Analysis of Year-End ResultsHeres something I just posted on the QIS Capital website. Enjoy!
I provided an analysis of BFS Entertainment & Multimedia Limited on this website in January 2007 (when the price was $.40). As of today, the last traded price was $.70. I think this is still a bargain.
BFS acquires exclusive rights to film and television programming for home video distribution and broadcast when applicable. Distribution rights are obtained by licensing, acquisition and co-production from various independent production and television broadcast companies. These programming rights are developed into home video products for North American distribution and where applicable are licensed internationally. For 2007, 76% of sales were in the US, 23% in Canada and 1% in foreign locations.
The company has just issued its annual report, complete with financials and MD&A, for the year ended May 5th 2007.
Here are some highlights:
- Revenue was up 10.4% to $11M.
- Gross Margin was 63.7%, up from 61.2% last year, notwithstanding the decline in the US dollar.
- Expenses were up 4.1%. The company has controlled these very well over the years.
- Net income was $787k, up 128% from $345k last year.
- Fully diluted and fully taxable EPS was 10.1 cents, up 130% from 4.4 cents last year.
- Cash flow from operations was 17.4 cents per share.
- Share count is 7.8M, down slightly over the years, and there are no options or warrants outstanding.
- Company is debt free, has 21 cents per share in cash and 39 cents per share in working capital. (For analysis purposes, I'll use 17 cents cash because A/P exceeds A/R.)
- Company paid a dividend of $.03 during the year.
- Last time I checked, insiders owned 47% of the shares. (When I reviewed my best performing companies over the years, I’ve found that they all had significant insider ownership. Nothing motivates like the ability to prosper financially.)
While this wouldn’t be my first choice of industry segment, many of the titles in their library I actually find quite unique and compelling. Also, they are launching a new health line in 2008.
The stock’s last traded price was $.70, which represents a p/e of just (.70 - .17 net cash) / .10 EPS = 5.3.
In terms of a valuation, in January, I used a p/e of 8 and I’m beginning to think that this figure is conservative. Nevertheless, I’ll use it again for this calculation:
($.10 eps x 8 p/e) + .17 net cash = .97
For debt-free companies, I sometimes use working capital instead of cash, which would yield a fair value of $1.19. If I use working capital and a p/e of 10, I get 1.39. Use what you like, but I think all methods point to undervaluation.