Tessellate Has More Cash Than Ideas
Tessellate is a mature developer tools business in US. It holds $254 M of net cash and generates a further $172 M a year from operations after maintenance capex.
Return on invested capital in the core business runs at 16.8% against a cost of capital of about 13.1%. The growth team has a pipeline of expansion projects worth $117 M, but the CFO privately rates only half of them as clearing the hurdle.
The shares trade at 24x earnings. The largest institutional shareholder has written to the board asking for "a coherent capital return policy". The company has never paid a dividend.
market
- dividend history
- none
- price earnings ratio
- 24
returns
- roic pct
- 16.8
- wacc pct
- 13.1
- spread pct
- 3.7
position
- net cash m
- 254
- identified growth capex m
- 117
- annual operating cash flow m
- 172
Advise the board. Your answer should provide:
- Analysis — what each use of the cash is worth: reinvest, dividend, buyback, or hold.
- Risks — what each choice commits you to, and what it signals.
- Recommendation — an allocation with amounts, and the trigger that would change it.
State any assumptions you make.
80 points, 60% to pass.
- recommendation20
- market analysis20
- risk assessment20
- financial analysis20
Reveal suggested structure
Reinvest while incremental returns exceed WACC; return the rest. Choose the return mechanism on flexibility and valuation, not on preference.