financial analysis

I am new to this site.

Whilst I find it amusing to review previous posts on this company, I thought the BQT "bulls" and "bears" might be interested in some of high level, quick and dirty financial analysis (for a change), as opposed to useless banter and insults.

Having looked into some listed US biometrics companies (eg Cogent, Identix, Saflink, amongst others) - feel free to do likewise - it is clear that most of these companies (which are obviously larger than BQT is today) achieve EBITDA/Revenue margins of >40%. Furthermore, most trade at forward EV/EBITDA multiples of >20x.

To compensate for the size differential of BQT relative to US comparables and to reflect the likelihood that BQT has priced the "yet to be confirmed deal" aggresively, I have assumed BQT will achieve an EBITDA margin of 30% (rather than >40%) on the "yet to be confirmed deal".

So, if you assume that in FY06 (on an annualised basis) BQT will achieve Revenue of $23m from the "yet to be confirmed deal", ignoring any other contract BQT has or may enter, I estimate the company will generate an EBITDA of $6.9m (ie 30% margin). Applying an EV/EBITDA multiple of say 15x (as opposed to >20x), this results in an estimated EV of $103.5m. Adding the $9.5m of cash BQT has foreshadowed it will receive as part of the deal, this translates to an estimated Equity Value of $113m. Based on 148m shares on issue (my ball park estimate - please feel free to confirm), this translates to a price per share of $0.76 (ie $113m/148m).

Extending the above analysis to FY07, if BQT is able to generate the additional $50m of revenue foreshadowed in its announcement, my margin assumption would translate to EBITDA of $15m (ie 30% of $50m). Applying an EV/EBITDA multiple of 20x (I believe the market would re-rate BQT from 15x in this circumstance), this would translate to an EV of $300m. Ignoring any cash on hand the company may have at the time (conservative assumption), this would translate to a share price of $2.03 (ie $300m/148m).

Obviously, in addition to the assumptions specified above, my analysis ignores any other deals that BQT has entered in the past 6 months and ignores any new deals that the company may enter over the next 12-24 months.

So in summary, IF you believe that the 'consensus' will turn into a 'contract', based on the current share price, I believe BQT to be a compelling buy. However, IF you believe that Genner has been pumping the stock, then that is fair enough (although if I were him I doubt I would be putting every last cent into the stock in that circumstance). Even if you apply a 50% chance to the deal happening, the expected share price based on my forward range ($0.76 to $2.03) is $0.38 to $1.015.

Finally, I might speculate that IF an agreement has been reached, typically the confidentiality clauses would prohibit announcement unless both parties agree. In some circumstances, a clause would be agreed which would govern exactly how any media announcement would take place (eg one party announces before the other can). Whilst I have no certainty on whether Genner has entered such an 'agreement', it wouldn't surprise me if a non-binding Heads of Agreement (or the like) has been entered where the only clause that is binding (pending long form documentation of a deal) is a clause relating to confidentiality and media release protocols.

All the above is to say that I am a "half glass full" investor in BQT. However, I respect that others are (and have the right to be) "half (and probably less) glass empty" viewers of BQT.

I look forward to receiving constructive feedback on my "quick and dirty" analysis above.

Cheers
STICKS4


PS Before anyone accuses me of this, my analysis above is not an attempt to ramp the stock, it is purely my high level views so feel free to ignore.