Eurocontrol Technics Ord EUCTF

Re:Re:Re:Valuation

[thedon]

Just as a refresher, The Gold Report from Sept. 18 covered this deal's value based on the LOI numbers. I wonder if we may see an update from them or another letter writer now that the deal is more formalized?

Excerpt:


EUO's CEO Bruce Rowlands bought 60K shares at 15 cents and 30K shares at 19 cents since the start of the month for a total investment of $14,700. EUO shareholders are well aware of the unambiguously undervalued state EUO is in thanks to an LOI with SICPA for the sale of EUO's GFI subsidiary, which is the bulk of EUO's current source of revenue and profit and is the subsidiary that holds EUO's Petromark technology.

Value from this deal comes in three parts for EUO:

1. $16 million in an upfront payment due from SICPA to EUO (18 cents per share).
2. A 5% royalty which has a guaranteed floor of $1.5 million per year for the next six years, for a total of $9 million (10 cps) or about $5 million in net present value terms (6 cps).
3. A continued working relationship between SICPA/GFI and EUO. EUO's Xenemetrix will remain the supplier of detectors to SICPA/GFI on all new contracts entered into during the six year royalty period. Tapping into SICPA's significant customer base will enable GFI to gain more exposure to the fuel marking market and will include operational logistics into EUO's royalty stream.

Reviewing EUO's balance sheet:

The company has $2.2 million in working capital (2.5 cps) and $3 million in long-term assets and intellectual property. Assuming that $2 million of that IP is part of the sale to SICPA, EUO made an immediate gain on sale of more than $20 million in this transaction. Looking at strictly the cash component of EUO after this deal:

• 18 cents per share in an upfront cash payment
• 5 cents per share, in present value terms of the minimum royalty amount
• 2.5 cents per share in working capital/cash currently on the balance sheet

EUO's cash value, assuming the minimum royalty and completely disregarding the drastic increase in business for Xenemetrix is 25.5 cents per share. The share price of 17.5 cents is over a 30% discount to this figure. It's no wonder the CEO is buying shares at up to 19 cents.

The share price pulled back slightly after an announcement that the closure of the deal has been delayed for another month. This is only a win-win-win situation for shareholders:

1. They are working diligently on closing the deal as stated, and the pullback represents a buying opportunity.
2. They are hashing out further details of the deal, which could only provide more long-term benefit to shareholders, or perhaps are renegotiating an even more lucrative deal for EUO.
3. If the deal falls through, EUO gets $250K for its trouble and GFI returns under EUO's control where revenues are increasing greater than 25% year-over-year for the first 6 months of 2015 and the EPS is on pace to be 1-2 cents for 2015, justifying a 30 cent stock price just based on price to earnings ratio and the growth rate. Shareholders are now well aware that GFI, only one of EUO's three subsidiaries, is worth at a minimum $20 million to prospective buyers. The volume and stream of news on the stock during hard times on the TSX Venture turned it into one of its darlings of the summer and it trades in excess of a million volume on most days. It will be very hard for this stock to drift downwards due to waning investor interest.

The Gold Report is extremely confident that the 1-year price target of 30 cents on EUO will be met or exceeded. There is no ambiguity or guesswork that EUO is undervalued at less than 25 cents per share. Somebody might read this and think "Sure, I have heard this a million times before on TSX Venture penny stocks and lost a lot of money buying and holding". Those people who have lost in the past need to ask themselves did those investments have an LOI that guarantees cash flow well above the current share price? If the LOI falls through, can the company stand on its own? EUO is profitable with a very strong balance sheet. With or without this deal there is absolutely no need to finance unless an opportunity for expansion came along and only at very good prices.