and after the shares have been relisted. We frankly think the share price value is much higher. Outlining exactly how we arrive at our minimum value estimate is always a subjective activity. Again, everyone has their own approach.
I'll leave you with a perspective posted a while back.
Microsoft (MSFT) trades on NASDAQ at $137/share. Last year it had $110 billion in revenue and $16.5 billion in net income. It has 7.64 billion shares outstanding with a market cap of $1.06 trillion. 74% of its shares are held by institutions. Microsoft is ubiquitous in that the operating system and other software runs all over the world.
Fannie Mae/Freddie Mac last year had $43 billion in combined revenue and $25.1 billion in net income. FMCC has 650 million shares outstanding and FNMA has 1.16 billion. Combined their market cap is currently $4.38 billion. FMCC has 13.83% institutional holding and FNMA has 14.81%. The GSEs are ubiquitous in that they hold up the housing market and allow Mortgage Backed Securities investments to function. They represent around +/-13% of the economy.
Lets say the 79.9% warrants were exercised by UST and preferred shares converted to commons and the common shares were diluted to an estimated 10 billion shares. Let's estimate a worse case scenario here.
If these shares are relisted and may now be purchased by large hedge funds, may be added to ETFs and indexes, how long do you think the price is going to stay under $10 per share?
These stocks are absolutely beaten down by the fact they are delisted and in conservatorship. When that ends, do you really believe $10 per share is unreasonable? $25? $50? $100? Where do they belong once they are placed back into the market on the proper footing and institutional buying is resumed and options trading on CBOE is resumed? Where do the GSEs belong in comparison to peer S&P500 companies?
$10 per share will just be the start. Imagine when dividends resume. When you pass these shares to your children in a trust, do not be surprised if they trade over $50. But let's not get ahead of ourselves...
Stay long. Stay strong. The best is yet to come.
AI
