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With over 20 years of professional experience, Mark Gomes is among the world's most experienced technology stock analysts. During his time as a contributor to Seeking Alpha, over 50% of his official picks were either acquired or tripled in value. Currently, Mr. Gomes is the CEO of Pipeline Data,... More
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  • QAD's Real Estate Is Understated On Its Balance Sheet 1 comment
    Mar 22, 2013 2:21 AM | about stocks: QADA

    At the time of QAD's IPO, the company owned 28 acres and 54,000 square feet of office space which it was carrying on the balance sheet at $8.9 million. During fiscal 2005, the company took on $18.0 million of financing and constructed its new headquarters on the property. Thus, QAD's total real estate investment was $26.9 million.

    Based on our (and other) valuation estimate(s) of $50M+, QAD's property is currently understated on its balance sheet by about $25 million.

    To double-check this calculation, we utilized a second methodology:

    Since the time of its IPO, land price indexes in the area have risen between 135% and 170%. Based on the carrying cost at the time, the company is likely sitting on at least $12-15 million of unrealized gains on the original property. Of course, this assumes a 1997 purchase date and is solely based on the original financing and carrying values. Regardless, we'll stick with the lower figure ($12M) for the sake of conservatism.

    By comparing the geographical breakdown of QAD's property & equipment balance to its geographical revenue breakdown, we estimate that its Santa Barbara headquarters (land + building) is now being carried on the books at just over $20 million. That's $6.9 million lower than the original $26.9 million. In addition, the $18 million loan it took to construct the new headquarters now has a balance of $16 million (all data as of the end of its 2012 fiscal year).

    Via simple arithmetic, we calculate a second estimate of unrealized profit:

    $12M + ($26.9M - $20M) + ($18M - $16M) = $20.9M

    This brings us pretty close to the original $25 million estimate. Keep in mind, if we go with the higher end of the $12-15 million range above, our second estimate becomes $23.9 million.

    Considering QAD's cash and deferred revenue balance, this $21-25 million is an significant addition to the company's true net-asset value. Juxtaposed against its free cash flow and maintenance revenue stream, it becomes easy to see the value represented in its current share price.

    Disclosure: I am long QADA, QADB.

    Themes: QADB Stocks: QADA
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  • annety
    , contributor
    Comments (4) | Send Message
     
    I am new to this arena, so I had to look up the term Balance Sheet. For anyone that is interested, I found a good definition here http://bit.ly/13s9ciO
    13 May 2013, 03:26 AM Reply Like
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