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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.

6 comments:

Gerard said...

That's an interesting find...
Out of curiousity, how did you find it?

Cheers
Gerard

Paul Smith said...

This one was passed on to me by another reader.

I took a look a look at it and could see this was a great buy.

now with the new director things should start happening and the stock should start moving. SWince posting this the stock has risen from 17c to 18.5c.

Good Luck

grant said...

Just out of curiosity, have you actually examined the fundamentals of this company?

I have had a very quick look as your post on it intrigued me, in 10 mins I can find many rather serious problems.

I'm going to crunch the numbers probably tomorrow, but I'd be interested in your reaction.

jog on
grant

grant said...

I'd be interested to know if you have actually analysed the financial statements past the metrics of your post?

jog on
grant

Paul Smith said...

Grant,

I always thourghly analyse all companies before posting them on the blog. Here is what I see on WAL

-The are fully covered by moneystock for the current price.
-There is no debt.
- They have big new orders coming in recently pushing profit ever higher.
- Record profits
- ROE of 20%
- Net proit Margin of 16%.
- Best year ever for revenue
- Best year for Sales per share
- New products coming on line so they have new revenue streams
- High cash on hand to take opportunities as they arise.
- Very low liabilities
- Positive cash flow
- Positive Free cash flow
- Good P/S and P/B ratios
- Good Earnings stability
- a very good current ratio
- a very good quick ratio

I do admit Management has not taken opprotunities quickly enough and is sitting on too much cash.

I also admit their last quarterly statement was not good. It showed a negative cash flow position... but I am willing to take 1 bad quarter and see where it goes from there. I expect it to turn around quickly.

I would be interesting in your analysis if you can find something majorly wrong with the company.

Thanks.

comradejim said...

Look like a bargain!

Overlooked.