David:
As I previosly stated, I had the pleasure of speaking to Leslie Fleigel,the CEO of the company in length a while back, he has a very open door policy to any stockholders.
Anyway here's my take on the company and their future. The company can be divided into four separate groups--Information gathering for the publishers, rebate clearing house for the retailers, front end store consulting for retailers and UPC ticket service for the retailers.
Information gathering-- The company gathers information about magazine sales and sells them back to the publishers, kind of like a Nielson service for puplishers. From what I can see, not a big money maker, but the information is already there and it's easy money.
Rebate clearing house--This is how the company got it's start and the base of the company. It is a clearing house to 750 retail chains. Publishers pay money to the chains for display and the company collects the money and pays the retailers. This service creates 75% of all income for the company. The company now gives the retailer their money "up front". This means that the retailer doesn't have to wait for the rebate. This service, in my opinion, gives the company a virtual monopoly of this service.
Front end consulting--This is the growth of the company. The company has just developed a 3-D computer program that they can not only talk about layout of the front end of the retail outlet, but they can SHOW them what it will look like. They've already signed up K-Mart and 7-11 to this program. Both are 3 year deals and according to Leslie should "roll over" after the 3 years are up. Whith the K-Mart deal, the bulk of the revenues will be flowing to the bottom line in FY '99, which by the way, begins in Feb.'98. I asked him if there were any other prospects and he said of the 750 retailers they do business with, 300 are strong canidates. Of those, he felt they getting close to signing deals with " some". I think we'll be seeing " some" anouncements soon.
UPC--The use of UPC codes is essential to the modern retailer and every one of them has problems with them. Why? Because there are so many magazine covers and they change WEEKLY!! The company has the ability TODAY to download ALL UPC codes to all retailers based on their product mix. The problem is not the the ability to do it but rather, who will pay for it. The company is real close to signing deals with some retailers for this service.Once this happens, it should be a domino effect.
Analyst coverage: Currently, there is one analyst covering the company and Leslie said another (wouldn't give me a name) that is in the process of initiating coverage. The one company that follows SORC has a .42/share earnings for FY '99. I asked Leslie if he was comfortable with this number and he said he was.
Conclusion: The fact that the CEO was comfortable with analysts' projections makes me feel real good, usually they're a cautious group(would rather suprise than disappoint).
Considering the potential in the front end layout work, I can forsee a great potential income flowing to the bottom line. You have 300 potential customers and only 2 have used the service. The future pay program for rebates has solidified their customer base and I don't see a lot of competition. The biggest potential for revenue is the UPC code program.It could be huge-- if they could get this ball rolling, look out , we're in for a big jump in earnings. So what we have here is a company with a 90% growth rate, strong balance sheet and potential to increase THIS growth rate exponentially. I think we have a winner. Sorry to all for the time to took to post.
Kevin |
