a couple of comments:
1- i think your K (or wacc) is too low. at 5.7% you are multiplying your FCF estimate by a factor of 17.5x. it is way too high. most valuations i have seen use between 10% and 15% (thus 7x-10x). for TC I would use 8x as this is tech.
2- i have not gone thru a detailed analysis, but your FCF at $15.8m seams a bit high. net accounting profit was $2.7m and the interest charge was $500k. so net income + interests = $3.2m. to get to $15.8m (or almost 5x) after adjustments seams like a lot. i usually get to 1.2-3x the accounting numbers.
3- what about the NAV considering the underappreciated "real estate" (the registered domains)!
thanks
Dante
Ok, I never had time to work on this yesterday but I was able to this morning.
My FCF after taking John's guidance a couple days ago came down to 4,316, which is 1.59X the accounting number.
I found a spreadsheet error that had me double counting the short term liabilities, my WACC is back up to 8.17% which seems more believable to me.
Ok, you're waiting to hear about these premium domain names. I noticed about 22M of premium domain names counted under the intangible assets associated with the purchase of ItsYourDomain.com, these were
their premium domains (every registrar has `em).
But nowhere could I find the rest of the Tucows domains. So I checked with a senior executive inside the company who confirmed for me that those are the only premium domains on the balance sheet, and that the rest of them are basically "off balance sheet".
So here is the press release Tucows put out describing these name:
http://domainnamewire.com/2008/02/20/tucows-reveals-depth-of-domain-portfolio/I have valued them as follows:
| Premium Domains | Average Value | Total |
| Gems | 1000 | $10,000 | $10,000,000 |
| Surnames | 39000 | $1,000 | $39,000,000 |
| Brandable | 22000 | $1,000 | $22,000,000 |
| Direct Nav | 88000 | $100 | $23,760,000 |
| Total | $79,800,000 |
People in the domain business revile me as a "domain bear", because I think that current aftermarket valuations are insanely high and have to come down at some point. My valuation of the above names reflects my "bearish" attitude.
For example, I list the "gems" at 10K each. Typical aftermarket sales of "gems" or "monsters" (i.e. "tool.com", "note.com", etc) start around the mid-xx,xxx range and the sky, it literally the limit. xxx,xxx sales abound. 7-digit sales are not uncommon. (i.e. pizza.com went for 3 million recently)
The "direct navigation" domains I valued using the guess that they averaged around $20/year in pay-per-click revenue and would sell for 5X. On the last conference call they revealed that they had sold approx 3,700 domains from their direct navigation portfolio at an average of $270/each and some sniffing around leads me to believe the current multiples on these names are around 7-8X (bringing the average revenue for each to 38.50) - here's a few examples of "direct navigation" names:
torontorealtor.com,
kneebraces.com,
linuxsupport.com - it's endless.
If you take all these premiums out of the equation, and go with the balance sheet amount (22M from the intangibles), you wind up with a NAV of .64, an EPV of .31 and with a 70% chance of a catalyst an IV of .54.
Put in my valuations for the premiums, you get a NAV of 1.37, EPV .31 and with the same probabilitiy (p) an IV of 1.05
The stock is currently trading around .57 - .60
