From World Finance
Pre-Offering Analysis
This is the 3rd fixed wireless infrastructure provider we’ve seen in recent weeks. A fast growing, profitable operation, it follows in the footsteps of Triton Network Systems and Airspan Networks. The strength of this sector is being driven by the industry outlook. Fixed wireless services were estimated at $309.3 million in ’99, and are expected to grow at a 102.5% rate reaching $5.2 billion in ’03.
Western Multiplex makes fixed wireless systems which provide fiber optic levels of performance over the notorious last mile. Since introducing its first generation of broadband wireless products in ’92, market reception has been positive. In ’99, the firm sold systems to 480 customers in 34 countries. Customers include AT&T Wireless, Bell Atlantic, GTE, Motorola, Nextel, Pacific Bell, and VoiceStream Wireless.
On the downside, future demand may be threatened by the wave of carrier consolidations. Particularly, both Bell Atlantic and GTE have been customers and have now merged into Verizon. Consequently, the firm is looking to expand its international marketing, currently only 23% of revenues, and is looking towards Europe and Asia.
The firm also completed an acquisition in 3/00, which is not yet reflected in performance, but is expected to add point-multipoint product capabilities in ’01.
This is a substantial and profitable company with accelerating revenue growth. Between ‘98-’99, revenues grew by 36% reaching $44.8 million, with a 49.8% gross margin and a 2.6% net margin. Between 1Q’99 and 1Q’00, revenues increased by 95.4% reaching $17 million with a 54.6% gross margin and a 6.8% cash based net margin. On a fully diluted, pro-forma basis (adjusted for non-cash charges) the EPS for ’00 is estimated in the $0.09 range. At the preliminary offering range, that suggests a P/E in the 111-122 range.
Valuations in this sector have been mixed. Older firms have eroded while newer firms have soared. Some recent IPOs may add perspective.
· Telaxis was a $68 million deal offered on 2/2/00. Offered at $17, it closed at $47.50 for a 179.4% first day. It recently traded at $34.50, off 27.4% in the aftermarket.
· Breezecom was a $100 million deal offered on 3/23/00. Offered at $20, it closed at $39.81 for a 99.1% first day. It recently traded at $40.50, adding 1.7% in the aftermarket.
· Vyyo was a $91.8 million deal offered on 4/5/00. Offered at $13.50, it closed at $20.25 for a 50% first day. It recently traded at $43.31, adding 113.9% in the aftermarket.
· Triton Network Systems was a $110.5 million deal offered on 7/13/00. Offered at $17, it closed at $38.44 for a 126.1% first day. It recently traded at $39.94, adding 3.9% in the aftermarket.
· Airspan Networks was a $82.5 million deal offered on 7/20/00. Offered at $15, it closed at $31.95 for a 113% first day. It recently traded at $30, off 6.1% in the aftermarket.
Reflecting the strong valuations of this sector, pre-offering demand is reported to have increased from heavy to very heavy (Street Scoop: 4 stars).
Conclusion: This is a proven firm in a high growth industry. Management has demonstrated the discipline to combine growth with earnings. It now appears poised to continue the stream of new products. However, we view the firm’s international expansion as essential to long term success. We would expect a generally warm reception (e.g., 40+%) followed by volatility.
http://www/wirelessinterconnect.com |
