Richard, Thanks for the effort. Maybe this will help:
DLJ ****** DONALDSON, LUFKIN & JENRETTE ****** DLJ May 20, 1998
Timothy N. Weller (212) 892-4200 Stephen F. Mahedy (212) 892-8958
PREMIERE TECHNOLOGIES (PTEK: $23.375) Shares Remain Weak, Business Remains Strong.
Range: Earnings Per Share 1998 vs 1997 % Chg $38.50-$20.875 Old-New P/E Ratios F1QA $0.25 vs 0.14 +79% (FY:Dec.) 1999E $1.80 $ 13.0 F2QE 0.28 vs 0.14 +100% 1998E 1.25 18.7 F3QE 0.34 vs 0.17 +100% 1997A 0.70 33.4 F4QE 0.39 vs 0.25 +56% 1996A 0.26 89.9
Yield: % Market Cap.: $972 million 5-Yr. Growth Rate: 50%
Dividend: $0.0 Avg. Trading Vol.(000): 701 Book Value: $2.0
RATING: Buy Change: None 12-Mo. Target: $54
VIEWPOINT: Premiere Technologies (PTEK)# shares have continued to be weak as momentum investors dump their holdings, growth investors continue to panic, and value investors smell smoke and assume there's fire somewhere.
Topping it all off, while buyers' appetites are low, there seems to be plenty of shares around for sale. In spite of frustration, we would absolutely buy PTEK on weakness. At the risk of repeating ourselves let's tackle the issues again one by one.
1. STOCK OVERHANG Yes, the company filed a registration statement last month for Voice-Tel shareholders who had demand registration rights. That has come and gone and we believe those shares have largely been placed. While it's true that other registered semi-insider shares exist, these are increasingly small as a perrcentage of the total shares, and no seller is looking for the door in the sub-$30 range. The CEO sold just over 300,000 shares in April, well under10% of his holdings, a not uncommon event around tax season. The fact is that PTEK has a no better or worse stock overhang than your typical small-cap growth name
2. FIRST QUARTER REVENUE WAS ON THE MARK AT $119 MILLION Investors seemed to be worried about 1Q98 revenue coming up short, but the fact is it was right on top of our number. One competitor was ahead of the Street by quite a bit and seemed to imply that the company missed its revenue number, but this analyst continue to recommend the stock and has retuned his model.
3. SHARE COUNT AND TAX RATE OF 39% ARE OK
Another competitor implied that the 1Q98 share count was cooked. We've
seen lots of accounting irregularities in the telecom industry in our day, but it's hard to conceive of not counting the shares correctly. This is so ridiculous as to not warrant comment except that many investors seem to have picked up on it. There have also been complaints about the tax rate and our current model uses a full 39% for the 1998 to get to our $1.25. No games here.
4. LOW BARRIERS TO ENTRY
Once a month it seems that some analyst discovers that the computer telephony and information services business have low barriers to entry. True for most companies we cover. However, the barriers to success are very high. We've been seeing dozens of look-alike services for years now and only Premiere as a pure-play has made the numbers. Also, we've been about AT&T(T#), MCI(MCIC*), and the RBOCs coming out with ubiquitous anytime, anywhere services for years, and not only do the services neverquite arrive, but when they do, few people seem to take them. Frankly, if the larger players could establish the market for some of the new integrated messaging services, Premiere could out-hustle them and draft off of their growth. The company successfully competes with many others in its existing markets, why should integrated messaging be any different. These are all huge markets with room for many, many successful players.
5. SLOW GROWTH AT VOICE-TEL AND VOICECOM
Again, one of those facts that gets rediscovered. Premier bought both Voice-
Tel and VoiceCom for their distribution and customer bases. Voice-Tel has already returned to good growth under the new nationwide salesforce structure. We have always modeled VoiceCom as shrinking slightly in 1998 before returning to grow slightly in 1999. Recall that VoiceCom is <2% of Premiere's revenue so keep some perspective on this issue.
BOTTOM LINE: We believe PTEK shares are the single best opportunity in our coverage universe at these levels. The company has great stand-alone businesses in calling cards, fax services, e-mail services, conferencing, and voice-mail. It is a pioneer in the integration of these services and will be there as the new market explodes, with or without competition from the large telecom carriers. This stock is trading at 13 times our $1.80 estimate for 1999 and an astonishing below-S&P multiple of 19 times our 1998 current year estimate of $1.25, with 30-40% internal top-line growth and 50% bottom line growth for the next several years. The company will return to free cash flow positive in the 2H98. Our 12-month target is $54, based on a 20 times multiple of our 2000 estimate of $2.70.
Maintain Buy rating.
WITHIN THE PAST THREE YEARS DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION HAS BEEN A MANAGING OR CO-MANAGING UNDERWRITER OF THE COMPANY'S SECURITIES.
c Donaldson, Lufkin & Jenrette Securities Corporation, 1996 Additional information is available upon request. First Call Corporation - all rights reserved. 617/345-2500
END OF NOTE |
