Tuesday, July 11, 2017

Pharming back of the envelope math

Pharming is not a stock for the Defensive Investor. A Benjamin Graham Defensive Investor owns parts of companies who give money to the owners the form of dividends (or possibly share buybacks).

Note: I have no clue about the Pharming, am not an expert and all the numbers below might be incorrect.

Pharming is a company which takes money from its owners by selling more and more stocks. Share outstanding:  72m...213m...408m

This year Pharming might make money because it bought the rights to Ruconest from Valeant (by in essence selling more shares). In total Pharming might have not 400 million but soon 700 million shares outstanding. More shares act as a diluent, if there are more shares, each owns a smaller part of the company.

Back of the envelope math:

In the first quarter, Pharming had an Operating Profit of €4 million.

Assume optimistically this was a Net Profit and that per year Net Profits are 4 x €4,- = €16 million.

Earnings per Share would then be €16m / 700m shares = €0,03

Assume a Price / Earnings (PE) multiple of 15 and you get a reasonable share price of €0,03 x 15 = €0,45 which is today's share price. (Up from a 52 week low of €0,19)

The FDA might also approve Ruconest for other uses so the value might be higher. On the other hand, management doesn't seem to have any plans for returning cash to shareholders in the near future.

Comments, questions or E-mails welcome: ajbrenninkmeijer@
gmail.com

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