zibeaster's Stock Blog
Saturday, January 13, 2007
MSI - A Possible Double
MSI's share price has tripled in the past two months. It closed at $2.70 on Jan 12. I believe it is still cheap.
MSI is going to be reverse merged with Fredericks of Hollywood in Q2 of 2007. Fredericks of Hollywood is a major brand and the big player in town before Victoria's Secrets took the lead. It went into bankcruptcy in 1997. Came out of bankcruptcy few years later.
Since there is little information about the financial status of Frederick's. There is no solid way to figure out the valuation of the merged company. So what I do is to speculate on few things and if they are true, I believe the current MSI price is cheap.
1) Frederick's online revenue is $80-$90 million. This is based on 2 method of estimation. In general, e-commerce has been growing at 25% to 30% a year (http://home.earthlink.net/~lindberg_b/GECGrwth.htm). http://www.fredericks.com/ has 20 million rev in 2000. If it grows at the average rate, it puts it in $80 to $90 million range. In its CEO's presentation in 2005 (http://www.tei.net/presidentsforum/2005/0223/LindaLoRe.asp), she mentioned the fredericks.com received 22 million unique visitors in 2004. In this link from 2000(http://www.allbusiness.com/technology/technology-services/686721-1.html), it mentioned it has 16,000 unique visitors a day. This translates to 5.7 million a year. If we assume unique visitors in those years have the same proportion to sales, we get $77 million sales in 2004. So in 2006, $80 to $90 million is not too far fetched. Even though they have 175 stores, I think most of them are small stores that generates less than 300k sales per year. I checked two of their stores, one only has about 400 sqft. the other has about 800sqft. So at this point, majority of their revenue is from online business. This gave them a much better margin.
2) Fredericks is profitable. The CEO has mentioned the online business is very profitable and is 70% of the direct sales (I assume direct sales mean catalog and internet combined). Their stores are boutique stores that doesn't need too much sales to be profitable. They have 10 years to close/shrink money losing stores. By now most of them should be in good shape.
3) Fredericks debt is manageable. Total guess here. They had $67million debt going into the bankruptcy. Assuming they have the same debt now (they should have less), it is not a big number if they use the merger money to pay down the debt (they did mention they will seek to refinance their term debt after the merger). Since they have stated they will use the money to open 50 new stores, it means they are not too worried about the debt.
4) The downside is limited. FOH was bought by Knightsbridge Capital for $70 million in 1997. After many years’ operation and improvement, it should at least fetch $100 million (this is the worst number imo). MSI was at $12.6 million before the merger news. This will put the combined company at $112.6 million. This translates to a price of $2.40 to $2.50. So right now, MSI is at a very good risk/reward ratio.
These are just guesses and are not based on any solid facts. But this is what I have to do to buy this possible steal. On the other hand, if all the information is known, it would be too late to buy. If we discount 130 stores. how much would a profitable online retailer like http://www.fredericks.com/ worth? I would say $100 to $300 million depending on the financials. With 130 stores, It should worth more. I think MSI is a potential double in a few months.
This post is for informational purpose only. Under no circumstances does the information in this post represent a recommendation to buy or sell stocks. ¶ 1:19 AM 2 comments
MSI is going to be reverse merged with Fredericks of Hollywood in Q2 of 2007. Fredericks of Hollywood is a major brand and the big player in town before Victoria's Secrets took the lead. It went into bankcruptcy in 1997. Came out of bankcruptcy few years later.
Since there is little information about the financial status of Frederick's. There is no solid way to figure out the valuation of the merged company. So what I do is to speculate on few things and if they are true, I believe the current MSI price is cheap.
1) Frederick's online revenue is $80-$90 million. This is based on 2 method of estimation. In general, e-commerce has been growing at 25% to 30% a year (http://home.earthlink.net/~lindberg_b/GECGrwth.htm). http://www.fredericks.com/ has 20 million rev in 2000. If it grows at the average rate, it puts it in $80 to $90 million range. In its CEO's presentation in 2005 (http://www.tei.net/presidentsforum/2005/0223/LindaLoRe.asp), she mentioned the fredericks.com received 22 million unique visitors in 2004. In this link from 2000(http://www.allbusiness.com/technology/technology-services/686721-1.html), it mentioned it has 16,000 unique visitors a day. This translates to 5.7 million a year. If we assume unique visitors in those years have the same proportion to sales, we get $77 million sales in 2004. So in 2006, $80 to $90 million is not too far fetched. Even though they have 175 stores, I think most of them are small stores that generates less than 300k sales per year. I checked two of their stores, one only has about 400 sqft. the other has about 800sqft. So at this point, majority of their revenue is from online business. This gave them a much better margin.
2) Fredericks is profitable. The CEO has mentioned the online business is very profitable and is 70% of the direct sales (I assume direct sales mean catalog and internet combined). Their stores are boutique stores that doesn't need too much sales to be profitable. They have 10 years to close/shrink money losing stores. By now most of them should be in good shape.
3) Fredericks debt is manageable. Total guess here. They had $67million debt going into the bankruptcy. Assuming they have the same debt now (they should have less), it is not a big number if they use the merger money to pay down the debt (they did mention they will seek to refinance their term debt after the merger). Since they have stated they will use the money to open 50 new stores, it means they are not too worried about the debt.
