I wanted to make some price estimates based on some fundamentals and on Modum’s possible profit.
If at any point you think my calculations are wrong, please feel free to comment. I love constructive criticism.
My line of thought began with Modum being a different kind of company in crypto space, they tend to be more like a traditional company/start-up, the only difference is they are using blockchain technology in order to access funds very quickly on their final round of funding and also to log their sensor data. They are blockchain agnostic and they don’t depend on any platform, if at any point, there will be a better platform to suit their needs they can pivot very easily. This degree of flexibility is very important in a start-up.
So, if you are an investor and you would be looking for companies to invest in a classic stock exchange market, you would be looking at some important indicators: - EPS (earnings per share) Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, serving as an indicator of the company’s profitability. It is often considered to be one of the most important variables in determining a stock’s value, and it comprises the “E” part of the P/E (price-earnings) valuation ratio. EPS is calculated as:
EPS = net income ÷ average outstanding common shares
Investopedia
https://www.investopedia.com/ask/answers/070114/what-formula-calculating-earnings-share-eps.asp#ixzz51JobJw6CP/E Ratio - The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
The P/E ratio can be calculated as:
Market Value per Share / Earnings per Share
Investopedia
https://www.investopedia.com/terms/p/price-earningsratio.asp#ixzz51JqptFGAIn essence, the price-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings. This is why the P/E is sometimes referred to as the price multiple because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.
In Modum’s case, we don’t have historical data to know the current P/E ratio. We can search for an industry average and build from there. As for Investopedia, the average P/E ratio for the internet sector is 20 to 25. We can add a margin of error and estimate the future Modum’s P/E ratio at 40.
So now that we estimated the P/E ratio we need to find the EPS. The only missing piece of information is the net income.
So we need to estimate (based on current data) the potential profit for Modum.
What do we know:
1) There are 200 million shipments per year in EU only on the pharma sector.
2) Price per shipment will be up to 10 CHF (aprox 10 USD). I think the medium price will be 8 USD.
3) During pilot phase, Modum had 5 clients with a total yearly shipments of 1.6 million. That’s aprox 320,000 yearly shipments per client. Their target was to convert 50% of their pilot companies into paying customers.
4) Modum’s target market are the SMEs with aprox 30,000 shipments per year. Total market for this sector si 10% of 200 million shipments.
5) Wholesale distributors make 90% of the shipments and there are aprox 750 companies in EU. Aprox 250,000 shipments per year per company.
6) Currently, the modum system is being integrated into the system of the leading last-mile logistics service provider in Switzerland. Clients from the wholesaler and mail-order pharmacy segment are lined up.
7) Modum’s estimation of their EBIDTA is 19%. This estimation was given in early 2016 when they were looking for a second round of funding, this type of estimation are usually pessimistic on purpose. I personally think their EBIDTA will be higher that’s why I will set the net income ratio at 19%.
Now we are going to “estimation realm”, please feel free to correct me or share your opinion.
Estimations: - 1 million shipments will come from their pilot companies. If not more. - 50% of total SMEs will adopt Modum solution in the next 2 years. The reason is because the small and medium enterprise run o a little profit margin and every cost-efficient solution will increase their bottom line. Also they outsource this type of services. The sales cycle will be much shorter compared to big enterprise companies. Aprox 5 million shipments - 2% of total Wholesale distributors will adopt modum in the next 2 years. That will mean 15 companies with a total of 3,6 million shipments per year. - Net profit = 19% - Medium price per shipment = 8 USD - P/E = 40 - Total shipments per year in the next 2 years = 10 million.
I think this value will be much higher and I am waiting for Q1 report and if they have more than 2 million shipments after 3 months in 2018, the total value for 2020 will be much higher than 15 million shipments.
Now that we have our estimations let’s do some calculations:
EPS = net income ÷ average outstanding common shares Net income = 19% * ( 10 million shipments * 8 USD ) = 15,200,000 $ Average outstanding common shares (in 2020) = 27,000,000 EPS = 0,562 $ P/E = Market value per share ÷ EPS 40 = market value per share ÷ 0,562 => market value per share = 22.5$ after 2 years
I strongly believe that Modum can reach 10% market share in 2 years. They have the right product at the perfect time, easy to use, cost-efficient and secure, with little competition on the market. with aprox 20 million shipments, that will mean aprox 45$ per 1 MOD.
45$ per 1 MOD would mean a total market cap of 1,2 bn $. At this moment top 25 companies are in 1 bn range, two months ago, only top 10 were in 1 bn $ club. Modum definitely has the potential to reach top 50 in the next couple of months.
Please share your thoughts and opinions and if you found this interesting.
Cheers!
