First, they own ~50% of Jite.
Jite has no debt and its AP is equivalent to its AR (@ June 30, 2010). So lets look at its other assets:
$3 mm cash
$3 mm inventories
$2 mm prepaid expenses
$6 mm PP&E
So the book value of Jite is ~$14 mm.
However, it also throws off ~$2 mm / year in cash (
.5 mm/quarter). Sorry, that was $1 mm for this year. Fiscal 2009 it threw off ~ $1.2 mm. So lets say it throws off $1.2 mm/year in cash, to remain conservative.
So, to remain conservative, lets ignore everything Jite owns except for its cash ($3 mm) and the free cash flow ($1.2 mm). Which really doesn't make sense to do, but whatever.
So, lets call McVicar's investment in Jite worth ~$4.5 mm (50% of $3 mm cash is $1.5 mm, plus 5 x free cash flow of $1.2 mm x 50%). FYI using a 5x multiplier to value a company is an "average" way to value a company (most valuations you see in the stock market are far higher, around 10x).
Alright, so MCV's Jite investment is worth ~$4.5mm; on to McVicar itself.
McVicar has A/R of ~$10mm and current liabilities of ~$10mm, so lets net those out (although the restricted cash should actually be netted against the note payable, but whatever ignore that to remain conservative).
Next, the Company has cash of $7mm (lets ignore restricted cash, inventories of $6.5 mm (no reason to believe they're impaired, and should thus be worth, at a minimum, the $6.5 mm book value), prepaids of $2.7 mm (basically "cash"), and PP&E of $10 mm. We ignore the value of goodwill because goodwill = nothing (well, arguably it represents a premium the company earns blah blah blah, but really when you value a company you should ignore this asset). Anyway, add up these assets brings us to ~$26.2mm, at the BARE MINIMUM, that the Company's assets are worth.
We flip over to the income statement and see that the Company is throwing off free cash flow of ~$2mm every 6 months, or $4 mm/annum. Apply a 5x multiplier and we come to $20 mm.
So, $26.2 mm for the assets, $20 mm for a conservative multiplier based on the company's earnings capacity, and $4.5 mm for its investment in Jite. This ignores ALL future growth.
This brings us to a bare minimum valuation of ~$50 mm. As of today, the Company is trading @
.40 cents with a market cap. of $14 mm, so to reach a $50 mm valuation, it'd have to go up 3.5x, and the share price would have to read $1.40.
So yeah, this Company cracks me up. Based on the free cash alone, MCV has $7 mm, Jite has $3 mm, and MCV's 50% of Jite's free cash is $1.5mm, so on free cash alone MCV has $8.5 mm, and its market cap. is $14mm, implying that the "value" allocated to its remaining assets is ~$5.5mm.
Absolutely hilarious.
Gday!