Tuesday, October 20, 2009

Microvision: Take Over Target (Part 2)

Someone asked the obvious question: "What if a company does make an offer?"

Well, here's what I think...

If a company makes an offer and Microvision management turns it down then they [the suitor] have the option of going directly to the shareholders and try to get them to agree to a PPS rejected by the management. At that time, management would make their case to the shareholders why the takeover offer is too low and that there is more value to remaining independent.

If we can make a case on the back of a napkin for $100 per share in next 5 years, then I am sure a Six Sigma Master Black Belt CEO of Microvision can do the same. The current management team did not come to Microvision to preside over the sale just as they are about to achieve commercial success.

Here are some back-of-the-napkin CONSERVATIVE figures…

Five years from now in 2014, the stock could easily trade in the $300 to $400 range. Here’s the projection…

• Worldwide Market Size: 2 billion units [cell phones, laptops, smartphones, camcorders, digital cameras, mobile TV/Projectors, etc.]

• Worldwide Market Size: 1 billion units [wearable displays]

• Market Adoption Rate: 10%... 300 million units

• Microvision Market share: 15% of 300 million units… 45 million units

• OEM price: $90 per PicoP display engine

• Revenue: $4 billion

• Net Profit Margin: 40%

• Net Profit: $1.6 billion

• EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization: $1.55 billion [with operating expenses at $50 million]

• Interest Expense: $0 million

• Interest Income: $20 million

• Tax: $120million

• Depreciation: non cash and very small

• Amortization: non cash and very small

• Net Operating Income: $1.5 billion

• Earning Per Share: $16.60 on a fully diluted basis [90 million shares]

• Price Earning Ratio: 30 for a hyper growth company

• Price Per Share: $500 per share approximately

In my book, the Risk is insignificant [may be 3% per year in lost opportunity] as compared to the potential of making 100 times your money in the next 5 years.

A standard way to value a company, or any investment, is the Dividend Discount approach. Other closely related approaches are: Discounted Cash Flow, Free Cash Flow, and Economic Value Added (EVA), a trademark of Stern & Stewart. To use any of these methods, the analyst projects future payoffs to the investor, then discounts these payoffs to their present value.

No matter what approach you choose, you still have a hyper growth company that is worth at least high double digit PPS in today’s value.

As someone said…

“This is a $100 stock in a $5.28 wrapper.”

The competition knows that.

Anant Goel