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We have previously looked at a view of the future of on-line finance. In that analysis we looked a range of scenarios:

One of the scenarios being Rock Stars.  We described the Rock Star scenario as:

Rock Stars – Retail investors seek advice from communities of other investors and are willing to pay. Investors make their trading accounts transparent on-line. Successful investors open their accounts to act as virtual fund managers. Virtual fund managers and community owners split a management fee paid by investors. Winners – Covestor, KaChing.

Last week Dan Carroll and the team at KaChing announced their new offering – and started to show how this scenario may play out. There was a feature in the NY Times which described the business model.

Customers will be able to open a brokerage account with Interactive Brokers and link their account with their choice of investors on KaChing. KaChing charges customers a single management fee of 0.25 percent to 3 percent, set by each investor. KaChing keeps a quarter of the fee, and the investors get the rest.

Each time the investors make a trade, KaChing will automatically make the same trades for the customer. Customers can log on whenever they want to check their portfolio’s performance. They can send the investor private messages and receive alerts if the investor does something unusual. With the click of a mouse, customers can stop mirroring an investor.

KaChing has an A-list team of investors behind them. The on-line finance space has a lot of interesting experiments going on – but we think this is a particularly interesting one. A lot of us will be watching closely how KaChing goes.

Disclosure: I met Dan and Jonathan from KaChing at the FinovateStartup09 event in San Francisco in April 2009. We had the stand next door. Good guys, smart guys – doing interesting things.

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Kathmandu is an out-door goods retailer. Kathmandu was founded by New Zealander Jan Cameron in 1987. The company has 84 stores with 45 in Australia, 32 in New Zealand and the remainder in the UK. Gold

man Sachs JBWere and Quadrant Private Equity acquired Kathmandu (then 46 stores) from Cameron in 2006. That transaction valued Kathmandu at around NZ$275 million.

The company is planning an IPO on the NZX (New Zealand Share Market). Gareth Vaughan in The Independent has a good summary of the details. There is a Prospectus expected in the next week. We thought that we would get in early and put out some high-level estimated numbers. We have not seen anything that has not been in the media – these are high-level estimates only. Commentators are estimating the IPO will value the company at around NZ$450 million.

Our base case assumptions are NZ$400 million of 2009 revenues with a 10% EBIT margin. We have also assumed capital expenditures of NZ$30 million per annum. We have assumed that revenues grow at 10% per annum and that profitability (at the EBIT line) remains constant at 10%.

Valuecruncher has completed a base case valuation and three separate scenarios for Kathmandu. The first scenario (EBIT 8%) assumes EBIT margins of 8% against 10% in the base case. The second (Growth 5%) assumes 5% growth not the 10% of the base case. The third (CAPEX $40m) assumes CAPEX of NZ$40m compared to NZ$30m in the base case.

This base case and three scenarios give an enterprise value range of NZ$354 million to NZ$460 million (8.9 to 11.5x estimated 2009 EBIT). Valuecruncher gave a 25% weighting to each scenario which gives a NZ$411 million valuation (10.3x estimated 2009 EBIT). This NZ$411 million is our mid-point valuation of Kathmandu.

An enterprise value is the value of the whole business – debt and equity. To calculate the value of the equity in Kathmandu we need to deduct net debt (long-term borrowings less cash). Without these numbers available we have only calculated a value of the whole business – debt and equity. The ultimate value of the equity would depend on the debt and cash on the balance sheet.

When the actual numbers are released it will be worth looking at some comparators. We have a range that you can look at – you can choose your own. But here are some suggestions:

Nordstrom ($JWN) – Interactive Comparator Analysis

The Gap ($GPS) – Interactive Comparator Analysis

Limited Brands ($LTD) – Interactive Comparator Analysis

Below is a link to the static Valuecruncher valuation report for Kathmandu. The report outlines more details about our initial valuation. It is a piece of high-level analysis based on limited available information.

