ALERT:
ANALYSTGROUP.COM Initiates Coverage of Microframe Inc.
Initial Recommendation: STRONG BUY
Microframe, Inc. (NASDAQ: MCFR)
Industry: Internet
Sector: Business Oriented Network Management
Recent Price: $2
Daily Average Volume (3 Month Avg.): 15 K
Market Cap: $10.8 million
52-Week Range: $1.125-$4.75
Outstanding Shares: 5.40 million
Active Float: 86.9 K
% Owned Institutions: 38.1
% Owned Management: 45.8
1997 Revenue: $10.2 million
Estimated 98 Revenue: $15.2 million (ended March. 31, 1999)
Estimated 98 EPS: $0.20 (ended March 31, 1999)
Projected 99 Revenue: $22.8 million
Projected 99 EPS: $0.35
Industry EPS: $0.11
Trailing P/E (1997): 14.5
Current P/E (last 12 months): 10
Forward P/E (1999): 5.7
Industry P/E: 165.8
Price/Book: 2.1
Industry Price/Book: 12.64
Price/Sale: 0.91
Industry Price/Sale: 10.74
Net Profit Margin (%): 8.4
Industry Net Profit Margin (%): 1.9
Revenue Growth Rate (%): 56.16
Industry Revenue Growth Rate (%): 26.23
Earning Growth Rate (%): 48.2
Industry Earning Growth Rate (%): 27.4
Quick Ratio (MRQ): 1.17
Industry Quick Ration (MRQ): 1.78
Current Ratio (MRQ): 1.95
Industry Current Ratio (MRQ): 2.65
Debt/Equity (MRQ): 0.18
Industry Debt/Equity (MRQ): 0.44
Return of Assets(%, TTM): 15.79
Industry Return of Assets (%, TTM): 3.04
Return of Investment(%, TTM): 24.15
Industry Return of Investment (%, TTM): 5.75
Return of Equity (%, TTM): 24.73
Industry Return of Equity (%, TTM): 9.28
Insider Trend Index: Positive
Short Interest: 2.1 K
Recommendation: Strong Buy
Target Price: $6-$10 for next 6-12 months
BUSINESS SUMMARY AND CORPORATION BACKGROUND: MicroFrame, Inc. (NASDAQ: MCFR) is a leading developer and manufacturer of software and hardware solutions for secured Internet/Intranet and remote network management systems for voice, video and data communications. Based in Edison, New Jersey, MicroFrame serves the rapidly growing Business Oriented Network Management Market and has installed systems worldwide, with five direct sales offices in the U.S., a wholly owned subsidiary in Antwerp, Belgium, and distribution networks on four continents. From a single central point the company provides a complete solution to web based SECURE element management for an array of third party data and voice elements including PBXs, Routers and Switches, as well as Secure Data Management of network traffic. The company has media coverage ranging from Ethernet, Token Ring and FDDI, to WAN technologies, including Frame Relay and ATM. The company can deliver a mix
of products from any of the above areas that will suit individual needs and requirements through its PRIISMS Architecture. That is Proactive, Remote, Intelligent, Integrated, Secure, Management Solutions offering you a comprehensive set of network management tools.
RECENT DEVELOPMENTS: On Nov. 13, 1998, MCFR reported results for the 1999 second quarter and six months ended September 30, 1998. Revenues grew 41 percent in the second quarter to $3,214,000 from $2,282,000 in fiscal 1998's second quarter. Net income increased to $88,000, or $0.02 earnings per share, from $78,000, or $0.02 earnings per share, for the previous year's second quarter. Earnings for the second quarter were impacted primarily by increased investment in research and development activities related to new product development as well as increases in sales personnel. For the six months ended September 30, 1998, the Company reported revenues of $6,178,000 versus $4,018,000 for the same period in the previous fiscal year. Net
income for the six months was $250,000, or $0.05 earnings per share, versus a net loss of $76,000, or $0.02 loss per share, for the same period reported last year.
On Nov. 27, 1998, MCFR announced it has renegotiated principle terms to acquire privately held Solcom Systems, Ltd. (Solcom), based in Livingston, Scotland. Solcom is a leading developer of remote monitoring (RMON) technology. a technology leader in the world market for RMON network management products with a full range of WAN and LAN RMON I and RMON 2 compliant probes including Ethernet, Token Ring, FDDI, ATM and Frame Relay probes as well as a complimentary suite of Windows and UNIX RMON reporting/analysis application software. Based in Livingston, Scotland and with a sales office in Reston, Virginia, Solcom's principal distribution is in the UK, Europe and the US.
On Jan. 20, 1999, MCFR announced that it has named Kevin B. Latraverse, age 41, as Executive Vice President of Sales. Mr. Latraverse has 19 years of experience in the data communications and computer industry. He was previously Vice President/ General Manager of Isolation Systems, a Virtual Private Network (VPN) startup company, where he oversaw the building of the U.S. infrastructure used in the sales, support, marketing and manufacturing of the company's new suite of VPN products. Latraverse played a key role in the Company's sale to Shiva Corporation in March 1998. Prior to Isolation Systems, he spent six years at CrossComm Corporation (acquired by Olicom Corporation in 1997), where he served in several capacities, including most recently Vice President, Switching Division and Director of Sales, Eastern
United States. At CrossComm, he helped put in place initiatives to reduce time-to-market of the Company's second-generation switch product from 12 to 6 months. Mr. Latraverse holds a Bachelor of Science/Business Administration from Nichols College.
