Got this from CBS Marketwatch
Gotham funds believe Pre-Paid is a high-quality business that is extremely undervalued at current market prices. The report, available at www.gothampartners.com, includes a detailed valuation model.
Gotham's report reaches the following conclusions:
-- Pre-Paid offers a valuable service, providing middle-class
Americans with access to professional legal services. The
not-for-profit National Resource Center for Consumers of Legal
Services reports that 154 million Americans are currently
covered by some form of legal service plan. Pre-Paid is a
member in good standing of American Prepaid Legal Services
Institute (APLSI), an affiliate of the American Bar
-- From December 31, 1998 through September 30, 2002, Pre-Paid's
membership base grew by 130%, from 603,000 to 1,389,000
-- For 2002 and 2003, Pre-Paid's after-tax free cash flow is
projected to be $50 million and $60 million, respectively. At
the current share price of $25, the company's valuation is 9.5
times 2002 cash flow and 7.9 times 2003 cash flow, ignoring
the positive effect of additional share repurchases.
-- Since April 1999, Pre-Paid has aggressively directed its free
cash flow to repurchase and retire its shares, reducing shares
outstanding from 23.6 million in April 1999 to 19 million as
of October 18, 2002.
-- Gotham's valuation model, detailed in its report, concludes
that the business is fairly valued between $32 and $67 per
share. The model, based upon 26 years of historical data,
identifies three components of value:
(1) the existing base of 1.389 million members has an
after-tax present value of $230 million or $12.11 per
(2) the off-balance sheet pre-paid commission asset of $209
million has an after-tax present value of $94.6 million or
$4.98 per share;
(3) the potential to add new members in the future has an
after-tax present value between $294 million and $948
million, or a range of $15-50 per share based on
assumptions on future sales growth that range between a
decline of 2% per year to growth of 8% per year.
-- Pre-Paid is likely the most heavily shorted stock of any U.S.
public company, with 11.5 million shares sold short versus 19
million shares outstanding. This short interest, which has
depressed the share price, facilitates the company's share
repurchase program and exposes the shorts to extreme risks.
-- Gotham rebuts each of the short-sellers' arguments against the
company including allegations of accounting impropriety,
slowing growth, multi-level marketing, poor corporate
governance and litigation.
-- Press coverage of Pre-Paid, much of it inspired by short
sellers, has been unfair, incomplete and lopsided.
Disclaimer: Funds managed by Gotham and its affiliates own shares of Pre-Paid. The report is not intended as investment advice to anyone. Gotham urges anyone interested in Pre-Paid to read the company's SEC filings and to consult whatever other sources they deem appropriate in order to form their own opinions on the topics covered in the report.
Gotham Partners Management Co, LLC
David P. Berkowitz, 212/286-0300
Today's News On The Net - Business Wire's full file on the Internet
with Hyperlinks to your home page.
Copyright (C) 2002 Business Wire. All rights reserved.