Hi Stocky....
No one on this thread is oblivious to the merit and importance of Simula's 16G seating business. However, though the seat business retains considerable upside, when closely analyzed, a number of issues become more relevant.
For example, 1998 seating sales are likely to be approximately $ 3 million per month though the end of the third quarter, then $ 4 million per month for the final quarter of the year. With "breakage", revenues could approach $40 million for the year. For 1999, it wouldn't surprise me to see sales at $ 60 million, and I could readily accept your assessment that we will be close to $ 100 million within a few additional years.
The question is, of course, what that means to *profits*? Well, assuming the business can be run cleanly, it wouldn't surprise me to see pretax profit margins ultimately reaching the 15% level. Thus, *if* that can be reached for 1999, the 16G profit contribution (assuming the rest of Simula pays for corporate overhead, which isn't financially realistic but only further illustrates my point) could be approximately $9 million. Assuming taxes at 40%, the earnings to be applied against common stock would be $ 5.4 million, or roughly 45 cents per fully diluted share.
Given a market multiple of 20-25 times earnings, this means that the 16G business will contribute approximately $ 9 - $11 in value per Simula share.
Now Stocky, although that is nothing to poke at, it still represents significantly less than the current SMU share price, *AND* it assumes a sizeable improvement in year to year sales as well as something very close to optimal profit margins.
The real "value" (and speculative interest) in SMU remains the ITS family of products, not only because it has the widest commercial applications, but because it is precisely in this area that the company enjoys its best profit margins.
In my view, there is no doubt that Simula is making significant progress in reaching the market with this product...TRW's position on the SMU board, the agreement with Delphi, and the extremely close working relationship between SMU and Breed all suggest that we are now marketing product to the auto manufacturers. In fact, I have learned that in a number of cases, SMU is negotiating specific details of potential agreements...things like pricing, delivery guarantees, etc., etc., and this suggests that we have a variety of live prospects.
Unfortunately, timing continues to be an uncertainty, and perhaps more importantly, the general feeling of "trust" that was exhibited by shareholders prior to last year's third quarter "hiccup" (OK, pneumonia!) hasn't returned. I can easily understand that, of course, but you have to ask yourself realistically where these shares would be trading sans the "hiccup", even without a new ITS agreement, *IF* the same relationships with TRW and Delphi had been announced.
I have my own opinion, but you get my drift. The market isn't cutting Mr. Townsend and the rest of the team any slack. Simula is a "prove it to me stock." Undoubtedly, if management can keep the company on track for the balance of this year, with quarterly earnings approaching my expectations (5-10 cents, 15 cents, and 25 cents for the remaining three quarters, respectively), the shares will benefit.
Unfortunately, for the shareholders, the market now wants to *see* the beef. Estimates aren't enough, promises of ITS orders aren't enough, commentary about bid activity isn't enough, Board Memberships and joint development contracts aren't enough....
...What will be *enough* is *proof* that Simula's most important product continues to gain market share in side impact head protection. And Stocky....the only way we will know that is to see the orders.
Have a good day. |
