Good tech names trading at cash value
Just in case you thought things in the stock market weren’t challenging enough, consider that many of the TSX’s best technology companies are trading near, or even below, cash value.
There are two buckets to consider. First, the names who are EBITDA-positive, with the second category being the ones who are still burning cash. Analysts will tell you that in either case “the intellectual property is practically being valued at zero”. The share prices used for this analysis were current as at December 5/08. For those not math inclined, enterprise value equals market cap plus net debt (or minus net cash) on hand.
EBITDA-positive Tech Companies Trading at or Near Cash Value:
Bridgewater Systems (BWC:TSX): $4.9 million Enterprise Value (“EV”)
MOSAID Technologies (MSD:TSX): $32.4 million EV
EBITDA-negative Tech Companies Trading at or Near Cash Value:
DragonWave (DWI:TSX): $6.6 million EV
Intermap Technologies (IMP:TSX): -$0.9 million EV
March Networks (MN:TSX): -$15 million EV
Sandvine Corp. (SVC:TSX): -$3.6 million EV
Sierra Wireless (SW:TSX): -$49.5 million EV
Tundra Semiconductor (TUN:TSX): -$1.4 million EV
The stock market is in quite the shambles. The combined enterprise value of these eight companies is roughly negative $27 million, which means they are valued at less than cash as a group. Certicom (CIC:TSX) would also have made the second group if it weren’t for the Research in Motion (RIM:TSX) hostile bid (see prior posts “RIM’s $1.50 Certicom bid just the beginning
” December 3-08 and “BNN interview on BCE and RIM/Certicom deals” December 4-08), which pushed its share price beyond cash value.
If these market values are sustained for a meaningful period of time, look for more M&A activity, and maybe even a going-private or two. Our friends in the venture capital and cross-over investing world should take note (see prior post “Financing IP firms” May 1-07). Why spend $30-80 million to build a new technology company, if you can acquire proven one for a bit more than its cash value?
And we’d be happy to provide the debt to make the deal work.
MRM
(hat tip to SW)
One more – even better than the list:
Enghouse (ESL-TSX), trading BELOW cash, is cash flow postive and pays a dividend.
Getting a cash generating business for free seems like a decent deal to me.
If only it were so!
I’m a burned investor in SW, and they were cash flow positive with almost a negative entity value when I invested. They have since done a dilutive acquisition to spend their cash. We know management wanted the acquisition, but remain dismayed that their board of directors allowed a dilutive acquisition in this market — hence the 30% fall in share price on the announcement.
The rule: even a boatload of cash on the balance sheet can’t save investors from management making decisions counter to the shareholders’ interests.
Management and the board can attempt to justify the acquisition all day long — in the end, the market has told them something completely different. Perhaps, it is accretive in two years — see which of today’s shareholders wait for that event.