CPY – “Da Bulls” Part III

The first two bullish posts covered the company’s shareholder friendliness as well as the company’s vision for the future. In this post I will cover CPY’s cash generation ability and why I think cash generated is higher than stated GAAP net income.

If the company can maintain its current level of revenue and profitability, CPY’s can generate $44 million in EBITDA.

Revenue $294
EBITDA $44

From here it gets interesting as reported depreciation/amortization was $17 million but CAPEX was only $3 million. The company actually expected to have $5 million of CAPEX in 2007. It’s a little difficult to guess the exact level of CAPEX going forward since the company basically threw out a lot of its old equipment which consisted not only of cameras but the equipment needed to print the pictures and fill the orders. However, it looks like managements guidance for CAPEX is $5 million at least for the next few years. At $5 million of CAPEX and a 40% tax rate applied to this higher cash flow …..

EBITDA $44
CAPEX $5
TAX $15.6
FCF $23.4M or $3.67/sh
Reported GAAP Net Income for 2007: $16M or $2.60/sh

I think my estimate of FCF is actually conservative by about $5M for at least a few years since the company will pay less taxes on the lower net income than what I calculated here.

What about working capital? Interestingly, it seems that unlike the department stores that they do business in which must spend cash upfront on inventory to growth, CPY actually has NEGATIVE working capital. This largely comes from the fact that they carry almost no inventory and very little receivables but they do take deposits upfront from their customers (there are broken out in the 10K but are probably lumped into “other CA” everywhere else).


* DISCLOSURE: I or accounts I manage may be long or short any and/or all stocks mentioned in this post. This is not a recommendation to buy or sell any security. For informational and educational purposes only.