from new Legg Mason report. pretty much MHO as well.
Turnaround continues to be elusive – reports weak license fee revenue; still undervalued
· Manugistics reported F2Q00 per share results of a loss of $0.13 compared with our estimate of $0.01 profit and the consensus
estimate of $0.02 profit. Total revenue of $33.8 million was 20% below our $42.5 million expectation.
· The all-important software-license-fee revenue continued to be weak at $10.8 million versus our $17.5 million expectation.
This is the fourth consecutive sequential decline in quarterly license fee revenue. We continue to maintain that license-fee
growth is the key metric for evidence of a turnaround in the company's business.
· The company maintains that the pipeline was more than adequate to meet F2Q00 expectations. The issue was execution.
Many of the transactions slipped into F3Q00, some of which have closed, including two of three transactions in excess of $1
million.
· When we upgraded the stock on August 13, we indicated that we were not calling a turnaround in the core business, but that
we felt the shares were undervalued based upon a number of valuation metrics — including discounted cash flow, multiple of
revenue, and the value of the technology in an acquisition.
· While we are disappointed that the turnaround was not evident from a financial perspective this quarter, we still are
encouraged with the progress made to date in building the management team and reengineering the salesforce. We believe
the turnaround is in progress, but it is taking slightly longer than anticipated.
· We are reviewing our FY00 and FY01 estimates, and may be revising them.
· We continue to believe MANU represents a compelling value today, and we reiterate our Outperform rating. We believe that
in a worst case scenario, MANU could fetch $15-$18 a share in a sale. As such, we are maintaining our target price of $18.
· All else being equal, we encourage investors to buy on weakness. |
