Here's part of Alan Ableson's column this weekend in Barron's. Nice mention of the case for NMGC. Should be good for a pop on Monday
Mad2
DECEMBER 6, 1999
Comes the Revolution
By Alan Abelson
Avner Mandelman is not your usual investment dude. He operates out of Toronto, is an engineer by training and a money maker by inclination. His professional vita includes stints running the research department of three Toronto brokerage firms. His specialty is technology. And at the start of this year, he launched a hedge fund (or, as he prefers to call it, performance fund), with a modest amount of money but a lot of smarts and it is up something over 50%. Avner, we should note, is not a big fan of leverage.
The fund is called Giraffe Capital (just why, we've forgotten, but not because he likes to stick his neck out), and it invests in both Canadian and
U.S. equities. Its motto is "seeing what bulls and bears don't," which takes in a lot of territory, but also, come to think of it, kind of explains the Giraffe business.
Okay, enough intro. We asked Avner to give us an example or two of the beaten-up, beaten-down techs he loves. And, nothing if not obliging, he offered NeoMagic, a California outfit that, using its embedded DRAM technology, makes multimedia accelerators for notebook PCs and plans to do the same for digital cameras.
NeoMagic apparently could have used some old-style production magic, because, says Avner, it ran into snafus that prevented it from meeting demand. And earnings, natch, suffered the consequences. The good news is that the production snarls have been untangled, demand remains buoyant and the outlook for profits has brightened.
In the January 2000 fiscal year, it'll earn a penny or two shy of 70 cents a share, down from $1.19. Avner thinks next year profits could top 90 cents, possibly approach $1. NeoMagic spends $2 a share on R&D, has revenues per share of $11.50, versus a stock price of around $9. The corporate till includes $2 a share in cash.
He also likes Infinium Software, whose shares sell for around 5 1/2 . The company wound up last fiscal year, ended September, in the red. Which he blames on some bum management decisions, "loss of focus" (which may have something to do with those bum decisions) and product transition (the tech equivalent of the weather).
Avner reports that the old CEO, who owns 20% of the stock, has returned to the helm, closed down some losing product lines and is busily "Webizing" Infinium's chief product, which is software for financial management, materials management and business intelligence (which may or may not be an oxymoron). The company's expertise is in what Avner calls "the AS/400 operating system environment." Infinium has 1,800 customers around the globe and boasts a 90% retention rate.
Revenues work out to about $8.80 a share, and the balance sheet, Avner avers, is "ironclad," with over $3.50 a share in cash. In other words, he reckons, you're buying the stock, in effect, for $2 a share. Cash flow, incidentally, is 80 cents a share.
Avner thinks the company will be back in the black this new fiscal year. He sees Infinium's $1.60 a share investment in R&D paying off to the tune of $1 a share in earnings within two years. And he modestly expects at least a double in the stock.
|
