2nd rat off ship: "Downgrading stock J.P. MORGAN SECURITIES INC. - EQUITY RESEARCH
Gregory E. Burns,
Brannon P. Cook
ACLN (MARKET PERFORMER)
Downgrading stock to Market Performer, reducing 2001, 2002 and 2003
estimates
Earnings Per Share P/E
ASW 52-Wk ----------------------- -------- MkCap
12/20 Rge 12/00 12/01 12/02 4Q/00A 4Q/01E 12/01E 12/02E Yld ($MM)
---- ----- ----- ----- ----- ----- ----- ------ ------ --- -----
$9.43 $50-6 $2.93A $4.66 $2.35E $0.74A $0.87E 2.0x 4.0x NM $137
Previous: $5.10 $7.20E $1.32E
We are lowering rating from Long-Term Buy to Market Performer. We are
lowering our 2001, 2002 and 2003 EPS estimates and lowering our rating to
Market Performer based our lower estimates, and lack of confidence in ACLN's
financial controls and business model. We remain frustrated with our
inability to speak with the company's bank regarding its cash balances and
note that the company has declined to aggressively buy in its stock, despite
$117 million of cash and a 1 million share authorized buyback program. We
believe ACLN is a high-risk situation and we have poor visibility on our
current earnings projections.
Lowering 2001, 2002 and 2003 EPS estimates on lower 4Q01 outlook and
uncertainty in 2002 and 2003. ACLN announced that it has shipped 18,000
automobiles in the first two months of 4Q01, for a run-rate of 27,000 cars,
below our 61,400 car estimate. As a result of the lower shipment activity,
we are lowering our 4Q01, 2002 and 2003 EPS estimates. We have reduced our
4Q01 estimate to $0.87 from $1.32. We have reduced our 2002 EPS estimate to
$2.35 from $7.20 and reduced our 2003 EPS estimate to $2.35 from $9.05. Our
lower estimates are the result of lower automobile shipments, and the lack of
visibility on future growth. We are projecting total automobile shipments of
72,673 in 2002 and 9.4% growth to 79,518 in 2003.
We believe it is difficult to assess the risk in ACLN's business model.
We were surprised by the fourth quarter earnings revision (27,000 cars vs.
our previous 61,400 assumption), which ACLN attributed to port congestion,
and higher travel costs for West African car dealers. We believe the
revision highlights the risk to ACLN's business model, and is likely to
prevent an improvement in the company's valuation, even if business volumes
accelerate in 2002.
Nature of ACLN's decentralized business model makes it difficult to address
market concerns. The agency-based business model of ACLN, along with its
dispersed geographic location, and limited management infrastructure to deal
with investors' questions makes it difficult to fully investigate market
concerns have been raised about the company's filings, share ownership,
ownership of the Sea Atef and the company's domicile in Cyprus. We have
investigated some but not all of these published concerns. Our analysis
indicates that ACLN owns the Sea Atef via power of attorney and possession of
the title of the boat and that the registration of the Sea Atef to offshore
companies is a standard industry practice in the shipping industry.
Market performer rating reflects increased risk and lack of near-term
earnings visibility. While ACLN stock trades at a low valuation (4x) our
revised 2002 and 2003 estimates, we believe near-term earnings visibility is
poor. In addition, without a substantial share buyback or an immediate
accretive acquisition, we do not expect ACLN's valuation to improve from
depressed levels. |
