I just received several research reports (in PDF format)
from Ferris Baker Watts on the Telecommunications Equipment
providers they follow... including one on DMIC which is
dated 1/14/00 (when the share price was $27+1/2). This
report states:
Our 12-month target price is $34.50, which is today?s
multiple of 2Q00 annualized revenue applied to the $86.2
million we forecast for 2Q01. Should the company
accelerate momentum with wireless broadband CLECs, we
would expect multiple expansion as well as incremental
earnings growth.
If DMIC?s Altium business were valued at revenue multiples
comparable to the CLEC-oriented businesses of high-multiple
peers, a sum-of-the-parts valuation would imply a fairly
valued price in excess of $83. A 50% haircut to these
multiples applied to Altium would imply a share price of
$51.22.
It also gives this market share information:
The market size for the microwave radio market is estimated
to be $1.8B ? $2.0B.
Ericsson 30%
Digital Microwave 15%
P-Com 9%
Others (Alcatel, Harris, Nokia, Siemens) 46%
But its interesting to note that others estimate the market
to grow to about $15B annually by 2003... that represents a
market growth of about 65% annually for the next 4 years!
From the above table, it seems that DMIC and P-Com are
the only "pure plays" with significant market share...
and (relative to DMIC) P-Com is financially quite weak.
Thus it would seem that DMIC is positioned to grow its
market share while it grows its top-line revenues and
its Gross Margins (from around 32% to around 39%) over
the next year... and that will be coupled with new
product introductions over the next 9-24 months (for
higher capacity and to offer P-MP products) which will
keep the market share, revenue and gross-margin expansion
going for several more years. To me, that powerful
combination could well spell a much higher forward PE of
around 75 (or more) and that could easily place us in the
$75/sh neighborhood within 12 months.
In Summary:
+ High growth in this market: 65% over next 4 years.
+ DMIC is a leader (and a pure play) in this market.
+ DMIC is poised to take market share from others.
+ DMIC will continue to grow its GM incrementally.
+ This top-line and margin growth will translate into
a high EPS growth rate over the next year. Moreover,
because of planned new product introductions, DMIC
should be able to sustain this high growth rate for
the next 3-5 years.
The 16 page Ferris-Baker-Watts report on DMIC is chock
full of interesting information both about the wireless
telecommunications equipment market in general and about
DMIC's position in the market in particular. Note however
that this report is dated 1/14/00... they said (on Page 13)
that they would have an update after the Q3 conference call
on 1/19/00 but we're still waiting on that. In the meantime,
you might want to go to their website <http://www.fbw.com/>
and ask them for your very own copy of this report.
Here's another quote from their report:
"Significant headway with Altium could justify a higher
multiple in closer correlation with NTRO and the market
recognition of ADAP?s AB Access business. If Altium
revenue were given the revenue multiple of these two
businesses (108x), DMIC's stock would have an implicit
value of $84, or if Altium were given half this multiple,
then the implied value for DMIC would be $51."
"Ferris, Baker Watts, Inc. makes a market in the shares of
Digital Microwave Corporation." |
