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Non-Tech : Radica Games (RADA)

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To: Wayne who wrote (3168)	3/3/1998 12:38:00 AM
From: j rector	Read Replies (2) of 7111

I finally heard the CC. A couple of things stood out to me: 1) although 380K units, the average for the Q may not be this high due to new product work and Ramp-up after CNY. 2) I tried to read between the lines on Q3 and Q4 prospects. The added capacity will not double output in Q3 and Q4, from last Q3 and 4, so I think the only thing we can go by is the expectations that the year halves will be between 40/60 and 25/75. If new products don't fly high, we may be looking at 40/60. If they are real hot, 25/75 or maybe ?If we do $.90 in Q1 and Q2, high end would be $3.60 +. Low end would be $2.50. The difference between these two is almost solely dependent upon how the new products fare (at least I interpret it to be this way from the CC). 3) Looking out into 1999 and beyond, things look quite good. Sector is growing at 36%/year and growth is expected to continue for forseeable future. Tax rate won't get above 10% for next five years unless PRC changes policies dramatically. I would guess that RADAF can grow by at least 50% of the sector growth rate for the next five years (and alot more this year). So taking the PE/growth ratio we should be at a PE of 20 or more. I think that alot of people trying to value RADAF are looking too far into future. Fact is that product growth, sector growth and tax rate are all favorable in the near term where DCF is most influenced. Someone will wake up and smell the roses eventually. I would love to hear (from the horses mouth) the logic behind NOT recommending RADAF as a strong buy right now--other than lack of Investment Banking opportunities.

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