I took an initial position in MAPX today at 4 9/32. You can never know for sure where the bottom is, but I'd be surprised if this went below 4. With the stock having gone from 23 last year to where it is now, I think most people that want to sell have already sold, and the company's share buyback program will provide support from here on.
Additionally I think that although Y2K is going to cause some problems for the company for a quarter or two, concern over this issue is way overblown. There was an interesting article last Friday by Mark Boslet on the Dow Jones Newswire in which Chuck Phillips, Morgan Stanley's ERP analyst, gave his view of the situation. According to Phillips, top software industry officials such as Oracle's COO Raymond Lane, BMC Software's CEO Max Watson, and Novell's CFO Dennis Raney say their customers don't plan system “lockdowns” later this year in which no new software is introduced until after Y2K is taken care of. In Phillips' view, ERP companies are having more of a product transition problem than a Y2K problem. Managers no longer want to put in the old generation of client/server systems, but instead want Internet style systems made up of large backroom servers that users can tap into through browsers on their desktop PC's. Phillips cited a recent survey of CIO's at larger corporations that found the executives are afraid of being placed at a disadvantage by the Web. “They can't let a new channel develop and not be there”, according to Phillips.
So although Y2K is going to cause some problems for a quarter or two, I don't see a disaster. MAPX is already on record in its 4/5/99 press release that revenues in the quarter just ended will be slightly higher than the year-ago quarter, so it's not as if the bottom has fallen out. Regardless of the exact timing the Y2K problem is definitely going to be over with before too much longer, and at that point there is plenty of room for this stock to move up since it is now dirt cheap.
Things I like about this company:
The balance sheet is solid. There's no debt, and the company has surplus cash with which to buy back up to 1.8 million shares out of the 19.5 million or so now currently out.
The company has a history of rapid sales growth and is in a growth industry. Sales increased 36% in FY 98. There is going to be a slowdown in growth this year, but it should be temporary. The market research firm AMR Research predicts 37% annual growth in the ERP industry between now and 2002. Chuck Phillips of Morgan Stanley predicts 30-35%.
Historically MAPX has been highly profitable with operating margins over 20%. Again, this figure will be lower for FY 99, but there's no reason to believe this is anything other than a temporary decline.
The company spends over 10% of revenues on product development. New and improved products are the engine that drives sales growth and profitability. Of particular importance in my opinion is MAPX's recently released eWorkPlace product. Using eWorkPlace, remote or local users can obtain controlled access to MAPICS applications via an intranet, extranet, or the Internet. Further enhancements to this product are in the works.
MAPX is dirt cheap on a valuation basis. At 4 9/32 the company has a market cap of $83.5 million. Based on FY 98 sales, the price sales ratio is below 0.65. Software companies typically have a PSR of between 3 and 10. Estimates have been reduced because of Y2K, but the current First Call consensus earnings estimate for next fiscal year is $0.76. At 4 9/32 this gives a forward PE below 6 (the company earned $0.81 in FY 98). At 4 9/32 the stock is down over 80% from its 52 week high of 23 3/8. In my experience, when a company with a solid balance sheet and a history of high profitability in a growth industry is down 80%, it's time to buy. You can never know for sure where the bottom is, but quality companies don't go down much more than 80%.
The company's primary marketing channel is its network of 80 Affiliate companies around the world. The Affiliates know their local areas and can be effective selling to local people. Additionally, they only get paid when they make a sale, so if there is a slowdown in sales due to some temporary problem like Y2K, MAPX will also have a large reduction in its largest expense, commissions paid to the Affiliates. Also, the Affiliate channel provides MAPX with continual input into customer requirements. It is essential for technology companies to coordinate their product development with customer requirements.
The company receives recurring service revenues from its installed base of customers. Each year MAPX receives an annual license fee which is usually 15% of the then current amount of the applicable initial license fee. In FY 98 service revenues were $50 million of the company's total sales of $130 million. These revenues will be higher in the current fiscal year because of growth in the installed base.
The company's large installed base of several thousand customers provides a good opportunity for sales of product upgrades. Manufacturers rarely switch from one ERP company to another because of the difficulty and expense involved.
None of the company's customers accounted for more than 5% of total revenues in FY 98, so MAPX is not going to be severely impacted by the loss of any one customer or sale.
Management wants to enhance shareholder value. They are buying back up to 1.8 million of the 19.5 million outstanding shares. |
