Thursday, October 11, 2007

American Software is fairly valued (AMSWA)

So there has been a lot of talk regarding American Software on the Yahoo Message boards and in the MF Caps, everyone seems to think its undervalued and a great "Asset play." From further analysis, it is far from it. Here is the math:

AMSWA owns 88% of LGTY = $165.8 mln
Cash on the books is $75.6 mln, but $30 mln is from LGTY so net of $45.6 mln
So that gives a value of $211.4 mln for AMSWA so far.
The last portion of the calculation would be AMSWA the company, separate from LGTY. The last three years for AMSWA performance has been dismal separate from LGTY, their Net Income has roughly been $3.16 mln, -$2.03 mln, and $3.82 mln. They have roughly 26.8 mln shares outstanding which leads to roughly $0.06 per share on average over the past three years. Maybe a P/E of 10 in the best case scenario gives a valuation of $0.60 for AMSWA solo. Here are the revenue calculations:



So, $7.89 valuation of cash on the books plus LGTY stake. Plus a valuation of $0.60 for the co itself suggests roughly a $8.50 valuation for each AMSWA share. With a P/E of 20 that yields roughly a $9.10. Regardless of how an investor values AMSWA by itself, the stock is fairly valued. The only reason AMSWA stock has been moving has been because of LGTY.

Disclosure: I don't have a position in AMSWA.

2 comments:

Anonymous said...

You should deduct 36m instead of 30m of cash when valuating American Software. American Software's financial statement is consolidated, and since it has control over logility, 100% of llogility is included in the consolidated financial statements.

Anonymous said...

A higher forward P/E would be fairer, since several AMSWA subsidiaries (*other* than LGTY) have received several big contracts recently, which will be apparent when the stock climbs at the next earnings report (~ 1 month from now).