This is what one of the analysts covering RIMM, CIBC, was saying about RIMM(November 1999) before the recent deals with Skytel and DELL(below). We have yet to hear much from the analysts since the deals with DELL, SUNW, and Skytel have gone down. Perhaps the quarterly report due out after the close Tuesday, December 21 will be followed up by some interesting reports.
CIBC WORLD MARKETS
Research In Motion: Raising Target Price To $95 (US$63); Reiterate Strong Buy
All figures in C$, unless otherwise stated.
RIM/RIMM Strong Buy FY Feb. FD EPS 1998 1999 2000E 2001E
Price: $69.50 (US$47.44) Current: $0.01 $0.15 $0.23 $0.67
Target: $95.00 (US$63.00)
ú We are reiterating our Strong Buy recommendation on Research In Motion (RIM) and increasing our 12-month target price to $95 (US$63) from $57 (US$38.50). Our new target price is based on a PEG ratio of approximately 2 times our estimated five-year FD EPS growth rate of 70% and our F2001 FD EPS estimate of $0.67. Our catalyst for increasing the target P/E multiple continues to be the ongoing developments in the mobile wireless data industry (i.e., the proliferation of wireless data
enablers, including new standards, more wireless-friendly devices, improving applications and services, and heightened awareness) and the growing interest in RIM's devices (i.e., additional ISPs,
wireless service providers and value-added reseller deals). We believe that RIM will continue to trade at a premium to its long-term growth rate, given its market-leading position in mobile wireless data handheld devices, anticipated to be one of the fastest growing industries in the world.
ú CIBC World Markets forecasts that the U.S. market for mobile wireless data handheld devices (used for e-mail, limited Internet/Intranet connectivity, e-commerce, etc.) will grow from an estimated 400,000 units in service at year-end 1999 to 35 million units by the end of 2004, a CAGR of 145% (see the CIBC World Markets 31-page report The Mobile Wireless Data Industry for an in-depth market overview). We believe that RIM is positioned as a pure-play at the centre of the mobile wireless data explosion, capturing the convergence of the Internet and wireless data services.
ú Strong momentum in the stock over the last several weeks is being driven by company-specific and industry developments, profiles in newspaper and magazine publications, and speculation on unannounced deals/corporate announcements. We provide a summary of these events below.
ú Company Specific And Industry Developments; RIM has long been a visionary of the mobile wireless electronic wallet, where its devices function as secure, e-commerce and financial transaction capable handhelds. On November 3, Diversinet Corp. announced that RIM expanded its licensing to incorporate Diversinet's security software into its Inter@ctive Pagers and BlackBerry handhelds to enable wireless e-commerce applications, such as banking, stock trading and consumer
purchases. 724 Solutions Inc., a software provider for personalized and secure online banking, brokerage and e-commerce Services to wireless devices, including RIM's handhelds, filed a preliminary IPO prospectus for US$100 million on October 29. Clearly, there is a large market opportunity for mobile wireless e-commerce.
ú Profiles In Newspaper And Magazine Publications; On November 15, 1999, Business Week magazine highlighted the BlackBerry Handheld at the forefront of its ?Technology Buying Guide' segment, with very positive comments from the chief technology officer of Merrill Lynch. On November 15, 1999, Barron's ?Investing in your Virtual Office' segment highlighted the RIM Inter@ctive Pagers as the device offered by Fidelity Brokerage InstantBroker and w-Trade for wireless stock trading. A second Barron's article recommended the BlackBerry handheld for ?E-mail on the Run.'
ú Speculation On Unannounced Deals/Corporate Announcement ? On the top of the speculation list is that RIM is very close to announcing an agreement with Dell Computer for a Dell-branded version of the BlackBerry handheld, where the device would presumably be packaged with a personal computer (PC) and dial-up and wireless Internet service. This speculation has been circulating since the summer, propagated by Michael Dell's personal endorsement of RIM's devices. We view a PC
OEM deal as a strong strategic fit for a PC manufacturer, whereby RIM's device would replicate and complement the PC-centric functionality, while offering seamless synchronization with the desktop's e-mail and personal information management (calendar, address book, task lists).
ú There has also been rampant speculation that RIM is in negotiations with large Internet service providers (ISPs), including Microsoft Network (MSN) and America Online (AOL) for its BlackBerry Internet Edition handhelds and service. To date, RIM has announced two ISP agreements : RCN Corporation, for $15 million (US$10 million), and espernet.com, for $9 million (US$6 million). RCN has just launched its BlackBerry wireless e-mail service, offering a bundled service for US$45 per month (includes dial-up, RIM BlackBerry service and the handheld lease fee of US$5 per month). We would not be surprised to see significant ISP agreements (which could include MSN), given RIM's current relationship with Microsoft. RIM is participating at the COMDEX trade show in Las Vegas this week, with a booth in the Microsoft Partner pavilion. We understand that RIM is featuring the BlackBerry Microsoft Exchange handheld and wireless e-mail service for corporate users.
ú We expect that the larger-screened ?Stretchfrog' wireless handheld will be launched in the first quarter of calendar 2000. We believe the device will be belt-wearable and will offer the same wireless connectivity as RIM's current devices, desktop personal information management synchronization and a rechargeable battery.
ú The recent closing of the 5.595 million share secondary offering and over-allotment, for net proceeds of approximately $241 million (US$163 million), begs the question of, what does RIM foresee in its pipeline? considering that it had $98 million (US$66 million) of cash prior to the offering and annual production capacity of well over one million units per year (with a third shift and additional equipment). We believe that RIM will significantly ramp its manufacturing capacity,
R&D, and sales and marketing efforts in anticipation of explosive demand for its current and future product offerings. We also expect that with the build-out of 2.5G packet-data overlay networks over
the next one to two years, RIM will be a first-mover with a compatible wireless mobile data device. |
