Market research : ALC

Outstanding shares: 20,600,001
Net Tangible Asset: L$0.272
EPS: L$0.004
P/E Ratio: 333.80
Monthly Revenue: L$673857.00
Monthly Expenses: L$581905.00
Monthly Earnings (Net Profit): L$91952.00

The land barons are dead, long live the land renting (but for how long)! I discussed this issue and a few more with Hannibal Kennedy CEO of Atlantis Land Corporation (WSE:ALC). First of all I’d like to begin with the business idea. ALC differentiates itself from the larger competitors, such as Anshe Chung’s Dreamland, through intense contact with its customer base. Many of them long term customers and happy with ALC’s ability to quickly resolve problems which might appear. The land renting market is not growing at its breathtaking rate anymore (some say it’s contracting), so there is a need to bind customers long term. This is what ALC wants to do, focus on its core competence, offering high quality renting space for reasonable prices with above average customer support. ALC does not want to diversify in other areas, such as land trading etc.
Until now ALC does not use big marketing campaign to acquire customers, they use classified ads sometimes, most of the new customers find their ALC property over the search and land sale tools in SL.

Let’s go further, look inside the ALC financials. I’ve estimated the cash flows for the next 12 months, and discounted those with 15% discount rate (risk free rate +market premium + SL specific premium) I know it’s quite a low assumption for a SL company, but let’s stick with it. For the October estimate I took the May 07 – Sept 07 average, it’s roughly L$ 184K. Now I projected a grow rate m/m of 2.5%. So I received the discounted cash flows for this period. Then I took the Oct 08 figure to calculate the residual value. Residual value and those discounted cashflows resulted in the fair value of ALC which is roughly L$ 16.9 Mio. Or L$ 0.82 per share.

Now this is one piece of the puzzle, another is the book value. All sims are valued at L$ 10.— per sqm, if you have a look at the linden stats - average land prices (from sales) are in the region of L$ 6.2597 per sqm (beginning of October to date). If you calculate the difference with the land that ALC owns, you get a not realised loss of L$ 1.96 Mio. or L$0.095 per share. So is your money at risk? The million dollar question is at which value were those sims bought, I have the figures form the oldest 5 sims, they were bought (combined at USD/L$ 270) at L$ 6.02, this is all money from Hannibal Kennedy. The 2 sims which were bought in May were valued at L$ 6.8874 – loss of L$ 82,279.--. And the last sim was valued at L$ 6.8008 – loss of L$ 35,463.--. That makes a total unrealized loss of L$ 117’742.--. This is not that much but with invested capital (from shareholder side) of roughly L$ 300K and dividends received of 4% or L$ 12’000.— an investor shouldn’t ignore it. It depends all on how the losses will be distributed in the future.

Another major issue is the looming opening of the server code. If the server side goes open source, hosting won’t be monopolized anymore and so server rent prices will fall rapidly, with them the value of the land. So think about it…

Rating Hold

Miles Market

LEM, Chief analyst

House of derivatives (LFB, LWI, LHH and LEM IPO Booster as not yet approved IPO)

http://lemurinvest.blogspot.com