--- the subscriber area has no ads and those above are not selected or endorsed by this site ---


EMAN, OLED and BGCP -3

09:26 25-Jan-18


eMagin has finally priced its offering.  The company is selling over 8.5M shares (up to 9.75M, if over-allotment is fully exercised) together with an equal number of warrants for $1.35 each.  Each warrant allows the owner to purchase an additional 4 tenths of a share at an exercise price of $1.55 any time in the next five years.

As I feared, these terms are not good.  The market is looking at the $1.35 price tag, so far.  However, if we use use a moderate discount rate of 10% per year, that already puts the current value of shares below $1, signaling the potential a reverse split.  No matter what discount rate you use, the placement represents 34 to 39% dilution to current shareholders.  I've been warning about dilution since the 1Q17 report, back in May, and the stock's value has been cut in half since then.  Although I will continue to track the technology, subscribers shouldn't expect to hear much more from on EMAN for the foreseeable future.

Elsewhere in the industry, I have two further notes on UDC.  One is that weekly options have been introduced, which is slightly positive for pricing.  More fundamentally, the new tax code applies a 13.125% rate to royalties and other "intangible income" through 2025 and 16.4% thereafter.  This was formerly taxed as as income.  This could wind up being of material benefit to Universal Display, which had an effective tax rate around 20% in 2017.  If the $90M in license fees from Samsung were to stay the same going forward, the 7% savings represents about 13 extra cents per share in earnings on an annualized basis, and of course, UDC earns other licensing income as well.  None of this takes away the technological risks that the company is facing, but it does like there will be a measurable positive impact which could be projected in the fourth call.

This same tax change could have a negative effect on BGC Partners.  If so, I expect the company to adjust its operating structure, thereby making the impact a one-off for 2018.  Two other factors offset this, however.  The first is the MiFID effect that I've been writing about, and the other is that I expect the initiative that started with Besso to begin coming to the fore.  Recall that in the 2Q17 report, I noted that a related product was projected to be launched around the end of 2017.  We haven't seen that yet, but anecdotal evidence from my contacts indicates that reinsurance is garnering more and more industry attention as well as financing.  The debacle at GE could ripen opportunity sooner than originally thought, as well.  Finally, I continue to think that the market is not is not properly pricing in a NMRK distribution to BGCP shareholders yet, and that an adjustment is in store.