Valuecruncher-Valuation-Report-Kathmandu-IPO-Estimates-20091007

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It has been a crazy 15 months for the Apple ($AAPL) share price. On the 22 August 2008 $AAPL was trading at $176.79. By 16 January 2009 $AAPL had dropped to $82.33 – down over half (53% down) in under five months. Today $AAPL closed at $190.01 – up over 130% in under nine months. The graph below shows the closing prices over the period. So what do we think about $AAPL?

Valuecruncher Interactive Analysts Report For Apple ($AAPL)

We have the comparator group set as Microsoft ($MSFT), IBM ($IBM), Google ($GOOG) and Hewlett-Packard($HPQ). You can change these peer companies on the site. For example you could add:

1. Research In Motion ($RIM) – Interactive Analyst Report For $RIM
2. Palm ($PALM) – Interactive Analyst Report For $PALM
3. Qualcomm ($QCOM) – Interactive Analyst Report For $QCOM

So what do we think?

Discounted Cash Flow Valuation

We have completed a discounted cash flow valuation using our interactive tools (there is a “discounted cash flow analysis” link just under the company name on the company page). We have populated our model with a mixture of consensus analyst estimates and Valuecruncher estimates. Our analysis produces a valuation of US$176.16 for $AAPL – 7.3% below the current share price. We see $AAPL overvalued at the moment. But how about compared to a peer group?

Comparison Analysis

I changed the peer group companies to $IBM, $RIM, $PALM and $QCOM.  I am going to look at two of the metrics we use at Valuecruncher – Enterprise Value (EV)/Revenue and EV/EBITDA. Enterprise Value (EV) is simply market capitalization plus net debt [long-term borrowings less cash]. We use EV to capture the impact of debt and cash on a company’s balance sheet – market capitalization doesn’t capture different capital structures when comparing companies.

EV/Revenue shows how a dollar or revenues is being valued by the market against the comparator set. On an EV/Revenue basis $AAPL is trading at 4.5x ($AAPL is being valued at 4.5x last year’s revenues). This compares to $IBM at 1.7x, $RIM at 3.5x, $PALM at 3.4x and $QCOM at 5.8x. $AAPL’s profit margins (at the EBITDA line) are 20.9% of revenues.  A dollar of $AAPL revenues is being valued more than a dollar of $RIM revenues – despite that dollar of revenues producing less profit (on an EBITDA basis) than the $RIM revenues.  A dollar of $AAPL revenues is being valued less than a dollar of $QCOM revenues – but $QCOM produces nearly twice the profit (on an EBITDA basis) as $AAPL.  We would expect the difference between the multiples for $QCOM and $AAPL to be larger – in $QCOM’s favour. There are some big growth expectations for $AAPL – on an EV/Revenue basis there appears to be a premium being paid for $AAPL against the peer group.

If we lower the $AAPL EV/Revenue multiple to 3.75x (a slight premium to $RIM) then this gives a share price of $163.30 – 14% below the current share price.

EV/EBITDA shows how a dollar of profit (measured in as Earnings Before Interest Taxes Depreciation and Amortization) is being valued by the market against the comparator set. On an EV/EBITDA basis $AAPLT is trading at 21.51x ($AAPL is being valued at 21.5x last year’s profit at the EBITDA line). A dollar of $AAPL EBITDA is worth more than double a dollar of $IBM, $RIM or $QCOM EBITDA ($PALM is losing money at the EBITDA line).

If we lower the $AAPL EV/EBITDA multiple to 17.5x (a slight premium to $QCOM) then this gives a share price of $160.06 – 16% below the current share price.

Summary

Based on our DCF valuation – $AAPL looks overvalued. Looking at some comparators – the market is valuing $AAPL highly compared to some peers. We believe if you are investing in $AAPL at the current price – you are paying a full price and there are cheaper options available. We do recognize that there are a lot of $AAPL fans out there however.

Disclosure: no positions.

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