Description

Laser-Pacific Media Corp. (LPAC) provides post-production services to the Hollywood motion picture and television industry. For the six months ended June 30, 2001, revenues and EBITDA were up 16% and 46%, respectively. With LPAC at $4.95, the company is trading at a total enterprise value (TEV) to trailing EBITDA multiple of just 3.9x. Can you believe it? Trailing P/E is just 8.9x.

LPAC?s post-production services include technical and creative services to producers of TV series and TV movies, services for the creation of digital masters for high definition and standard definition television, home video, DVD as well as other master delivery formats. The Company also provides motion picture film processing, services for visual effects, digital sound editing and maxing and other related services that assist in the preparation of film, television, and digital content.

The Company is recognized for its technological achievements and has received five Emmy Awards for Outstanding Achievement in Engineering for its developments.

LPAC had revenue of $33.1 million for the fiscal year ended December 31, 2001. By June 30, 2001, last-twelve month (?LTM?) revenue was up to $35.5 million, reflecting the strong recent underlying growth. Similarly, EBITDA for fiscal 2000 was $8.7 million. For the LTM ended June 30, 2001, EBITDA was $10.1 million.

Capital structure looks as follows. There are 7.18 million shares outstanding. This is after the company bought back 825 thousand of its shares in the second quarter from a company that had previously proposed a business combination (which never came to fruition). The buyback price was $2.50 per share.

There is $10.7 million of debt and cap leases, and cash of $6.8 million, leaving net debt of just $3.9 million. At $4.95, equity market capitalization is $35.5 million, and TEV is $39.4 million.

Categories of services offered by the Company are:

Motion Picture Film Processing ? The Company has five negative processing machines, which are used to develop customers? negatives after photography.

Telecine Transfers ? The Company operates eight telecine transfer suites used to transfer customers? film to videotape for subsequent post-production processing.

Editing ? The Company operates nine editing suites, for preparing broadcast quality videotape masters for its customers.

Color Timing ? The Company operates five timing suites that are used for the final color balancing and image enhancement of customers? programs.

Digital Graphics and Visual Effects ? The Company?s visual effects department is equipped with several digital effects systems designed to create graphical elements, special effects, titles, and other specialized work for TV and motion picture.

Sound Editing and Mixing ? The Company?s post-production sound department includes ten digital sound editing systems, and sound effects and dialogue recording studio, and a re-recording studio for accomplishing the final sound mix of customers? programs.

Digital Compression Services ? Using an IBM Supercomputer and other specialized computer systems, the Company provides digital compression and related services which results in the creation of data recordings for use in CD-ROM, digital file servers and video-on-demand applications. The Company also provides digital compression and ?authoring? for the new DVD format.

The best comp for LPAC is Liberty Livewire Corporation (Nasdaq ? LWIRA), an 86% owned subsidiary of Liberty Media. LWIRA was known as Todd-AO Corp. before Liberty purchased its stake in June 2000. Liberty combined Todd AO with a number of other acquisitions to form LWIRA, consequently, accurate LTM data is difficult, if not impossible to piece together, therefore I take LWIRA reported data for six months ended June 30, 2001 and double it to get annualized numbers. On this basis, LWIRA, with over $600 million of revenue and $83.1 million of EBITDA, is trading at 10.0x trailing EBITDA, using a stock price of $6.50. Compare this to LPAC at 3.9x trailing EBITDA.

So not only is LPAC trading inexpensively on an absolute basis, but also on a relative basis, when compared to LWIRA, its most similar comp. How many companies offer strong double-digit revenue and EBITDA growth and trade at a trailing 3.9x EBITDA?

Catalyst

LPAC is dirt cheap. Classic unfollowed (by sell-side) microcap winner trading at a ludicrously low 3.9x trailing EBITDA, whose nearest comparable is trading at 10.0x trailing EBITDA. This is deep value folks. If LPAC keeps this performance up, the stock price will follow.