Forum Archive Index - April 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi James,

Great to see someone else on this forum who has done some of their own 
homework on ITC, and doesn't just mindlessly swallow the PR hype.

On the specific issues that you raised.   NTA is a is not the usual 
figure one would consider when looking at the profitability of a 
growth company.   But I think it is relevant in the case of ITC, my 
logic being that the more money they have to invest the more money 
they can make.

Having said that, ITC has a diversification policy partly I think 
because this technology market is volatile and longer term there will 
be winners and losers and by the law of averages ITC will have some 
of both.    All  individual technology stocks are priced were floated 
as winners and the IPO prices reflect that.    But we all know that 
not every technology company will be a winner so is it fair to price 
the potential of ITC on the assumption that every investment they make 
will be a winner?

The table 7 appendix of the ML report lists NTA at 17c for FY 2000, 
not too different form your own estimate of 18-19c.    For the sake 
of argument let us say NTA is 18c.     Then let us assume that 50% 
of these assets that are invested actually bear fruit.    This gives 
a figure of 9c of assets actually invested in 'winners' which is 
where I get my figure of 9c from.    Think of 9c as the 'useful' NTA 
if you like.

Have a look at that press release re the tie up with Earnst and 
Young again.    Earnst & Young are supplying 3 million dollars worth 
of services- not cash.     And I am sure E&Y do not see it as a 
donation - they will want their share of profits  from any joint 
venture.    The E&Y connection is a useful contact but I don't 
think it changes the financial position of ITC significantly.

Your comment on Terabyte being purchased at 1.4x revenue verses 
similar US companies at 55x revenues is interesting.    Just what are 
these companies that you consider comparable?    The only way I can 
see justification of  55x revenue purchase price is because of some 
imminent critical mass which - when reached -  will suddenly unleash 
huge profits.   You can imagine this might happen if a new piece of 
software suddenly caught on.   With development costs paid the 
increase in revenue streams become pure profit.   But how could such 
a scenario apply to Terrabyte?   Aren't Terrabyte basically web 
designers?   I would imagine each of their customers want customised 
solutions, not something just banged up on their servers out of a 
box.  Customised solutions are labour intensive, so I can't see how 
Terabyte can ever be valued at anything near 55x revenues.     Your 
point of Terabyte being purchased at 1.4x revenues, not 2x revenues 
is taken and would change my valuation range from 40-70c to 56-98c.

I would counter that the 20% fall in the NASDAQ index over the last 
week has reduced the likelihood of a successful float of any of these 
ITC investments in the foreseeable future and accordingly there should 
be a further discount factor built into the ITC share price.

I see you agree on my point that that the B2B market is global not 
regional.  I don't know what ML were doing thinking otherwise.   I 
got the impression that their February report was a baseline 
snapshot and that subsequent ML reports may be more useful.

I agree with your comment that:
" I cannot find any stocks similar to ITC  that has a lower Price/ 
NTA given its potential."
but this is because I can't find any similar stocks to compare it 
with at all.     The nearest similar stock that I can find is BIL
who have a similar philosophy of providing a hands on assistance to 
management then selling their investment when the changes they have 
instituted are reflected in the share price.  I notice that BIL
isn't trading at 2.7 times it's NTA.    All opinions in this post are 
IMHO of course.

SNOOPY






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