CIBCHi,
I have accumulate more than 25k shares last three years (most of them in 2007) and i won't sell one before double digits. Should be really interesting in 2008-2009...
Here is a small text from CIBC on the agreement from CYT to divest their surgical product portfolio (the FrostByte and SurgiFrost product lines) to its marketing partner ATS Medical :
CYT recorded C$7.3 million in revenues from these products in the first half of F2007. CryoCath will receive US$22 million in cash from ATS, with potential for additional payments of US$8 million, subject to the achievement of a number of milestones (manufacturing transition, future sales).
While this transaction will likely result in decreased revenues, it will be partially offset by lower expenses. We are updating our model and estimates to reflect the transaction. No change to our Sector Outperformer-Speculative rating and $5.00 price target.
We are making a number of changes to our model to reflect the transaction, based on the details that have been disclosed by the company. Revenues: We are lowering our revenue forecast to reflect the loss of the surgical product line. We are also adjusting our revenue forecasts to account for the strong Canadian dollar, and our revised outlook for a slower roll-out of Arctic Front in Europe in the short term, given current supply constraints. We have also made some downward adjustments in line with a slight delay in the U.S.
launch of Arctic Front. Margins: No changes. We continue to forecast gross margins of 62.5% to 65% going forward.
Operating expenses: We are reducing our operating expense forecasts by ~$2.5 million per year. The sale of the surgical portfolio will also result in lower depreciation expenditures going forward. Gain on sale of assets: We expect CryoCath to recognize a one-time gain from the sale of the surgical product portfolio of $14 million.
Balance sheet/Equity issue: Following the transaction, we expect the
company to pay down $10 million of its debt, which will effectively reduce interest expenditures in the short term. While we previously expected an equity issue before the end of F2007, we now believe that the company will have sufficient cash resources and lending capacity to execute its business plan and reach profitability, and we no longer expect an equity issue in the short term.
As a result of these changes to our model, we now expect the company
to record wider losses in F2008 and F2009. However, the transaction
does not change our longer-term outlook for the company and eliminates the need for an equity issue in the short term. We reiterate our Sector Outperformer-Speculative rating and $5.00 price target.
Price Target Calculation
We use a discounted free cash flow (FCF) methodology to arrive at our 12- to 18-month price target of $5.00. Our FCF model uses a WACC (weighted average cost of capital) of 14.1%, a terminal growth rate of 3%, and estimated 2011 free cash flow of $36.0 million.