I think the market (read market makers!) has slammed the stock down too much. I was watching the live tape as the market maker set the opening bid and ask at Cdn $17.25.
I asked myself... now how did he/she figured that the stock is worth $17.... 30% discount to yesterday's closing price? I suspect that the market maker has a personal interest to slam the stock down as low as possible so that he can keep inventory cheap, reduce risk, and assure profit.
The truth is that the Q2 report isn't all that bad. The only negative s that the PBX business is slower than the guidance management had originally provided.
Summary of Q2 report:
(1) PBX sales were $165 million, compared to $139 million in Q2 last year, and $145 million in Q1 this year. There is growth, but not as high as expected. PBX operations were profitable ..$3.7 million... in the quarter, compared to 10.3 million loss in Q1. So, not bad, but not as good as originally expected by management.
(2) Semi sales were $194.3 million, compared to $139 million last year ... 40% growth! However, slower growth (30%) expected for next year.
(3) Cash earnings are up, however, EPS is down this quarter because of the $20 million amortization of acquisition intangibles. This amortization was not around in Q1. EBITDA in Q1 and Q2 are higher than last year. Cash earnings for both Q1 and Q2 are higher than last year. This quarter, cash earnings per share were 0.53 compared to 0.49 last year.
(4) Margin is intact, and expenses were in line (in fact lower: sales and admin 85.1 million compared to 87.7 in Q1.
In short, earnings grew, and met expectations, however guidance for the next 2 quarters fell by 20 cents per share due to slower than expected PBX sales.
Growth will come from semi conductors (broadband, set top boxes) and the current R&D projects. All the projects : Blue tooth, OSA, DWDM, and integration of Vertex technology with existing products, are on track.
PBX business will be segregated by the end of this fiscal year, and likely spinned off next year. The company has a strong and established franchise in the PBX business (over 20 years) and it should fetch a good price.
For the current fiscal year, cash earnings (that is, cash flow per share) would come in at $2.10 per share. At $17 a share, price to cash flow is 8 times... very cheap, The upside from the optical business alone can be worth this much!
So, I bought the allocation for my portfolio and feel confident that within 2 years, I should be able to double the money! |
