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No. of Recommendations: 4
Hi,

I am doing a quick and dirty DCF using the spreadsheet I created,
http://www.retro.ms11.net/simpleDCFv4.xls which is based on the quicken.com website. This is a simple DCF which makes use of Net income as substitute for Cash Flow.

First step is to calculate the netcome for the last twelve months, the press release stated that the 9 months ending 31 December, CNXS earned a total of 12.54M. Adding the March qtr 2005 earnings of 4.1M, I derive the TTM earnings of 4.1 + 12.54M = 16.64M

Using the spreadsheet, I try to find out what is the intrinsic value of CNXS using 12% growth as well as 15% growth for the next 10 years, because CNXS is a small cap, I use a discount rate (or expected rate or hurdle rate) of 15%. Long term, I expect CNXS to grow like the overall economy of 4%, my expected rate will approximate the long term S&P 500 of 11%.

Ticker CNXS Growth 10 Yrs 12.00%
Earnings 16.64 Expected Returns 15.00%
SharesOut 15.00 Long Term Growth Rate 4.00%
Long Term Debt 0.00 Long Term Expected Ret. 11.00%
M*-IV NA S&P-IV NA
DCF-IV 22.27 BG-IV-Inf 30.51

Ticker CNXS Growth 10 Yrs 15.00%
Earnings 16.64 Expected Returns 15.00%
SharesOut 15.00 Long Term Growth Rate 4.00%
Long Term Debt 0.00 Long Term Expected Ret. 11.00%
M*-IV NA S&P-IV NA
DCF-IV 27.57 BG-IV-Inf 36.14

Using the simple DCF spreadsheet, if CNXS were to grow earnings by only 12% for the next ten years, then it would be worth only $22.27 today (near current price), if CNXS were to grow earnings by 15%, then it would be valued at $27.57 today. In the last few years, CNXS has grown earnings from 7m in 2003 to 16.64m TTM, double in less than 4 years. If I were to use a 20% growth rate, the IV shoots up to $39.35 on today's dollars.

In conclusion, it is quite probable that CNXS can continue to grow earnings at a compound rate of 15%, since overall demand for its product is increasing as well as expansion overseas.

raytoei
who holds a small position in CNXS since 2003/2004
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