Canaccord Capital Daily Letter
Analysts' Breaking News
Monday, July 5, 1999
RECOMMENDATIONS
BUY MGI Software Corp. (MGI : TSE : $4.22 : Issued 24.1M) Bradley
* Completes two acquisitions to round out digital multi-media
offerings
MGI Software Corp. (MGI : TSE : $4.22) Paul Bradley (416) 869 7920
Recommendation: BUY
Target Price:$6.50
52-week price range: $4.50-0.92
Shares O/S: 24.1M
Mkt. cap. / sales (LTM): 5.7X
Gross margin (f99A): 85.9%
Weekly Trading Vol.: 298,488
Market capitalization: $101.7M
MGI has recently made two acquisitions designed to increase the range
and capabilities of its digital multi-media software.
The first transaction was started at the beginning of June 1999, with
a bid to buy the assets of Live Picture out of bankruptcy in
California. At the time of going into Chapter 11 Live Picture had
assets of US$2.5M and liabilities of US$23.9M. We understand that
Lehman Brothers was responsible for identifying MGI as a potential
purchaser of Live Picture's assets. In order to close the transaction
two of the original venture capital investors in Live Picture had to
agree to provide MGI with the funds required to complete the purchase.
MGI paid US$8.6 (C$12.7M) comprising US$4.5M in cash and 1.55M shares,
issued at about C$3.95 per share. The shares were sold to Perseus
Capital, which had co-guaranteed a line of credit designed to support
Live Picture until June 30, 1999. Live Picture attracted over
US$35.0M in venture financing and is estimated to have had annual
sales of between US$16.0M - US$20.0M. We anticipate that after a
rationalization of staff and facilities Live Picture will be capable
of adding as much as C$24.0M to MGI's revenues and thus potentially
doubling our sales estimate for f2000. We are still in the process of
revising our forecasts.
In addition to providing important new software revenue opportunities,
the Live Picture acquisition gives MGI a window on Silicon Valley with
a newly acquired development capability in California.
The second transaction involves MGI acquiring certain assets from
Zoran Corporation to boost the strength of MGI's DVD products. MGI
will pick up Zoran's SoftDVD product, designed for use in PCs, along
with a 16-person development team. We estimate the transaction to be
worth about $2.8M. The PC-based software DVD market is a primary
focus for MGI. Market analysts suggest that sales of DVD-ROM drives
for PCs will reach US$16.0B by 2001.
Our forecasts for MGI suggest that by Q3/f2000 the Company will have
passed the breakeven point and will generate modest earnings. We
anticipate MGI entering a high growth phase as the benefits of these
two acquisitions begin to accrue and we recommend the stock as a
Speculative BUY with a 12-month target of $6.50.
The information contained in this report is drawn from sources
believed to be reliable, but the accuracy and completeness of the
information is not guaranteed, nor in providing it does Canaccord
Capital Corporation ("Canaccord Capital") assume any liability. This
information is current as of the date appearing on a report within
this Site and Canaccord Capital assumes no obligation to update the
information or advise on further developments relating to these
securities. The information contained in the report is directed _only_
at, and any securities being offered are available _only_ to, persons
resident and located in British Columbia, Alberta, the Yukon, Ontario
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