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Technology Stocks : LHSP: Lernout En Hauspie -- Ignore unavailable to you. Want to Upgrade?

To: cdtejuan who wrote (2271)	8/9/2000 9:10:47 AM
From: cdtejuan	Respond to of 2467

thanks to käptn z from yahoo. ----- Form KBC Securities, maintian BUY recommendation on L&H (article text only, could not copy pictures with results etc ...). Z. L&H reports 2Q00 results in line with expectations The company achieved a current EPS of $0.05, slightly exceeding our $0.04 expectation. That is mainly due to more revenues being recognised at Dictaphone than we anticipated: $30.3m versus $18.5m. The other 3 business were broadly in line with our projections, Solutions being a little bit higher, while Applications and Translation Services ending slightly lower than projected. Overall L&H achieved sales of $125m in these 3 divisions alike we expected. The gross margin L&H posted came in slightly below our forecast. That is fully due to the revenue at Dictaphone exceeding our expectation. Dictaphone features a relatively low gross margin in 2Q00 because system sales have been deferred -as a consequence of the more prudent revenue recognition policy L&H has applied to Dictaphone-. Thus sales at Dictaphone essentially reflect servicing activity. The Selling, General and Administrative costs as well as the Research & Development costs corresponded to our projections. As expected L&H paid a very high tax rate. The reason is that the company has not yet been structured in the way that the carry forward losses from Dictaphone and Dragon Systems are deductible for the group. L&H accounted a relatively small amount in "write-off of in process R&D, which translated into a higher goodwill amortisation figure. Overall we consider that L&H's 2Q00 results correspond to our expectations. 3Q00 will be another transition quarter as it will also be affected by the revenue recognition adjustment for Dictaphone and Dragon. From 4Q00 this issue will be solved. We also expect the first substantial results from synergies in that quarter. L&H's 2Q00 financial performance The Wall Street Journal questions L&H's business in South Korea Yesterday the Wall Street Journal published an article that poses a strong question mark on the validity of L&H's reported business in Korea. We have the following remarks with respect to the article from the newspaper: · Why did the Wall Street publish this article on the eve of L&H's second quarter results, while it was provided with a list of customers in May? Was the article meant to inform the public or had it another goal? · The Journal claims that "sales to affiliated entities last year accounted for 9.7% of (total) sales and include companies in which L&H invests". Yes L&H does sales to affiliates and to FLV Fund portfolio companies. But that's for 0.3% of total revenues in 1999. It is Microsoft that generates 9% of L&H's business. · The Wall Street quotes a number of customers that are unhappy with the services and technology provided by L&H. Though when cited by L&H these customers consider that "L&H has the best technology in the field" and that co-operation is "close". · The newspaper suggests L&H's $56m business in Korea in 1Q2000 be substantially inflated. However, KPMG reviews L&H revenues on a quarterly basis. In addition, in May this year KBC Securities paid a visit to L&H Korea. We were impressed by the fast expansion of this subsidiary and by the dynamism of local management. Since the acquisition of Bumil (the former name of L&H Korea) in September 1999, the company has expanded the workforce from 50 people to 300 and the company has now over 150 customers. · The Journal mentions a discrepancy in the size of the business mentioned by L&H or its customer. L&H reacts that the higher amounts it stated relate to the total contract size or the short term potential of the customer, while the customer reported the historical business with L&H to the journalist over a certain period. Conclusion We maintain our confidence in the company and in its strong growth prospects in the fast evolving SAIL technology market. US competitors in the field of speech recognition for telephony are currently traded at 236 times trailing 12 months sales (Nuance Communications) and 181 times (SpeechWorks International) respectively. This highlights the tremendous growth opportunity for the L&H stock, which currently trades at only 25 times our year 2001 current EPS projection. L&H remains the market leader in the SAIL technology industry, while it is also the sole company that delivers a positive current result. Focusing on our projected year 2001 current EPS, which (unlike the year 2000 figure) is not distorted by the aforementioned revenue recognition adjustment at Dictaphone and Dragon, we maintain our BUY-rating on the stock and our $80 price target by the end of 2001.