Floware (BUY)
INITIATING COVERAGE; CAPITALIZING ON GLOBAL BROADBAND WIRELESS ACCESS
Broadband wireless access technology is used by carriers to offer fixed wireless high-speed voice and data services to small and medium-sized businesses. The market for this technology is expected to grow over 80% annually from $200 million in 1999 to $7 billion in 2005. We believe that Floware is the best pure play on this high-growth market, which is being driven by broadband wireless spectrum auctions in over 36 countries around the globe. Carriers are pursuing this new spectrum as a means of expanding or establishing multinational networks to offer high-speed voice and data services. The company already has equipment deployed in 17 countries and is currently undertaking 20 field trials. In addition, it has been selected as the vendor of choice by some of Europe’s and Latin America’s strongest broadband wireless access carriers who intend to continue using Floware as they move into new markets.
Floware’s strength is grounded in its leading technology and position as a supplier to several geographical markets. The company’s proprietary technology provides carriers with around twice the bandwidth capacity per area and a lower total cost of ownership than other solutions. This technological advantage and its strategic partnerships with Siemens ( SIEGn.F / ˆ˝%X\ DQG NEC (6701.T/¥3,000/Long-Term Buy) among others, allow Floware to benefit from the strong growth we expect to see in Europe, Latin America and Asia.
We estimate that Floware will achieve compound annual revenue growth of 381% to 2001 and return a net profit by mid-2002. We forecast revenues to grow from $3.3 million in 1999 to $76.5 million in 2001 and EPS to move from loss of $0.42 in 1999, to a loss of $0.46 in 2000 and revert to a loss of $0.42 in 2001. Revenue growth is expected to come from new contracts as more spectrum is awarded throughout Europe, Latin America and Asia, and from capacity adds to networks that already employ Floware equipment. Several of the company’s current customers already hold, or are in the bidding process for, licenses in new countries and new geographical areas. Many of these customers have already committed to using the Floware solution as they access these new markets and we expect this trend to continue. Relative to other emerging technology companies, Floware can boast strong visibility of revenue streams. At June 30, 2000, order backlog stood at $7.7 million.
We have set a 12-month price target of $32 based on a multiple of 12 times our 2001 revenue estimate of $76.5 million. We believe that the company is likely to exceed our current revenue expectations as additional licenses are awarded globally and new contract awards and follow-on sales to existing customers continue to materialize. This should serve as a catalyst for upward revisions to our valuation. Revenue growth, coupled with planned cost reduction initiatives, provides us with confidence in the company’s ability to generate strong financial performance and provide a healthy return for shareholders.
(J.P. Morgan Securities Inc. acted as co- or lead-manager in an offering of securities for FLRE and SIEGn.F within the past three years.) |
