Great article on OPMR. Note that Wal-Mart installs have increased by two more since last reported. Author is says 685 installs possible for FY 2000.
stockhouse.com
Looking for a growth company with tremendous prospects for future expansion? Montreal-based Optimal Robotics with production facilities in Plattsburgh, New York is such a growth story worth a closer look. Toting client names such as Wal-Mart, Kroger and A&P as well as marketing partner IBM, Optimal is marching ahead as market leader in the self-serve grocery revolution. With its sights set on European expansion by the end of the year, revenues are rising and analysts are scrambling as record orders are in the bag.
Toronto, ONT, April 18 /SHfn/ -- -- When Optimal Robotics [OPMR] came out with their year-end numbers in February, the three analysts following this quiet success story weren't the least bit surprised. Here is a company that recently reported 1999 revenues up a staggering 427% to nearly US$30 million. Net earnings were $3.6 million, compared to a net loss of nearly $4 million the year before and earnings per share were $0.35. Optimal reports their Q1 numbers on April 25th as analysts wait to see how quickly they'll have to revise their targets. With $80 million in the bank following a recent financing and debt free, OPMR is ready to expand.
For those who haven't been following this story, OPMR is by and far North America's leading retail self-checkout system manufacturer. Their principal product is the U-Scan Express, an automated self-checkout system that enables shoppers to scan, bag and pay for their purchases all without the traditional hassles of the checkout line. The U-Scan system has really become the industry standard in North America and last year processed more than 45 million customer transactions. As a good indication of their expanding market presence, it's worthwhile to take a close look at the number of U-Scan units that were actually installed in contrast to analysts expectations. While we're there, perhaps a peek at their European expansion plans is worthy of a look as well.
In a recent conversation with StockHouse, Optimal's Chairman and CEO Neil Wechsler gave the sector an idea of just how well the market is growing for self-checkout scanners and how he has no concerns of being able to meet analyst expectations. Going into 1999, the backlog for U-Scan installs was 175 and the final install number by the end of the year was 288 units, blowing away the backlog by over 64%. To put that in perspective, their backlog as of January 31 was 457 units and analyst estimates are looking for a mere 540 installs. Even if you take a conservative 50% over-install rate, the company should likely hit 685 U-Scan installs for FY 2000. At those numbers, growth margins of 35%, which are impressive on their own, should far be exceeded.
OPMR has 4 major supermarket clients in their current stable, including Kroger [KR], Meijer, A&P [GAP] Wal-Mart [WMT] and Ahold [AHO]. Kroger is the #1 grocer in the US with about 2200 supermarkets coast to coast and annual sales over $44 billion. Ahold is a Netherlands-based grocer with 4000 stores worldwide and 1100 in the US. Asked about expansion plans for Europe, Wechsler indicated that a European plan is definitely in the planning which will likely be accomplished through a third party relationship. OPMR is expected to build on their existing relationships with both A&P, which is controlled by a German conglomerate and Ahold of the Netherlands. With Optimal committed to their first European trade show in June in the UK, Wechsler stresses, "You'll see some kind of European strategy by the end of the year." With two major European partners already under their belt, pushing U-Scan overseas is obviously only a matter of time.
As far as growth opportunities in North America are concerned, OPMR has two current alliances that expose the company to tremendous opportunities for future expansion. Wal-Mart is bigger than Sears [S], Kmart [KM] and J.C. Penney [JCP] combined as the world's #1 retailer, with about 3,600 stores and also an Optimal customer. With pending financials, Wechsler couldn't comment on current negotiations with the retail giant other than to say that with 20 systems installed to date, Wal-Mart expansion plans definitely seem to be in the works.
Chris Quilty, an analyst with Raymond James has a 12-month target of $60 on the company, "Over the course of the next 20-24 months, they're going to pick up additional grocery stores but even if they gained no other customers, it would still be a good growth story for a couple of years." Quilty sees a base of 6000-8000 stores that they are going to be able to possibly penetrate, building on their existing customer base. As far as the European expansion strategy, Quilty foresees a joint venture with an established partner as the most likely route.
The Kroger relationship is a good one to look at for growth prospects. With over 2200 stores, Wechsler often gets asked the question of why Kroger doesn't do installs in all their stores right away? According to Wechsler, it takes Kroger a period of time to digest and implement the systems, rather than any capacity or production constraints on the part of Optimal. As it stands, back in 1998 when the Kroger deal was signed, the first order was for 50 systems. Since that time, the order has been doubled twice as Kroger becomes more efficient in implementing the systems. It's not a huge jump to expect that OPMR should soon have in excess of 500 units on order with Kroger alone.
Late in February at an industry trade show, Optimal introduced their new six-bag unit, the U-Scan Carousel. The Carousel is designed to handle larger orders and move beyond the express lane. The U-Scan Solo was launched as well to make an assault on the big-box retail guys like Staples [SPLS] and Office Depot [ODP]. Wechsler sees a booming market in drugstores, office superstores and toy stores. Optimal's core market consists of supermarkets, supercenters and general merchandise stores. Of the estimated 23,000 stores, Wechsler anticipates being in 1000 by the end of the year. With expanding product lines such as Solo and Carousel, Optimal is moving quickly to expand their applications to move in on the big-box market.
To manage the exponential growth OPMR is going through, an expansion of their existing 10000-foot production facility in Plattsburgh is underway. By summer, the company will be moving into their new 40,000 square-foot production facility to better handle increased orders and potential new customers on both sides of the border. As Wechsler indicates, "You'll see some other Canadian installations by the summer." Undoubtedly, Wal-Mart will be in those plans somewhere along the line.
Scot Ciccarelli, an analyst with Gerard Klauer has been following Optimal for some time. When we spoke with Scot, he wasn't free to speak to financials specifically as his firm acted as an underwriter for the secondary offering and there were still outstanding shares yet to be exercised. However, Ciccarelli was able to tell us that he will be revising his $52 target to better come in line with recent growth prospects.
Current analyst estimates indicate earnings will drop this year to $0.31 per share. This is merely a result of Optimal's fully taxed reporting requirements due to their significant backlog on the books, which is counted as income. To put this into perspective, these same analysts have a 2001 EPS of $0.95. As well, part of the significant pop in the 2001 EPS is due to the fact that Optimal assumes the total assembly control of their products come January 1, 2001. Currently, Optimal is part of a third party assembly relationship with bar-code scanning manufacturer PSC [PSCX] in which they have been overpaying them as part of a historical joint venture agreement. Once that agreement expires, OPMR margins are expected to rise significantly.
New customers, Canadian and European expansion plans, a massive new production facility, soaring unit orders and explosive revenue growth have Optimal uniquely positioned to control new markets while their existing client base, led by Kroger and Wal-Mart rack up new orders. |
