RE: RE: RE: RE: Hem on BNN Predict buyout at $2.50. Here is my analysis:
As I've mentioned a few times before - one of the biggest problems facing HEM is their expenses versus revenue. R&D expenses are too high for such a small business. However, as SK stated in the last CC they need to keep the investment going to maintain competitive products. This creates a real business challenge when it comes to profitability.
A feasable option may be to grow through merger or acquisiion, whereby the R&D expenses can be leveraged more. This is happening to a degree with the AgJunction acquision (in reverse, really).
In 2011, HEM spent $11.5 million on R&D. Reducing that by 1/3'd would have saved them $3.8 million which would have flowed right to the bottom line. Reducing that by 1/2 would have saved them $5.6 million. Of course, you can't necessarily continue to grow the business by cutting R&D. Instead, combine with a business where you can leverage from their existing R&D facilities and even sales and marketting. Sales and marketting was $14 million in 2011.
Cut R&D by 1/3 = save $3.8 million
Cut S&M by 1/3 = save $4.6 million
Total to bottom line = $8.4 million
Add in an increase in revenues of $15 million @ 45% pts margin for an increase in profits of $15 million. That is around
.23 per share. Add a P/E multiple of 10x for a per share price of $2.30. Add in around
.25 of working capital for a buy-out price of $2.50 in 2012/2013.