Let's take a look at a possible put-write position in Tibco Software Inc. ( TIBX), a leading independent provider of infrastructure and business intelligence software:
Tibco’s convertible debt
Tibco Software Inc. ( TIBX) has convertible debt outstanding with $600 million principal amount. This debt is convertible at a price of $50.57 per share. As the conversion price is significantly above the current market price, the issue of dilution is of no immediate concern to investors.
Cash and potential for increased buybacks or a special dividend
Tibco Software Inc. ( TIBX) had $760 million in cash and equivalents, based on its most recent quarterly report. This amount represented 24% of company’s recent market capitalization. Company repurchased $36 million worth of shares during first quarter of FY 2014 and had spend $182 million dollars annually on average during a three year period between 2011 and 2013. Annualizing the first quarter share repurchase amount would provide a share buyback yield of approximately 4.5%. It is reasonable to assume that with a significant cash holding Tibco will continue to repurchase shares at the same rate, increase share repurchases or even return capital to shareholders in a more accelerated fashion such as tender offer or a special dividend.
Valuation and put-write position example
Tibco Software Inc. ( TIBX)’s market capitalization was $3.2 billion as of April 8th, 2014. The company is valued at an EV/EBITDA multiple of x13.91 FY 2013. Based on April 8th 2014 closing prices, one could sell an out-of-the-money put option with a maturity of about nine months January 17, 2015 and exercise price of $18 for a premium of $1.45. By doing this, investor agrees to purchase Tibco shares for $18 share in case the stock price declines below $18. Actual cost and breakeven price of shares for investor would be $16.55 as the investor receives $1.45 per share in premium upfront. At this purchase price Tibco would be valued at an EV/EBITDA multiple of x11.4. In percentage terms, a decline of 17% from current stock price is required to get to this price - a nice downside cushion during uncertain times. If, on the other hand, Tibco shares will trade sideways or rise, the investor will earn an annualized premium income of about 11.3% for taking the risk. The post Tibco Software Inc. TIBX: Generate Income In An Uncertain Market appeared first on ValueWalk. -By Alex Gavrish