OK, so here are my assumptions for 9/97-6/98: ($$ are in mills)
Est(E):-------------------E------------E-------------E-----------E
Quarter:----------------9/97---------12/97---------3/98-------6/98
Revs:core biz ----------18.86--------22.60---------26.00-------30.00
Revs: Y2K ---------------2.50---------5.00----------8.00-------10.00
Total Revs:-------------21.36--------27.60---------34.00-------40.00
Gross Profit:------------8.292-------10.838--------13.480------15.900
Expenses:----------------8.117--------9.936--------11.560------12.800
Inc. Before Tax:----------.175---------.902---------1.920-------3.100
Net (EPS):----------------.01---------.045----------.087--------.129
Fully Diluted:------------.01---------.040----------.070--------.120
Avg shrs out:------------16.00--------20.00---------22.00-------24.00
My assumptions include:
1. $97 mill. in core business, i.e. systems integration revenues, based on a 25% increase from 6/97-9/97; a 20% increase from 9/97 to 12/97; and 15% growth thereafter, which reflects the long term growth trend of this industry. (If there are more acquisitions by TPRO, this would obviously affect both the revs and expenses.) The Y2K revs are a crapshoot, but based on an estimated combination of assessment revs and implementation revs for Y2K I came up with $25.5 mill in Y2K revs for the 4 qtrs ending 6/98. That's an AVERAGE growth of 75% per quarter, which I think is pretty generous, assuming a base number of $2.5 mill in Y2K revs in 9/97.
2. Gross profit assumptions are 38% from core business, 45% from Y2K business. (The period ending 3/97 had a gross profit of 36.9%, and a 31.2% in the prior period).
3. Expense assumptions are, for each of the four quarters, 38%, 36%, 34%, and 34%. (In 3/97 it was 32.6%; I projected 33% for 6/97, and went up to 38% based on management statements about spending for Y2K revs for 9/97.)
4. On avg shares outstanding, I was ballparking a weighted average to arrive at 13 mill for 6/97, 16 mill by 9/97, and then 20, 22, and 24 mill, assuming all current warrants, options, and convertibles are excercised by 3/98, with an extra 2 mill put into the analysis for 6/98 for increased capital requirements.
5. This analysis yields a .27 EPS by 6/98.
6. Now, if you change the core business gross profit to 40% from 38%, and increase the Y2K gross to 50% from 45%, and reduce the expenses from 35.5% on average to 34.25%, you end up with the high end estimate of .46 EPS.
7. This model assumes an 87% revenue growth from 9/97-6/98.If you assume a PEG rate of .5, which is common in relatively underfollowed stocks, which this will in all likelihood be until the latter part of 1998, you get the range of $11.7- 20.0, most probably to occur after January, 1998. I rounded off to 11-18, for conservative purposes.
8. Now, there are some BIG caveats in this analysis: a) the model assumes that operations can be financed largely out of current cash flow. (meaning that no additional LTD will be established, and that interest payments are stable) b) It assumes that there are no unforeseen changes in accounts receivable, in terms of % increase, c)
It assumes declining expense percentages of gross revenues from 9/97 onward. This may be inaccurate, if Y2K ramp-up proves to be more costly.
9. Because of the drop in EPS that I project in 9/97, I can easily see
a corresponding sell off in the stock after its report date, in early November.
10. SUMMARY: This stock MIGHT be a home run in 6-12 months, but there are many unknown factors such as acquisition prices, expense requirements, and turnaround-time per job to yield the projected revenues. There is little room for this growth curve to screw up. If it does, watch out. I am going to see how close my projections are to actuals in the next 10K. Then I will consider buying. If I am close on 6/97, then I will buy with a sell prior to the 9/97 10Q report. Sorry to bore you all with my analysis. |