4) The downside is limited. FOH was bought by Knightsbridge Capital for $70 million in 1997. After many years’ operation and improvement, it should at least fetch $100 million (this is the worst number imo). MSI was at $12.6 million before the merger news. This will put the combined company at $112.6 million. This translates to a price of $2.40 to $2.50. So right now, MSI is at a very good risk/reward ratio.
These are just guesses and are not based on any solid facts. But this is what I have to do to buy this possible steal. On the other hand, if all the information is known, it would be too late to buy. If we discount 130 stores. how much would a profitable online retailer like http://www.fredericks.com/ worth? I would say $100 to $300 million depending on the financials. With 130 stores, It should worth more. I think MSI is a potential double in a few months.
This post is for informational purpose only. Under no circumstances does the information in this post represent a recommendation to buy or sell stocks. ¶ 1:19 AM 2 comments
Wednesday, January 10, 2007
FFHL Trade
Bought FFHL again at low $13s. Hopefully it will stablize and move back up again. Also have a position in TSTC now. A long term holding.
¶ 4:12 PM 0 comments
Saturday, January 06, 2007
FFHL and TSTC update
I have traded FFHL a few times. It now losing the momentum. I will wait for a few days before I buy it again. I am also watching to see if I can buy some TSTC again.
¶ 2:04 PM 0 comments
Thursday, December 28, 2006
FFHL and TSTC trade
I sold TSTC today. This was a bad move. I should've held it. But since I moved money to FFHL, It turned out to be a nice add. FFHL is a great play. This one can go to $20s easy.
This post is for informational purpose only. Under no circumstances does the information in this post represent a recommendation to buy or sell stocks. ¶ 4:06 PM 2 comments
This post is for informational purpose only. Under no circumstances does the information in this post represent a recommendation to buy or sell stocks. ¶ 4:06 PM 2 comments
Tuesday, December 26, 2006
TSTC - Possible Quick 50% Gainer
TSTC is a Chinese wireless product company. It is in the same space as GRRF. With GRRF trading at 26.3 trailing PE, TSTC should be trading at $11.70. With FFHL trading at $15 now, TSTC should trade at $12 with the same valuation. TSTC currently trades at $8.80. I think a 30-50% quick gain is in store. Also, I sold my FFHL today. Can't resist to protect profit.
This post is for informational purpose only. Under no circumstances does the information in this post represent a recommendation to buy or sell stocks. ¶ 2:22 PM 0 comments
This post is for informational purpose only. Under no circumstances does the information in this post represent a recommendation to buy or sell stocks. ¶ 2:22 PM 0 comments
FFHL Price Target
I think Chinese stocks are mostly undervalued. The country is growing at 9-10% a year. Its currency is about to appreciate against Dollar. I see 10% a year appreciation on average for a few years. So I believe a growing Chinese company should at least fetch a PEG ratio of 1 on forward EPS. A full valuation should add another 10%. FFHL is expected to earn up to 0.80 next year. With a growth rate of 30%, it should trade at $24. With a 10% premium, it should trade at $31.
After this IPO, FFHL is going to move into thicker BOPET film market to replace imports. It is also moving to other higher margin markets. They could potentially double their revenue in 2008.
This post is for informational purpose only. Under no circumstances does the information in this post represent a recommendation to buy or sell stocks. ¶ 1:01 AM 0 comments
After this IPO, FFHL is going to move into thicker BOPET film market to replace imports. It is also moving to other higher margin markets. They could potentially double their revenue in 2008.
This post is for informational purpose only. Under no circumstances does the information in this post represent a recommendation to buy or sell stocks. ¶ 1:01 AM 0 comments
Wednesday, December 20, 2006
FFHL - A Value China IPO
With EFUT's rapid appreciation after the IPO, it seems the appropriate adjectives for China IPO should be Highflying. But FFHL is really a safe and sound China IPO with a reasonable value. I bought shares near the close of today. Look to add more if it goes down more. If I am a hedge/institution investor, I have to buy some of FFHL, a China stock with solid earnings. Sounds great anyway you say it. For the details about this company, read this Blog from Bill Simpson.
This column is for information and educational purpose only. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. ¶ 5:44 PM 0 comments
This column is for information and educational purpose only. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. ¶ 5:44 PM 0 comments
Saturday, December 09, 2006
GOAM's VRS and CallMe Feature
On Dec. 5 2006, GOAM issued a press release on new VRS product. The event caused the stock price gap up next day to the high of $8.70. Following that, it launched its new Call Me service, with which people can get a free 8xx number. This allows other people to call back or leave a message. http://www.i711.com/
VRS product is very impressive. I never thought the picture quality can be that good on today's internet. Call Me feature is also much better than what competitors have.
The VRS and CallMe feature add the revenue to Q4 immediately. In my price target table in the previous post, I didn't count this. Apparently, we will be treated with a pleasant surprise.
This column is for information and educational purpose only. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. ¶ 11:13 AM 0 comments
VRS product is very impressive. I never thought the picture quality can be that good on today's internet. Call Me feature is also much better than what competitors have.
The VRS and CallMe feature add the revenue to Q4 immediately. In my price target table in the previous post, I didn't count this. Apparently, we will be treated with a pleasant surprise.
This column is for information and educational purpose only. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. ¶ 11:13 AM 0 comments
