Picking up where I left off in Part I, in addition to the better upside odds than downside FTAR also comes with a FREE call option that expires in the end of 2008.
Per the agreement with K-Mart, FTAR can be fired by their largest client in the end of 2008 which would cause the liquidations scenario I described in Part I. However, if K-Mart decides to extend their relationship FTAR now becomes a going concern generating roughly $20M and $40M in annual free cash flow.
Simply attaching a 10x multiple to that cash flow (which assumes tax expense), adding back the PV of the NOL’s that are now worth more as they will be realized and subtracting the long term liabilities I get a market value of $270 - $450 which equates to $13 - $22 per share. This value excludes some hard assets and other assumptions made under the liquidation scenario ….. but who cares, if I am off by a dollar or two at this level its still a damn good return.
* DISCLOSURE: I or accounts I supervise are long FTAR.OB. This is not a recommendation to buy or sell any security. For informational and educational purposes only.
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