Company Description: CryptoLogic Inc. (CryptoLogic) is a software and services provider to the Internet gaming market
Company currrently trades at 6.2x trailing EBITDA. Reason being is investor's fear of affects of recent US legislation on banning internet gambling. Company only generates 20%of revenue from U.S sources and non - U.S sources are growing at a 25% clip. Assuming U.S. makes up 50% of EBITDA, LTM EBITDA would be more like $17M, resulting in a 12.4x multiple. This is a fairly draconian assumption though.
In two years, $17M of EBITDA at a 15% growth rate will equate to approximately $23M of EBITDA. In addition the company generates approximately $7M a year in interest income (from a large cash balance). Further during those two years, the company will generate on the order of $60M of cash (very limited capex at this business). A company that is growing this fast deserves a multiple of 9.0x EBITDA and 12.0x FCF.
Assuming $30M of FCF at a 12x multiple in addition to $170M of cash (current balance + 60M) = enterprise worth $530M. At 14M shares outstanding that equates to a $38 stock price. And this is under very draconian assumptions of no stock buy backs and slower than historical growth. In all likelihood this stock trades above $50 by 2008.
$25.28 (01/30/07)
