I see where you're coming from paperclip, but with all due...

I see where you're coming from paperclip, but with all due respect, your figures are a long way out from my perspective. This is where i reckon they are way out:

- You use a forward P/E on TOX of 19, which is the industry average. That's too high, frankly. I hold TOX and so obviously i think it's a great little company, but you can't assign it the same multiple as other big players like TPI and the like. A forward P/E of 15 is probably a more reasonable figure to use, and that gives TOX a share price of $1.32 based on your forecast '07 earnings of $5.7M. That may seem a little low, but a forward P/E of 15 i think is fair enough for a small company. If you use a more aggressive multiple of 17 you get a share price of around $1.50, but more conservative investors such as myself would argue that using a forward P/E of 17 on a little company (no matter how good it seems) is getting pretty generous.

- Your assumption that TOX can acquire $1M of net profit earnings for only $4M (e.g., make an acquisition on a NPAT multiple of 4X) is inconceivable. TOX acquired Grimefighters and Delvex on an EBITDA multiple of about 5, which probably equated to a NPAT multiple of about 7.5. And assuming STCS makes $1M EBITDA p.a. for the next two years, TOX acquired STCS on a EBITDA multiple of 7.5, which equates to a NPAT multiple of about 10.5. When you stack those figures up, you see why i think it's unreasonable to assume that TOX can acquire $1M of NPAT for only $4M. If TOX were to acquire a business that could contribute $1M of NPAT, my guess is they'd have to pay somewhere between $8-$12M.

So, using my assumptions, which are much more conservative that yours, i'd say that to justify a share price of $1.75 and valuing the company on a forward NPAT multiple of 18 (which i reiterate is pretty generous), the acquisition would look something like this:
- $10M purchase price for company producing $1.4 EBITDA, which would usually be around $1M NPAT. TOX would therefore be looking at '07 NPAT earnings of around $6,300,000 (remember, an acquisition made now in February will probably only contribute 4 or so months worth of earnings to the FY07 profit, unless it's unusually retrospective), which equals 9.7cps. Multiply by 18 and you get $1.75.

So that's why i reckon that, for the current share price of $1.75 to be justified, the acquisition currently under consideration will have to be quite a bit larger in terms of purchase price than the previous 3.

Cheers.