Fantom Technologies Inc. (FTM : TSE : $17.50) Peter Quitzau
Recommendation: BUY
12-month target price: $24.50
52-week price range: $24.00-11.30
Shares O/S: basic 9.0M
fully diluted 9.5M
Dividend/yield:$0.20/1.1%
Long-term debt: Nil
Major shareholders: Management, 12%
Weekly trading volume: 15,000
Market capitalization: $157.5M
First Quarter Update: summer Heat Wave dampens Growth
Fantom reported that the first quarter of fiscal 2000 sales and net
income increased 4% to $57 million and $3.4 million or $0.38/share
0.36/share fully diluted), respectively. First quarter results were
in-line with our expectations. The modest growth reflects the
negative impact of this summer's heat wave experienced throughout
parts of North America, with consumers deferring purchases or
directing expenditures towards other appliances like fans and air
conditioners. Leverage to the US dollar and ongoing cost reduction
programs resulted in improved gross profit margins of 37.3%, compared
to 34.4% a year earlier, and offset higher R&D and SG&A expenses. Net
profit margins remained fairly constant at 6.0%, compared to 5.9% a
year ago.
Fantom has begun initial shipments of its products to several hundred
Wal-Mart stores throughout the US for test marketing. Wal-Mart has
more than 2,400 stores (1,835 discount stores and 625 super-centres)
across the US. Presuming that Wal-Mart experiences similar success
with Fantom products as encountered by other major retailers, the
incremental increase on Fantom's annual sales could exceed $40 million
over the next two years.
Fantom's next quarterly dividend payment of $0.05/share will be
payable on January 1, 2000 to shareholders of record on November 30,
1999.
Fantom will be holding its quarterly conference call on Monday,
October 25, at which time we will provide a further update.
Investment Opinion
Despite modest sales gains in the first quarter, we believe sales will
increase by 17% through the balance of the year. For fiscal 2000, we
are forecasting sales will increase 14% to $276 million and an EPS
growth of 19% to $1.88.
We believe the recent pullback in FTM's share price from a high of
24.00 provides an attractive investment opportunity and we are
upgrading our investment recommendation from accumulate to BUY. Our
12-month target price is $24.50 for a potential gain of 38% over the
next 12 months.
......from Cannacord morning letter......... |
