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VALUEVEST MANAGEMENT'S
MARK BAKAR AND JOHN BURBANK
(continued from preceding
page)
high quality - similar to European department stores with food, clothes, etc. And they're downtown in very good locations that aren't easy to reproduce. So there are lots of good things there - including real estate that's worth a lot.
However, Korean companies tend to think in terms of market share and size - in effect, that bigger is better.
OlD: It's not?
Burbank: Not at all costs - which is basically what they were trying to do. For now, it looks like they'll be limited by the amount of money they can raise - which is zero because basically nobody can raise any money today. So they're not going to be able to grow it very fast for now.
Total 1997 retail sales will be about KW1.5 trillion - or about $1 billion. So its retail segment is decent sized. And it's well run relative to other Korean retailers.
What's a reasonable valuation? I don't want to be aggressive. So I just assume that their market position is going to compensate for their lack of earnings. Therefore, I simply assume that its retail segment's enterprise value is 40% of sales - or about $400 million. And about half of their 1997 retail sales are from their department stores which, in the U.S., are valued at closer to 100% of sales. So it's probably worth more, but it's impossible to know.
But Shinsegae has total net debt of $405+/- million. Therefore, the value of its retail operations at the very least offsets its net debt. So all I have to do is value the rest of Shinsegae and compare it to its stock price.
OlD: How convenient.
Burbank: And when I multiply its current stock price of KW11,200 by its 11.2 million shares outstanding, I come up with a total market cap for Shinsegae of KW125 billion. That may sound like a lot. But given today's exchange rate of 1,500+/- Korean won to the $1, it's only about $83 million.
OlD: So, in effect, you're paying KW125 billion, or $83 million, for everything else. And I gather that its other assets are worth more than that.
Burbank: Much more. Most important by far of Shinsegae's assets is its 14-1/2% stake in Samsung Life - which, by the way, is not publicly traded. It owns roughly 2.7 million shares - which I value at KW200,000 each. That's KW543 billion in all for Shinsegae's stake - which is more than four times their total market cap.
OlD: Wow.
Burbank: Then, when I total the values of its pieces including its stakes in the companies I mentioned earlier (among others) and some very well located real estate (which I just include at book value), I come up with estimated net asset value for Shinsegae of about KW70,000 per share - which is nearly six times today's price.
ON THE CONTRARY, IT MAY BE WORTH MUCH MORE.
OlD: Isn't myth wonderful?
Page 7 of 14
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