Excerpts from the Red Chip Review dated 9/16/97:
"The $1.6 billion control-systems-integration market is believed to be growing at a 14% annual rate.......Topro is breaking the industry paradigm. It is capitalizing on the opportunity to create an organization with a nationwide presence, combining the strengths of independently operated businesses with the ability to deliver services on a local level across the country. Moreover, the Company has just announced what appears to be the first software tool set to address the problems presented by the year 2000 problem at the process ontrol layer for automated manufacturing facilities."
"...we believe the addition of a CFO and the decision to upgrade its independent auditors to BDO Seidman, will result in an effort to reset the financial statements. In light of the dramatic changes that have taken place over the past 18 months, we do not consider such actions to be unusual."
"Based upon the types of articles being written for the industrial automation industry about the troubles presented by the "ultimate midnight," we believe this segment lags the typical information technology market by 12-to-18 months"
"Known as Plant Y2K One, the product is expected to begin selling in mid October and creates a very large potential stream of revenues, albeit for a limited period......the total domestic market could include 170,000 locations. As a result, we believe the potential value of the targeted markets represents an $850 million to $1.25 billion opportunity."
"TPROs management shares in our belief that the prospects created by the Y2K compliance issue creates terrific short-term business opportunities, but should not be viewed as a long term focus of the business.....TPRO is and will remain focused on providing engineering services and application-specific code to create custom-built factory automation systems. However, TPRO fully intends to capitalize on the short-term Y2K opportunity by leveraging its expertise through the sale of Plant Y2K One."
"To meet the increasing needs of the industry, TPRO could eventually increase its 275 person engineering staff by nearly 50%. As one might expect, billing rates and margins on such contracts are expected to be higher than TPROs less time sensitive, traditional control system integration contracts."
"Although we fully understand and support the anticipated charges expected from TPRO during 4Q97, the market may not agree with our sentiment. As a result, in addition to the typical consolidation that can be expected following a 460% rise in six weeks, TPROs stock could come under even more pressure in the next few weeks. However, we remain stout in our belief that TPRO will grow to become a much larger and more profitable firm over the next few years."
"...we believe TPRO could grow its engineering services business to more than $60 million in sales in FY98 and more than $80 million in FY99, generating profits of $0.21 and $0.36 per share, respectively. Using an 18x-to-20x multiple, the base business alone could be valued at $6 1/2 to $7 1/4 per share in 12-to-18 months....the Y2K software business could add $0.50 to $6.50 to the valuation of TPROs stock."
"As a result, we are rasing our long-term target to $7, but we are maintaining our "B" rating in light of the potential risk factors involved"
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