Star Data Systems Inc. (STY,T) Message Board

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Gold/Mining/Energy : Star Data Systems Inc. (STY,T)

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To: Randall Cunningham who wrote ()	3/22/2000 4:49:00 PM
From: Mitchell	Read Replies (1) of 267

A rising star 15/03/2000 By D.Westerman The proliferation of market information on the web has been astounding over the past year. Publications offer numerous services to their respective clientele. The services vary from stock quotes, market values of portfolios to alerts on stocks when they have hit price targets. Have you ever considered where this information is actually coming from? Are there any large players with great market share? A couple of names come to mind. Bloomberg and Reuters have been the two killer applications in this area for quite some time. A little (by market cap $85 million) known Canadian company has been rapidly taking market share away from the larger players. The company has now reached a record level of 16 000 workstations that use their software. Clients include CIBC Wood Gundy, Cannacord Capital with more than 700 Investment Advisors across the country as well as Nesbitt Burns implementation of the product in over 147 offices reaching over 4 300 individuals. Star Data STY.TO has developed technology that mitigates the complexity of settlements within the electronic segment of wealth management. Appeal for the e-settlement technology has been growing rapidly. The landscape of the financial industry is ever changing. Years ago settlement was done over a period of a week. It has since evolved into trade date plus three. Pressure is increasing within the industry to move towards trade date plus one which would mean all transactions would have to settle within 24 hours. The implementation of this standard may occur in 2002. Star Data is the only company in Canada with the technology and the experience to do it. The company has been developing the technology for over four years and has spent more than $20 million to insure the success of e-settlement. Star Data has recently added a strong contingent of directors to its arsenal. They include Aubrey W. Baillie, former Deputy Chairman and Chief Operating Officer of Nesbitt Burns, Sydney R. McMorran most recently Vice Chairman of the Toronto Dominion Bank prior to his retirement in 1998 and Donald P. Woodley, recently retired President of Oracle Corporation of Canada. These individuals have access to some of the biggest players within the financial industry as well as the technology industry. George A. Cope President and CEO of Clearnet Communications also sits on the board. Star Data seems to have covered all the bases in terms of the possibility of joint ventures arising from the strong network of directors. To validate the worth of Star Data we must delve into the financials (although the mention of e-settlement might be enough for some). The past two quarters have seen Star Data return to profitability. For the three months ending November 30, 1999 cash flow from operations were $4.4 million up 24% from $3.6 million last year. Earnings per share for the three months was .07 cents fully diluted as compared to .01 cent for the previous year. Star Data has earned .13 cents for the first six months of their fiscal year as compared to .02 cents last year. Revenue in the area of wealth management solutions has grown by over 17% for the first six months of this fiscal year. Star Data has increased revenues from $31 million in 1995 to over $75 million in 1999 this equates into a CAGR of 24.5%. The increase in earnings could just be the tip of the iceberg as more and more companies move toward e-settlement. In February 1999, the Board of Directors discontinued its efforts to find a buyer for the company. The stock at the time was trading around $6.00. The premium that was offered to the company obviously was not enough. The trading range had been between $3.00 - $3.40 since July of 1999 but with recent improvements in the fundamentals the stock moved above $5.00 on more than 8x it's normal volume! Star Data released their second quarter numbers on Dec.16 with little market appreciation. Does this mean the market took a couple of months to acknowledge what might be developing with this company or is it indicative of the sentiment that a buyer may come into the market for Star Data? The price tag is now 30% less than a year ago and the fundamentals are much stronger. The current price tag of STY is $4.30. Star Data should be evaluated not only on a P/E level but as well as P/S. The plausibility of Star Data exiting this fiscal year with .25 cents fully diluted is conservative. The .25 cents would give STY a 17x multiple on fiscal 2000 earnings. On a price to sales multiple STY trades at approximately 1 time it's sales per share. The market will soon take notice of the changing fundamentals of STY and will reward it with a larger P/S multiple. A multiple of 2x price to sales gives us $8.60 price tag. An attempt to notify the public of an undervalued share price was made on March 9 as Star Data announced a normal course issuer bid. A maximum of 5% of the outstanding shares are to be acquired. Next time you are looking up stock quotes either in the National Post or the Globe and Mail take a look at who is supplying the information and if you get a chance take a look at a quote of STY.

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