TORONTO (Dow Jones)--Although one analyst believes Silent Witness
Enterprises Ltd. (SILW) is a decent bet to be acquired, Rob Bakshi, president
and chief executive, says that won't be the case. If anything, Silent Witness
will be a buyer.
"Silent Witness is always looking to acquire or to invest in unique
technology that can help us get future products to market faster," he said.
"We haven't found anything that's a good fit yet."
However, Douglas Taylor, an analyst at National Securities Corp., told Dow
Jones that Silent Witness is nearing that point in the evolution of a small
company where it's "either start acquiring or be acquired, and my money is on
(Silent Witness) being acquired."
Taylor said he does a lot of work with emerging growth companies and noted
that the point Silent Witness has reached is a natural progression point.
"They're in the window of being acquired or making acquisitions," he said.
Taylor said he isn't aware that Silent Witness is in any kind of acquisition
talks. However, he has been approached by one company interested in Silent
Witness but he said "I don't think they have the muscle." He declined to
disclose any other information.
Silent Witness has had an interesting evolution. In 1985, it began
developing on-board computer systems, similar to the black boxes used in
airplanes, for emergency vehicles. The product was discontined a few years ago
because of declining profit margins.
Entered Surveillance Market In 1993
In 1993, Silent Witness entered the school-bus market, selling surveillance
cameras used to monitor the behavior of bus passengers. With success in that
market, Silent Witness entered the mainstream security industry and now has
more than 300 distributors. Typical customers for its products are prisons and
casinos.
Canaccord Capital Corp. analyst Peter Quitzau said there is always the
potential for Silent Witness to be acquired because it has no dominant
shareholder. He said management holds about 10% of the diluted shares.
"Any time a company is growing and successful, that potential always
exists," he said, adding he doesn't think Silent Witness is likely to be
acquired in the near future.
National Securities' Taylor acknowledged that an acquisition by the Surrey,
B.C. company is an option. "One way or another, shareholders will do well," he
said.
Silent Witness has experienced a high rate of growth for the last three
years. In the fiscal year ended July 31, 1998, net income totaled C$2.2
million or 37 Canadian cents a diluted share compared with year-earlier net
income of C$1.1 million or 18 Canadian cents a diluted share. Fiscal 1998
sales were up 62% to C$21.7 million.
Results so far in fiscal 1999 show continued high growth rate. Net income
for the nine months ended April 30 was C$2.9 million or 41 Canadian cents a
diluted share, up from C$1.3 million or 20 Canadian cents a diluted share a
year earlier. Sales totaled C$23.5 million, exceeding sales for all of fiscal
1998.
"They've done better than I thought," Taylor said, adding that he sees this
growth rate continuing for another five years.
Analysts Forecast Continued Earnings Growth
Taylor is forecasting earnings of 57 Canadian cents a basic share for fiscal
1999 and 85 Canadian cents a basic share for fiscal 2000. He said these
forecasts are likely fairly conservative and there will only be a difference
of 2-3 Canadian cents between the basic and diluted share earnings.
Quitzau's has a slightly rosier outlook, with a forecast for net of 60
Canadian cents a diluted share in fiscal 1999 and 85 Canadian cents a diluted
share in fiscal 2000.
Bakshi said Quitzau's forecasts seem to be on target.
Silent Witness spends about 7% of total sales on research and development
each year, Bakshi said. To maintain its growth rate, he plans to launch three
new products a year for at least the next five years.
He said the company started shipping its newest product, the SWC40
surveillance camera, at the beginning of the fourth quarter. It is the first
camera with digital video recording and storage, as well as digital video
motion detection in a single unit. It also includes a wireless remote control
and can be installed by the average consumer.
Bakshi said it's too soon to know the camera's financial impact but "the
market acceptance seems to be very good."
The company plans to launch another new product - the SWC30 surveillance
camera - in the coming quarter. It will have a wide range of lens options and
an improved camera board to enhance camera performance. It has no exposed
cabling and a tough polycarbonate housing.
As well, Bakshi said he plans to expand the company's reach in Europe, where
it is already established, as well as into the new markets of Asia and South
America.
"We've got a very good strong hold in the U.S. and Canada and the U.K., and
a pretty good stronghold in France as well," he said. There are many "untapped
market areas for Silent Witness that we'll be focusing on in the next (two to
five) years," he said.
Canaccord's Quitzau believes Silent Witness' European presence will increase
within the next five years. "The company is very well managed and they don't
take on any excessive risk," Quitzau said. His 12-month target for the stock
is 17.00.
The stock is trading at 12.85 in Toronto Friday. It has a 52-week high of
14.85 and a low of 8.30.
The stock is trading at 12.85 in Toronto Friday. It has a 52-week high of
14.85 and a low of 8.30.
-Deborah Gardner; 416-306-2100
(END) DOW JONES NEWS 06-11-99 |
