From Canaccord:
2. SPECULATIVE BUY Unique Broadband Systems (UBS : VSE : $0.23 :
Issued 65.8M) Grossner
* First half revenues exceed all of last year by 21%
* Company turns the corner to profitability
* Major near term opportunities in digital radio
* Lucent co-development agreement gearing up
* Shares are very inexpensive, given current fundamentals
Unique Broadband Systems (UBS : VSE : $0.23) SPECULATIVE BUY
Very strong Q2 results
Target: $0.60
52-week price range: $0.70-$0.17
Shares O/S: 65.8M
Float: 59%
Market cap./sales (f99): 1.8X
Market capitalization: $15.1M basic
UBS reported significant sales and profits over Q2, ending November 30.
Revenues reached $3.1M and net income came in at $0.6M. For the first
half, revenues are $4.1M, which is well ahead of the $2.4M recorded
last year. In fact, first half revenues exceed f1998 (12 month)
revenues of $3.4M by a factor of 21%. Net income for the first half
was $0.5M, compared to a loss of over $1.0M last year. This positive
1.5M swing in profit, combined with good top line growth, indicates
UBS efforts to commercialize new wireless broadband technology and
capitalize on its digital audio broadcast (DAB) technology is meeting
with success. DAB accounted for the majority of Q2 sales, but
consulting revenues with Lucent were also booked. UBS key contract to
date is with CD Radio. The company noted that $3M in backlog remains
outstanding, with respect to CD Radio. When this order is combined
with other contracts, UBS should be able to exceed $8.0M in f1999 (May
31) revenues. Further, the company should be able to generate close to
1.0M in net income.
Valuation
Given 65.8M (basic) shares, UBS generated $0.01 in EPS over Q2. UBS
has minimal market capitalization, i.e. $15.1M basic and about
18.0-19.0M fully diluted. For the full year, EPS could approach
0.016, meaning the shares are trading at only 14X the currently
forecasted f1999 EPS and approximately 2X sales, fully diluted. UBS
is a leading supplier of technology used in the DAB field. There are
significant opportunities ahead, which if secured would represent a
sizable multiple on existing sales. UBS hopes to be a major supplier
to both nationally licensed DAB networks in the US, in addition to
Canadian based and international sales. Further, the joint
collaboration between Unique and Lucent in digital video is proceeding
as planned. As previously disclosed, Lucent will globally market
digital video products (including HDTV components) co-developed with
Unique. We continue to be very impressed with the technological
capabilities of UBS and view the current share price as excessively
low. While certain development projects have not panned out (e.g.
Microcell - ComDev - Unique), UBS has exhibited a very high level of
product design competence, across an impressive array of applications.
This is "unusual" for a small company. Given its partnership
arrangements and growing commercialization of new technology, UBS
deserves to trade at price levels considerably above the current
market. The shares remain a strong speculative buy. |
