Balamidas & All, with the CHNW CEO Letter...
I only got through a quarter of the CEO’s letter before I felt the need to share some thoughts. I will go back to read the rest later.
Not now, but in the near future it will be key for CHNW to be able to sell off some of their “non core” businesses. This will reduce potential dilution to fund Research and Development (R&D). A big name company sharing the same vision of the company can make things so awesome. This is why the marketing phase will be important too.
I am hoping that the beta test for the FOREX is very successful. That is where our fate resides with CHNW. If so, I think such might attract a big name company for seeing an opportunity to tap into the huge FOREX market of growth. I think major investors, companies, and Institutions are all waiting to see how this beta test for the FOREX turns out.
Here’s what I think key players involved with the maturing of CHNW sees from the geometric growth that FOREX trading offers:
As stated in the Letter to Shareholders, according to International Financial Services, London, the average daily global turnover in traditional foreign exchange market transactions totaled $2.7 trillion in April (I’m guessing they meant Apr 06). That’s 2 + 12 decimal places such as $2,700,000,000,000.
What CHNW management sees is if they only were able to get 1% of that market for April 2006, then they would have captured $27,000,000,000 (or $27 Billion) in Revenues for a 1 month time frame. Wait, let’s make this an even more extreme worse case scenario and say that CHNW only captures 1% of that 1% of that market for April 2006. That would equate to $270,000,000. Now multiply that by 12 months and that’s “potentially” $3,240,000,000 ($3.24 Billion) for an annual amount for Revenues.
Even if you consider a very much worse case scenario and figure they only capture half of that figure or .5% of that 1% from the original 1% of that FOREX trading market. That would equate to a “potential” $1.62 Billion in Annual Revenues. ($1,620,000,000)
Now let’s figure a 75% burn rate for expenses where now the $1.62 Billion in Revenues has turned into $405 Million as Net Income. Divided by a CHNW outstanding share structure of 4 Billion shares and you have something that looks like below:
$405,000,000 ÷ 4,000,000,000 = .10125 Earnings Per Share
The PE Ratio for the compatible industry is 34.50 from researching the stock ICE which trades at $149.36 per share on the NYSE. That could logically justify a CHNW stock price of .10125 EPS x 34.50 PE Ratio = $3.49 per share if we use that same industry’s PE Ratio for growth since it’s somewhat similar. A much more conservative PE Ratio would justify CHNW trading at half the above calculation given the above scenarios.
It just doesn’t seem realistic to even believe what I posted above, so please only consider it as a very slim chance of what could transpire. Don’t forget, we are still in the penny stock world where over 90% of penny stocks fail so the odds are already against us.
From scanning through ICE’s last 10K report of financials, ICE made over $155.9 Million for the period ending 31 Dec 05 which was a 43.8% increase from the $108.4 Million they made the year ending 31 Dec 04. I think people are still buying ICE even though it trades in the $149.00+ per share range because of the expected continued growth in revenues from the industry it’s in, the FOREX market. ICE traded well over $721,418,500 in dollar volume this past Friday at a price no lower than $145.15 per share so something is up with their (FOREX) market in my opinion. Their 2006 10K is due out in March 2007. We’ll check it out for growth.
I think the above calculations with CHNW are not very reasonable to expect in the near future if at all to make sure we try to keep things in perspective. CHNW will have to mature into where ICE is at now for clientele base, considering all things go as planned.
The above are only my opinions as to what I immediately saw as the potential in CHNW from reading some of the CEO Shareholder’s Letter. If the test for the FOREX trading platform turns out to be a success, then even if a mere fraction of what I posted above materializes and even if I did some bad math and is off by a decimal place or two, then the current price levels would still be considered significantly undervalued for the “potential” Revenues to be generated by CHNW in the fast growing FOREX market. These again are only my opinions.
v/r
Sterling
