I talked to a couple of Finance profs about the difficulties of valuing a company with no earnings projections released, a totally revamped and new business model, and a bag of cash on their books (which is pretty much what SDVI is at right now), and they say there's not much to be done without knowing some actual earnings projections or having a relateable industry to compare it to.
Question for the crowd: Anyone know of another company that is sort of doing what SDVI claims to be wanting to do? (namely, make a living off of Facebook-style video games and/or achievement systems?) Without a meaningful comparison, that leaves us the royalties from Graffiti to work with, and the bag of cash. Ken speaks of a 6x P/E valuing Graffiti at around $10/share. Assuming 50M shares as his goal, that would give us P/E of 10/x = 6, so x = 10/6 = $1.67/share; $1.67/share x 50M shares = $83M in net earnings approximately. Of course the royalty is just for 10% of video game sales according to Sept Press Release (unless that has changed) so we can't take 10% of $83M to give to SDVI...and most of the $83M is from the 'big acquisition' (possibly almost all of it) as he said they had an EBITDA of about $100M...hmmm....something doesn't add up unless he factored zero profit for all other operations of Graffiti beyond the 'big acquisition'....I hate incomplete data, garbage in=garbage out. Screw this calculation for now, lol.
Go SDVI. I'll just wait and see the slow and boring way, ha.
Saredi
Okay, I lied, let's carry on: RR pre-sales in canada were over $1M, most of which is gone now (probably all) but will be replaced by new consumers in the future when it's available. Let's say $5M for US and $1M for Canada, another $1 - 2M for overseas/europe, etc., the rest of the games are babies next to RR (atleast for now). So about $8M of profit for Graffiti specifically from video games, 10% shared with SDVI is maybe $800K - $1M. So SDVI will have inflows from Graffiti, but not a whole lot until some other games get developed and released in large numbers. SDVI earnings, say, are zero for the first 6 months due to lack of cash (waiting for the 6 month payable, unlikely to sell the umbilical cord of Graff shares) and time needed to make the social network games, but start producing in time for Xmas to the tune of a couple million dollars (optimistic, I know). Give SDVI 1.5B shares, total earnings of around $800K (royalties) + $2M (social games)=2.8M/1.5B = .00186/share with the same P/E as Graff (6x), so P = 6x.00186 = 0.0112, with no value given for the cash and share assets, just based on earnings. Hopefully, the market gives consideration for the cash assets, or we just damn well use $2M to buyback 500M shares, which would improve the equation to 2.8M/1B x 6 = .0168 PPS (again, assuming no value for assets, just earnings).
It would take a very small buyback ($2M out of the $35-$50M SDVI will have in cash/stock sitting around) to make a very big difference to the share price. I would recommend Ken consider that the biggest obstacle to shareholder value (which is his value too) is the enormous Outstanding Shares issue. This problem should be dealt with quickly, before the share price rises, as $2M could buy a couple hundred million shares at the low prices, but would do diddly squat when we hit .006 or higher.
Of course, the truth in valuing this company is somewhere between the really high numbers (.033 for CASH and STOCK) and the low numbers (.0112 for Earnings Only) or perhaps higher than both. That's enough bad math and crappy estimates for me. G'nite folks. 5x your money as a low ball estimate is still a reason to buy. :)
Saredi (for real this time)
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