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Technology Stocks : Creative Labs (CREAF)

CREAF 0.470

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Jan 12 9:43 AM EST

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To: Will Cunningham who wrote (7015)	12/11/1997 3:59:00 PM
From: prakash	Read Replies (1) of 13925

ML's 12/10 report on CREAF's Ensoniq acquisation: 12 Month Price Objective: $30 Estimates (Jun) 1997A 1998E 1999E Net Income (mn): 167.0 237.1 247.4 EPS: 1.84 2.50 2.59 P/E: 12.0x 8.8x 8.5x EPS Change (YoY): 35.9% 3.6% Consensus EPS: 2.51 2.77 (IBES: Dec 97) Cash Flow/Share: 3.24 3.18 3.44 Price/Cash Flow: 6.8x 6.9x 6.4x Gross Dividend: Nil Nil Nil Gross Yield: Nil Nil Nil Opinion & Financial Data Investment Opinion: C-1-2-9 Mkt. Value / Shares Outstanding (mn): $2,090 / 95 Book Value/Share (Sep-97): $6.54 Price/Book Ratio: 3.4x ROE 1998E Average: 40.8% Net Debt/Net Equity: nm Est. 5 Year EPS Growth: 15.0% 1998E P/E Rel. to Home Mkt: 0.7x Stock Data 52-Week Range: $29 3/8-$8 5/8 Symbol / Exchange: CREAF / OTC Bloomberg / Reuters: CREAF / CREA Brokers Covering (IBES): 4 Exchange Rate: USD1.0000/USD Free Float: 40% Average Daily Turnover (th): NA *Intermediate term opinion last changed on 03-Apr-97. For full investment opinion definitions, see footnotes. Investment Highlights: £ Acquisition of Ensoniq broadens Creative's footprint over professional music & PC audio £ Market share gains from acquisitions should be clearly evident by mid-98 £ Management expressed confidence in meeting earnings estimates for the Dec qtr and FY98 Fundamental Highlights: £ Ensoniq sales were US$44m for the 9mths to Oct. At US$77m, the acquisition price is under 1.3x sales. In return, Ensoniq opens up a new OEM channel for audio chipsets with established customers like Hewlett Packard, Gateway, Micron, Apple etc. £ With the acquisition of Netmedia (Opti), Cambridge Soundworks (HIFI) and Ensoniq, Creative has spent US$130m on a group with combined revenue of over US$120m. Combined profits currently are minimal relative to Creative's core profit base. We expect over US$50m in-process R&D write-off in FY98 £ Netmedia (Opti) opens up notebook audio chipset market, HIFI opens up speakers and Ensoniq, OEM PCI-audio chipset.

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