Without doing any fancy discounted cash flow analysis on future earnings, its pretty simple to get a rough idea of potential intrinsic value. If you take long term revenue growth out (conservative given recent history) and assume annual revenue stabilises at $100M, and they can generate a net profit of $5M from the $100M.
The question simply is, what capital is required to generate $5M net profit? Even if you assumed a 10% return which again is conservative given current interest rates then the capital required is roughly $50M.
So to generate $5M net, you need $50M invested at 10% or $100M at 5%. That's a back of the envelope calc that according to my assumptions says the Market Cap should be in the order of $50M. That's an indication of how undervalued they actually are currently. Now that's assuming of course they can turn revenue into profit! and to date they haven't proved they can. This is the key. If revenue keeps growing then it possible for the MC go way higher assuming profit grows with it.
Also lets not lose sight of the fact that just the revenue alone and the client base this brings with it has value. I'm sure the bigger players in this space will be eying CNW off as a potential acquisition for a low cost way to grow themselves.
CNW Price at posting:
1.7¢ Sentiment: Hold Disclosure: Held
