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SOGEN FUNDS'
JEAN-MARIE EVEILLARD ET AL.
(continued from preceding
page)
OID: Which has the added benefit, perhaps, of being the way that a potential acquire might view it.
Eveillard: That's right. Enterprise value to EBITDA is by no means the be-all and end-all. But it is particularly helpful in evaluating a company with a lot of debt or a lot of net cash.
THAT'S ONCE AGAIN A BARGAIN TODAY.
Eveillard: For example, Emin Leydier, the French paper company that I told you about before, for reporting purposes depreciates its equipment over only eight years. By comparison, its most conservative American counterpart - Georgia Pacific - depreciates its equipment over 16 years.
OID: A mighty dramatic difference.
Eveillard: Absolutely. And, therefore, if you look at Emin Leydier purely on the basis of its earnings per share, you might think it's very expensive - because it's trading at nearly 70 times 1996 earnings.
But because EBITDA is earnings before interest, depreciation, taxes and amortization, it eliminates that distortion. So, instead of selling at a very high P/E, Emin Leydier, according to our calculations, is actually selling at something like 5-1/2 times extremely depressed EBITDA.
OID: And when you told us about it before, you said it was selling at only 2-1/2 times after-tax cash flow.
Eveillard: Yes. And it's not that much higher today.
OID: When we talked about it in 1992, Emin Leydier was selling at FF255. What is it selling for today?
Eveillard: Around FF420. But it went up to nearly FF650 in 1995 when the price of paper moved up. But then they moved down dramatically in 1996.
Emin Leydier has a state-of-the-art operation though. Over a full cycle, we think they should make good money. It's just that it's inherently a cyclical business.
And assessing Emin Leydier's normalized earnings is somewhat subjective. It depends to a very large degree what assumptions you make about the paper cycle. You have to look out to mid-cycle. And, as you like to say, you have to "normalize" it. And there's a lot of subjectivity involved when you do that.
OID: There's no need to get personal.
Eveillard: But it's probably selling at 7 or 8 times mid-cycle earnings and 3-1 /2 times mid-cycle cash flow.
OID: Not that different than when you told us about
it in 1992.
Eveillard: I think that's right. And Emin Leydier's book value is about FF280 as of year-end 1996. So it's selling at 1-1/2 times book.
Page 12 of 20
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