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Hi all,

LDR is a stock I know a few of us follow (and I own, btw). They recently announced acquiring IZI and the market has responded favorably the last 2 days with LDR stock rising.

PR:

http://www.marketwatch.com/story/landauer-inc-announces-acqu...

Slides:

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9M...

The release is shy on financial details about IZI but using the data given I get:

$ Million
Purchase Price $ 93.0 M
Less Tax Benefit $ 18.6 M
Net Purchase $ 74.4 M

9 Mo. Sales $ 14.0 M
Extrapolate Annual $ 18.7 M

Price / Sales 4.0 x
LDR Current P/S 4.1 x

Accretive 2012
$0.12 eps 1.128 M
$0.16 eps 1.504 M
Shares Out 9.4 M

P/E high 66.0 M
P/E low 49.5 M


The 4x sales is comparable to LDR's ratio. But, the P/E may be in nosebleed territory. Now maybe acquisition expenses are going to ding the eps in 2012 so that's maybe not an accurate measure. Dunno.

According to the slides, IZI has nearly doubled sales over the past 5 years and 100% of their sales are consumables. So, I guess that qualifies them as an attractive fast grower deserving of a high p/e.

Seems pricey. Thoughts?

Rich
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hi Rich

I like to look at price to EBITDA but there is no clue here what that might be.

maybe if we add 16¢ to ttm EPS and apply a PE to that it looks better?

I get $2.70 with the 16¢ at high end and the PE at 18--lower than LDR is
now.

The products they are acquiring seem like a good fit and the consumable nature is a plus. The high percentage of sales to hospitals and clinics would be a concern if these were capital intense products. They are likely fairly cheap and used every day and if the customer has a relationship with IZI and likes the product, sales should continue even after LDR takes them over.

The one thing that gives me pause is the $175 million debt. LDR has not had this high a debt level that I can see over the past 8 years. Don't know how easily it will be handled along with the dividends. Won't know all the details I guess until it's done

Generally, looks like a good addition to give LDR some growth. Without acquisitions, dosimetry will never give them much in the way of growth--too mature. I actually didn't mind that and was happy just to collect the dividend
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Hi Kit,

I see now that it is hard to decipher what my little table was trying to show. Let me elaborate:

LDR paid $93M for IZI and will receive a tax benefit with a net present value of $18.6M. So, the net purchase price is $74.4M.

If IZI will add $0.16 per share to LDR's earnings, then

$0.16 * 9.4M LDR shares outstanding = $1.5M net income to LDR from IZI.

Then, the transaction P/E = $74.4 / $1.5 = 49.6x

I would think this deal could close this year, yet, or maybe sometime early in Q1. So, the 16 cents should be pretty close to a full years earnings.

Another way to look at it is if we extrapolate the 9 mo sales figure in the release to a full 12 mo. then IZI sales is about $14 million.

Taking my $1.5M in net income and dividing by the $14 million in sales, gives a net margin of 10.7% which seems reasonable. Doesn't it? Or, would you expect it to be higher? What kind of margins would you expect a company like IZI to earn?

If I'm close with all this, LDR paid too much unless IZI can grow very quickly for an extended period.

I admit that there's lots of things I could be missing. There are acquisition expenses that could be depressing the incremental eps figure for 2012 only. Plus all my extrapolating is a source for error too.

Perhaps, LDR is underpromising so they can overdeliver next year?

Rich
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hi Rich

I see where you are going now

Looks high if the net margin is 10%. Margin seems low. Can't come up with a totally comparable comp but BDX is 16% and COV around 15%

Price X EBITDA of the high end of a range I think is acceptable --11X == would require EBITDA margin of 60% and 10% margin does not fit unless SG&A and taxes are huge. So EBITDA has to be lower and the price multiple is getting into high territory

There may be some expenses from the acquisition and interest expense that will decrease the "normal" EPS IZI had pre-acquisition and in time it will add more and there is always the growth that looks decent.

Still, looks high. But it is a good fit for them. Like it better than the last one.
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