PENNIES FOR DOLLARS
What's the catch? Read on. A strong argument can be made that investing in International Card Establishment, Inc. (OTCBB: ICRD) today may easily prove to be one of the better investment decisions for the coming year.
After suffering through a gestation period akin to an elephant's, that's to say about three years, the company reported a $29,000 net profit, $305,025 in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) on $2,827,008 in revenues for the third quarter ended September 30, 2006. Contrast this performance with the previous second quarter performance: $(2,283410) loss, $(2,003,35) EBITDA on $2,536,43 in revenues and it's enough to take your breath away. There are two key questions to ask yourself: (1) How did International Car Establishment, Inc. pull off the turnaround; and, (2) Can it sustain it's newfound profitable ways? The answer to the first question is easy: management took their scalpel out and "right-sized" the company, cutting offices and headcounts dramatically Oh, and management didn't spare themselves the pain they reduced their own salaries down to nominal levels, in effect wagering that the stock price will appreciate to make up for the lost salaries. For once - especially in the speculative stock world - you see managemen aligning their interests with those of their shareholders. International Card's management is not philanthropic; they are just betting that th appreciation in their substantial share holdings will far outweigh any lost wages.
Can I.C.E sustain it's new found profitable ways? The answer is a resounding YES, because no rational sales- agen foregoes cash in hand today unless they are being handsomely compensated for the differential between the current nominal salary and what they were previously drawing. Current sacrifice by management helps to produce sustainable profit growth and EBITDA over the coming quarters, and the stock price appreciates to reflect that development. So, what happens, assuming that this scenario plays out according to plan? There is one are two outcomes, both positive. On outcome is that the company grows its revenues, EBITDA and net income to $20,000,000, $2,500,000 and $1,200,000, respectively over th next 12 months. This should happen as the company's homegrown recipe of organic growth - which is buttressed by a highly successful program of grooming new agents to pound the pavement and land high quality (low default) merchant accounts. -- continues to bear fruit, as evidenced by the company's robust top-line performance.
Using the current industry P/E multiple of 30 as a guideline , we arrive at an implied value of $0.97 per share, based on 3 million shares outstanding (I am adding 4 million to be awarded management to the 33 million shares currently outstanding. At this level the company becomes a natural takeove candidate for the bigger players in the industry who have continually come up short in trying to organically grow their own merchant account portfolios. (By their own admission, they only grow via portfolio acquisition.) Underpinning this value will be the company's merchant account portfolio, which, a year from now, should number 8,000 high-quality merchants generating about $1,750,000 per month in revenues.
A commonly used yardstick used to value merchant account portfolios is ten times their monthly residual income stream. Accordingly, if International Card Establishment, Inc. were to liquidate itself - and there is no reason why it should; the company's intrinsic value, absent any value given to the company as a going concern, should total $18,000,000, or $0.49 per share. Compare that to the current stock price and you'll understand why buying International Card Establishment, Inc. (OTCBB: ICRD) at today's prices is like buying dollar bills for mere pennies. A year from now, we are looking at a stock worth roughly twice its current $0.25 price. On a going concern basis, look for takeout at $1.00 per share or more .
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