RE:RE:RE:OK BossGood morning, and Thanks for putting the time and effort into that response.
I think it summarizes the risks and assumptions quite nicely...for everyones decision matrix.
Your 0 1 2 scenario list seems bang on (and we are living the .15 - .80 world currently...so long as there is an sdi in play)(and although its not $1-$2, its in the ballpark)
Your list of unkowns (and thier effect on EV) could be applied to just about any investment (or many).
I like your 'no bankrupcy' conviction (vertex support) although I would add 'for now' to that as $2m only goes so far...
Heres hoping that the next material news comes with a DP!!
pipsqueak3 wrote: No problem - all I can say is that it's my belief that zero assumptions can be made going forward.
If you change your mindset so that you are open for anything, you'll no longer be thinking in terms of one correct fair value - there won't be one.
Go back into some of the SA discussions regarding enterprise value and you'll see that even forecasting that out is nearly impossible.
I would say that when we first received the details of the contract, we, as a collective trusted the guidance and treated this as any normal investment, which was rational at the time.
But this has proven to be anything other than a normal investment. Any multiple that might have been used is as good as meaningless, for now. This company has the potential to be valued on any number of levels; from EBITDA to EV to revenue to debt to Equity, Assets... you get the point.
Think of it. NOLs and Orion are both off balance sheet - for now.
Debt is 3x the market cap.
Interest expense is currently running about .24 CAD per year.
2 SDIs may or may not be imminent. They may or may not ever close.
We may or may not have a large amount of suitors looking to acquire the management team, board and technology after one, or both, close.
We don't know to what degree these are front loaded and we can't assume all will go smoothly either.
We don't know if there will be further veritcals attached to these.
We don't know if there will be any other contract wins.
We don't know how long it will take and how much more debt will be put on.
We don't know if royalty will be converted and for how much.
We don't know if any more options/equity will be issued.
All we know is Vertex will continue funding and bankruptcy is off the table. Now run the simulations and get unlimited numbers of fair values.
It's not until we get professional coverage after an SDI close that a target will be released and that the market will gravitate to it over time.
But even still, there's no guarantee that target will be the same EV value that Vertex has internally.
Literally - this investment sits like this:
0 SDI - 100% loss.
1 SDI - 0.15-.80, and, will there be a takeover or will they wait for SDI 2?
2 SDI - New highs, 100% win for everyone.
So - look back to a year ago - many of the unknows were once assumptions. I think as a group we have all become much more pragmatic and cautious.
Avoiding bankruptcy is a great way to ensure we are not in a 0 SDI case, where the only outcome is bankruptcy. But, it's not guaranteed, afterall.
So if you ask what has changed? Assumptions have changed. Multiples will have changed. Valuation approaches will have changed. Ownership has changed. The board. The possibility set.