sophiework1

CryptoLogic's Future Too Uncertain

You forget one of the most importen things Holland GOVERMENT has signed up with CRYP and start sending trafic in September.

PLUS maybe you should look at the numbers ones again - the facts CRYP is very cheap now:

Based on the first quarter and addition of new licensees that will come online in 2007, CRYP should earn about $80 million in revenue in 2007. If excess cash is backed out and normalized margins are assumed, CRYP would currently be trading at less than 15x normalized earnings for a business with 20%+ returns on equity and very bright growth and reinvestment prospects. However, margins likely will not get back to normal until 2009. Under this scenario, the income statement for 2009 should summarize as follows (estimating 20% revenue growth in 2008 and 2009):

Revenue..................
Operating Income.........23,328,...
Operating Margin..........20.25%
NOPAT....................
Net Margin...................
End of Year Cash.........145,000,0...

Depending on the growth achieved after 2009 and the terminal multiple CRYP receives on its earnings (or the growth the market foresees and the multiple it assigns to those earnings), the value of CRYP 2.5 – 3 years should range as follows:

NOPAT......$19,828,800 Diluted Shares..14,000,000
Discount Rate..10.00% Excess Capital..$130,000,000

_________________Earni... Growth (6 Years after 2009)
Year 6____________0.00%__5....
Term. Mult.
10.00____________$22.6... 2 13.00____________$25.0... 16.00____________$27.45_$32.60__$39.03__$46.98__$56.75 19.00____________$29.8... 22.00____________$32.24_$39.03__$47.53__$58.08__$71.07 ________________Intrin... Value per Share at the End of 2009

The company's future and prospects should still be very bright at the end of 2009 and although it is probably more likely that CRYP would exceed 20% growth in the 6 years following 2009 than achieve no growth, even the no growth scenario (that also assumes dilution) gives a value close to today's price which should provide nice downside protection. CRYP will most likely be worth $50-60 at the end of 2009, which would provide for an annual rate of return of 25-40% over the next 2-3 years with little downside risk.