TECHNICAL ANALYSIS: The stock price peaked last April little over $4.50. Since then, the stock price has declined steadily, though the company has performed well in the past six months. After the price reached the lowest around $1.125 last October, the price bounced back to $3.00 immediately.
Since then the stock has not been traded under $2.00. The technical
analysis suggests technical support is in the range of $2.00. We don't see any downside as the stock is being traded around $2.00. Bollinger Bands closes to the average. On Balance Volume is neutral, but relative strength is picked up, a sign of bullish.
SUMMARY: One thing we like MCFR is that the Company has niche products that are becoming more and more in demand. Computer networks have become an indispensable for corporations - many of which have set up Intranets, or private computer networks, that allow employees to access company records and documents from remote locations and communicate with each other.
Independent industry analysts estimate that more than 50% of companies use no network management applications. Zona Research, a Redwood, California market research firm, estimated that investment in Intranets could rise to more than $13 billion 1999 from $2.67 billion in 1996. Along with the convenience of remote access, however, has come the threat of unauthorized eavesdropping, tampering and intrusions - because these transmissions often take place over unsecured telephone lines. This vulnerability has created a
rapidly growing demand for computer security software and hardware.
According to DataQuest, which tracks the computer industry, Corporate
American spent $6 billion in 1996 and over $20 billion in 1998 on computer network security. The Gartner Group, a leading industry analyst, expects the Romote Network Monitoring market to grow from $750 million in 1996 to $2 billion in the year 2000 - a compounded annual growth rate of 30-35%. MCFR has positioned itself to be what we believe is the only company offering a complete range of security solutions for every form of electronic network communication.
MCFR has a long term relationship with Lucent, a worldwide leader in the industry. It started when Lucent was a unit of AT&T. MCFR OEM's the security device used by Lucent in their Definity products that are called Remote Port Security Device (RPSD). The RPSD is a pair of security devices that limit access to the maintenance port on the system to only authorized persons. Besides volume of products, additional agreements have grown between the two companies on a number of other technological products. We believe this will continue in the near future. MCFR's fundamentals do not justify its low stock price. One reason we believe for the low stock price is that the company is basically unknown on Wall Street.
MCFR created ION Networks (http://www.ion-networks.com) in 1998, through the marriage of two innovative Network Management developers: MicroFrame in New Jersey and SolCom Systems in Livingston, Scotland. The combination of our two companies¹ technologies means that the Company can provide its customers with innovative solutions in the area of Secure, Intelligent, Remote Network Management for video, voice and data networks. Solcom is a leading developer of remote monitoring (RMON) technology. a technology leader in the world market for RMON network management products with a full range of WAN and LAN RMON I and RMON 2 compliant probes including Ethernet, Token Ring, FDDI, ATM and Frame Relay probes as well as a complimentary suite of
Windows and UNIX RMON reporting/analysis application software. Based in Livingston, Scotland and with a sales office in Reston, Virginia, Solcom's principal distribution is in the UK, Europe and the US.
The company's revenues and earnings have been growing in the past several years. In particular, the continued strength (up 41% compared to the second quarter of the previous year) in its revenue growth during the second quarter ended Sep. 30, 1998 was primarily due to increased shipments of the Company's Sentinel 2000 line, as well as software and development sales in the Business Oriented Network Management Market. In addition, t he Company continued to see strong interest in other members of its SNS family of products, including the Manager 2000 and Segasys 2000. Shipments to both our European and US markets under contracts with PTT Holland, MCI, AT&T and Lucent also continue to positively impact revenues. The company's installed
customer base is estimated to number over 200 companies, constituting more than 2,300 customer sites worldwide. Virtually all of the company's clients are Fortune 1,000 industrial companies and large U.S. financial institutions. In terms of future developments, the Company has embarked on an aggressive growth plan and has hired additional engineering staff and direct sales people, and the company has already begun to see the results of this initiative. We believe this focused sales effort, combined with the Company's strong product line that the Company continues to develop and improve, will enable the Company to continue with its goal of becoming a market leader in its field. The hiring of Mr. Latraverse, we believe, is a major step to build the depth of the Company's sales and marketing management team to focus on expanding its customer base. We anticipate the
company's revenues and earnings will grow at a rate of 50-100% in the next several years as their products are becoming more and more in demand in the market. Thus, our conservative target price is $6-$7 and aggressive target price is $8-$10 for next 6 to 12 months.
CONTACT:
Microframe, Inc.
Investor Relationship
21 Meridian Road
Edison, NJ 08820
Phone: (732) 494-4440
Fax: (732) 494-4570
Home Page: ion-networks.com
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