Thursday, May 31, 2007

WAL - Wavenet

I found a company worth buying because of a number of reasons.

WAL.ASX - Wavenet is a very special buy.
When you look at the company you will notice several things.

1. The company has 9.4 million in the bank.
2. The company only has a capitalisation value of 10 Million.

These two lines should signal something straight away.... They are worth only $600,000 more then the money in the Bank. This is made up money, this is actual money in the companies bank account.

Lets have a look at their reports and we see that the first half of this year they produced a profit of 1.3 Million. Lets assume they make a profit of 2 Million for a full year.

So now we know

The company is worth 10 million.
The companies has 9.4 million in the bank.
They are going to make approx 2 million a year.

Does this not scream takeover opportunity. Someone could buy this company for 15 million, and pull out 9 million from the companies bank account (so effectively they have bought the company for only 6 million). They then own a company producing 2 million a year which they bought for 6 million ( that's a return on Equity ROE of 33% ).

Of course I have simplified the maths above and I assumed a takeover premium of 50%. Lets say the takeover premium is only 20% and you find the Return on Equity increases to 66%. Even for a respectable return on equity of 10% the company could be bought at a premium of only 100%.

The other option for this company is to use the money for an acquisition. Regardless of what happens the share price is going to move and its only going to move one way for this under priced stock and that is UP.

Good Luck.

Where have I been ?

Sorry to all those who ahev been waiting for me to post but I have been really busy.

Lucky for me my portfolio has continued to shine and is up a good percentage this year again.

I will try and get posting again on a regular basis as I find shares worth metioning.

Good Luck.