Microforum surfing the e-commerce wave
U.S. interest grows: New York conference adds fuel to fire
Garry Marr
Financial Post
Management has turned the ship around at Microforum Inc. switching direction from the distribution of entertainment software to the hot e-commerce
sector.
Investors finally sat up and took notice last month, as Howard Pearl, chief executive of Microforum, took his message to a high-profile e-commerce
conference in New York.
Since the conference it has been full speed ahead for Microforum stock, which touched a 52-week high of $11.30 on April 29. That price was a long
way from the 42¢ at which the shares closed on Oct. 28.
Microforum shares (MCF/TSE) rose 55¢ to close at $8.45 yesterday.
"The long and the short of it is the company over the past year and a half has positioned itself in one of the most exciting areas in the Internet services
industry," says Adam Adamou, an analyst at Taurus Capital Markets Ltd., whose firm has done a series of financings for Microforum.
"The forecasts for the growth of that sector are huge," he says.
But what really put Microforum over the top in terms of stock activity was the initial public offering of Razorfish Inc. (RAZF/NASDAQ) in the United
States.
After being priced at $16 (US), Razorfish stock rocketed past $50 (US) last month.
The shares have lost a little altitude since, but are still trading at more than double the listing price. The shares fell $2 (US) to close at $35 (US)
yesterday.
Mr. Adamou says the IPO finally gave investors a measuring stick for Microforum.
"Razorfish has a similar revenue base to [Microforum]. In U.S. dollars, Razorfish has about $30-million in trailing revenue and Microforum has
$20-million," says Mr. Adamou, adding that $15-million of that Razorfish revenue came from a recent acquisition.
"Razorfish has a market capitalization of about $2-billion (US) while Microforum has a market capitalization of $200-million (US)," he says.
Microforum is two-thirds the size of Razorfish but it is only one-tenth the market value.
Microforum's daily trading volume soared as high 13 million shares in one session last month -- more than 12 times the stock's six-month average.
The increased activity is directly attributable to U.S. investors, analysts say.
"Investors started hearing the [Microforum] story in New York. That was the largest e-commerce show of the year," says Mr. Adamou. "Microforum
has a tremendous profile down there."
The profile recently expanded a little, when a company subsidiary was included among 25 Microsoft-certified solution providers across North
America to take part in the Commerce Partner Advisory Council.
Microforum was the only Canadian company among the group.
In addition to providing e-commerce solutions through its subsidiaries, Microforum also provides marketing and database services.
The company is continuing to make acquisitions, the largest one being PPL Marketing Services Inc.
Acquisitions are leading to restructuring charges, which in the case of PPL was $2.1-million in the recent quarter.
For the third-quarter ended Nov. 30, Microforum had a net loss of $3.1-million (18¢ a share) on revenue of $9.1-million. That compares with a net
loss of $195,696 (3¢) on revenue of $1.2-million for the same period a year earlier.
In a research report released last month, David Wong, a Vancouver-based analyst at Canaccord Capital Corp, wrote: "Microforum's competitive
advantage is its ability to offer a complete, one-stop package of traditional marketing and communication services along with a recognized
e-commerce solution."
Along with the PPL purchase, the company also bought Marshall Fenn Communications a marketing and public relations firm and Poste Haste
Systems a lettershop and image technology company.
Microforum's Mr. Pearl, owned both of those companies.
With Mr. Pearl at the helm, Microforum has completely shed its past after going public in December, 1996, to focus on development work in the
personal computer video game market.
By February, 1998, Microforum's board changed tack when it found the market just was not there.
The board restructured the company, got rid of the video game business, and made the iFront division's electronic commerce solutions (ECS) the main
focus of the business.
Canaccord's Mr. Wong says Microforum's fundamentals speak for themselves.
"These guys are good at what they do," he says.
The analyst has a "buy" rating on Microforum stock.
Mr. Pearl, who owns about 16% of the company's outstanding shares, says he was not completely surprised by the stock's recent runup. However,
when volume soared to more than 13 million shares in one day, he was a little overwhelmed.
"We've been at this for such a long time," he says. "I think that success sometimes comes when people notice you gather a little momentum."
Mr. Pearl forecasts profitability for the company in fiscal 2000 and says fourth-quarter earnings, to be released soon, would be in the black.
Acquisitions would continue to be high on the agenda and Mr. Pearl says his company would look to buy anything that would help with Microforum's
"total response Internet-based commerce and communications company."
Canaccord's Mr. Wong says that is what has set the company apart in e-commerce.
"iFront turned out to be a gem for them. They realized there was a significant opportunity to take the e-commerce division and combine it with
traditional marketing services," he says.
MICROFORUM INC.
CEO: Howard Pearl
Ticker: MCF
Listed: Toronto Stock Exchange
Head office: 1 Woodborough Avenue,Toronto, Ontario.
M6M 5A1
Telephone: (416) 656-6406
INCOME STATEMENT
02.28.98 02.28.97 02.29.96
Operating revenue $000s 5,230 15,847 12,315
Net income $000s (8,011) (10,529) 326
Earnings per share $ (1.01) (2.30) 0.09
Dividends - cash $
Cash flow operations $000s (2,675) (4,663) (107)
Cash flow operations per share $ (0.337) (1.020) (0.030)
P/E ratio: n.m. Dividend yield: n.a. (at 5/7/99)
RATIOS
02.28.98 02.28.97 02.29.96
Net profit margin (71.13) (66.44) 2.65
Return on equity (148.47) (254.97) n.a.
Return on assets (41.63) (100.57) n.a.
Current ratio 1.35 0.95 2.57
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