RE:RE:RE:fair value: 0.09 earning X 4=0.36 times 20x=$7.20mingzhu wrote: i am quite generous with $7.20 valuation . book value is $2.04. Cash in Sept was 60m. maxsium it can buy is 60m/8=7.5m shares, about 10% of 79m total shares.
Imo, that's a bit short sighted as an evaluation.
EBITDA margin has been compressed this year as they are moving to higher tiers lenders for US Titles. It should eventually go back to 50%+. It is key to further growth and more stable revenues. If you normalize the US title revenues, you would find higher EBITDA for the year by $12.3M, which would result in $71.5M EBITDA for this year.
As they continue to grow, they should hit around $180M EBITDA in 2025 (using a 6% US Title and 8%/18% US Appraisal market share) from their Appraisal and Title business, with projected revenues over $1.1B. In their sector, a 10x EBITDA should be an easy multiple to achieve (if not higher), so total business value around $1.8B by then. Without any share buyback, that would mean around $22.50 per share on the lower end. That doesn't even account for the new service they should launch between now and 2025.
Book value for tech companies doesn't really matter, as the value they create via recurring future earnings don't show up on the balance sheet.
A value of $7 is a bear case where Real Matters stops growing and stalls in its current state, or require massive new investments to generate new growth. Using the $59M EBITDA and considering the $60M in cash, current valuation at $8 is around 10x EBITDA, which is low in the tech sector. Another measure would be value / sales which is just above 1, again really low for this sector of activity.
Following the company, I don't see why they wouldn't hit their market share target by 2025 (and thus their EBITDA targets). While the current move to higher tier lenders have limited their financial results, it's still the right move long term since it's the only way they'll grow their market share in US Titles from 1.8% to the 6-8% range (basically 3x to 4x). Imo, a great buying opportunity since you buy close to the bear case and you could see close to a triple if they hit their targets within four years.
Lastly, regarding buying shares, you have to account that they won't buy them all tomorrow. Excluding changes in working capital (receivables are $20M higher than payables and accrued charges), they generate over $40M of cash each year. The point is moot as the max they can buy with the increase until June 2022 is 3.2M shares (which at $10 would be $32M). If the share price continues to linger around the current price, they will likely start a new NCIB next July, for another 6M shares (July 2022 to June 2023). In total, that would be 9.2M shares over the next 19 months. Between now and June 2023, they should generate another $60M+ in cash, for a total of $120M to purchase 9.2M shares (@ average $13).