2008 | 2009 | ||||||
Price: | 72.00 | EPS | |||||
Shares Out. (in M): | 0 | P/E | |||||
Market Cap (in $M): | 240 | P/FCF | |||||
Net Debt (in $M): | 0 | EBIT | 0 | 0 | |||
TEV (in $M): | 0 | TEV/EBIT |
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As of |
Interest |
||||||
8/31/08 |
Coupon |
Maturity |
Expense |
Price |
YTM |
Cur Yield |
|
Sr. Converts |
$240.0 |
2.5% |
4/15/12 |
$6.0 |
72.0% |
13.2% |
3.5% |
Car Loans |
6.4 |
4.7% |
0.3 |
||||
Cap Leases |
2.0 |
7.9% |
0.2 |
||||
Total Debt |
$248.4 |
$6.5 |
|||||
Less: Cash |
(361.4) |
|
|
||||
Net Debt |
$113.0 |
||||||
Stock Price |
$4.40 |
||||||
Shares O/S |
167.0 |
||||||
Equity Market Cap |
$734.8 |
||||||
TEV |
$621.8 |
FYE May 31, 2008 |
|||||
Revenue |
$853.6 |
|
EV/Revenue |
0.7x |
|
Maintenance Revenue |
338.2 |
EV/Maint Revenue |
1.8x |
||
EBITDA |
98.8 |
EV/EBITDA |
6.3x |
||
EBITA |
84.8 |
||||
Cash Earnings |
59.6 |
Net Debt/EBITDA |
(1.1x) |
||
Cash E.P.S. |
$0.33 |
The most attractive attribute of Lawson's revenue model is that 40% of total revenue comes from annual maintenance contracts. Maintenance revenue is high margin, recurring revenue that should perform very well, even in the current downturn. Annual maintenance contracts are typically priced at 15-20% of the initial license sale and they enable customers to get continued support from Lawson (in the form of troubleshooting and access to future upgrades/improvements). Renewal rates for the legacy Lawson side has been in the mid 90%'s and in the high 80%'s for the Intentia side. Maintenance revenue has a highly scalable cost structure; since the vast majority of Lawson's installed base elect to purchase maintenance contracts, maintenance gross margins run in the low 80% range. Maintenance revenue accounts for 40% of total revenue and 60% of total gross profit.
Management is very conservative with their capital structure and they insist on running their business with around a $100 mm net cash position at all times. Therefore, I see the chances of them incurring debt ahead of the converts as extremely low. The company was active in buying back their stock in fiscal 2008, but they have stopped buying back stock in light of the current environment. The biggest risk I see with this investment is that they utilize their cash balance to do a foolish acquisition. I definitely think the company will seek to gain greater scale at some point, so I think they will certainly do acquisitions in the future. However, their conservative stance on always running a net cash balance of at least $100 mm mitigates this risk in the near-term.
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