HOT STOCKS Institutional Equity Research John R. Switzer June 11, 1998
CONECTISYS CORPORATION (OTC BB: CNES)
Price $3.50 $Book Value/Share $0.07 Investment Opinion Strg Buy
Price Range (52-weeks) $0.90 ? $5 7/8 LT Debt $0.75 Market Cap (millions)
25m
Shares Outstanding 8.5 million Float 1.2mm 3-yr EPS(E) Growth 100%+
Average Daily Volume 75,000 Div. Yield 0%
Revenue Operating P/E Quarterly Earnings Comparable Companies Statistics
Year Millions Margins EPS Ratio Q1 Q2 Q3 Q4 Symbol $$ P/E98E Grow%
MktCap
11/97A $0.38 N/A ($3.27) N/A ($0.12) ($0.10) ($0.15) ($2.90) CNDS $13 5/8
N/A 60% 554mil 11/98E $1.61 00.0 ($0.20) N/A ($0.22) ($0.19) ($0.09)
$0.06 ITRI $15 3/8 N/A 25% 224bil
11/99E $22.38 00.0 $0.99 5X $0.00 $0.00 $0.00 $0.00 Mtel $N/A N/A 25%
N/A
11/00E N/A N/A N/A N/A NXTL $28 1/2 40X 25% 7.25Bil
? Conectisys Corp. is a leading wireless telecommunications equipment and
service provider based in Los Angeles California. The Company is about to
experience rapid acceleration in revenue growth due to industry acceptance
of its innovative product and service offering.
? The Company manufactures and sells remote (wireless) data gathering and
monitoring equipment, Industrial Automated Valve/Gateway electromechanical
devices, and wireless network service to the electric and gas utility
industries (AMR- automatic meter reading), vending machine monitoring (VMM)
industry, petrochemical manufacturers and pipeline providers, and others.
The Company is one of the first equipment manufacturers to provide an
end-to-end open platform hardware/software solution combined with cost
effective wireless network service which significantly increases network
efficiency and lowering cost.
? The market for the Company?s products is in excess of $1 billion and
growing at over 10% per year. Due to deregulation in the electric utilities
industry, cost cutting is imperative in order to stay competitive. The
Company?s PrimeLink remote/wireless monitoring and control systems allow
utility companies to significantly decrease the cost of meter data
acquisition.
? ConEdison has committed to using The PrimeLink System, and SoCal
Edison will begin a pilot test of the next generation PrimeLink system in
Q398 (approximately 50,000 units in total). Several other large electric
and gas utility companies are currently evaluating the product for AMR.
? The Company has entered into an agreement to provide its Cube 2001
technology and products to Northern Technology for distribution to their
existing Asian customer base. The product provides seamless LON (local
operating network) control to the Petrochemical Industry.
? Conectisys has Strategic Joint Marketing and Development agreements with
two of the largest wireless network providers in the nation, SkyTel (a
division of Mtel), and Williams Wireless, a division of Williams
Communications, one of the founders of the largest and most profitable fiber
optic networks in the U.S.
? Based upon the Company?s advanced hardware software product offering and
unique market position, we believe the Company?s common shares would be
fairly valued at between 20X -to- 25X projected FY2000 EPS, or $20 -to- $25
per share.
1.
The Company
Conectisys Corporation was reorganized in 1995 to facilitate the Company's
entrance into the Wireless Telecommunications industry. In September 1995,
Conectisys purchased PrimeLink, Inc., and TechniLink, Inc. Through its
wholly owned operating subsidiaries, the Company develops, manufactures and
markets wireless network solutions to several industries including
Utilities, Petrochemicals, Vending Machine Monitoring (VMM), and others.
Due to recent deregulation of the Utilities industry, Conectisys is
experiencing rapidly accelerating revenue growth from its technologically
innovative products and reliable wireless network systems. The Company's
wireless products and service offering are gaining widespread acceptance
among large Utility providers. Conectisys currently jointly develops and
markets its products and wireless service with two of the nations largest
wireless network providers, SkyTel and Williams Wireless.
Products and Services
Conectisys Corp., through its subsidiary, PrimeLink, Inc., offers a complete
line of remote data acquisition and monitoring equipment, network
integration products (LAN/WAN software systems), and wireless service
packages to connect the equipment to the end users corporate office.
PrimeLink?s main product, TransComm, is a board level data gathering &
acquisition device, which provides 2-way communications across a digital
wireless network. PrimeLink?s wireless hardware/software solution utilizes:
Leading Open Systems Interface (OSI) architecture design; A very unique and
powerful proprietary embedded-software kernel in both its board level
digital signal processing (DSP) and its high-speed redundant wireless
network; State of the art Network Operating Control (NOC) technology; and
innovative proprietary data processing systems.
The unit is connected at the board level to a utility meter, pipeline flow
meter or other flow measurement device, vending machine, or any
electronically controlled meter. Data is then converted to a digital
format, uploaded and transmitted over a wireless telemetry network (digital
PCS, CDMA, TDMA, 920mhz Rf, etc.) to the NOC. At the NOC, the data is
collected and forwarded to a data processing center where it is
re-formatted, analyzed, and configured to meet individual customer
specifications for billing. This process is programmable to occur on a
user-defined schedule. The data can be converted into most any format using
all industry standard protocols so that the user can manipulate the data in
any application for report generation.
Next Generation PrimeLink Wireless Technology: In Q398 (August),
Conectisys will be introducing its latest technological development in a new
automatic meter reading (AMR) product targeted at electric utility
companies. This device incorporates the Company?s remote data gathering &
acquisition technology with a revolutionary network service design
technology. The new product will allow the Company to become a wireless
network service provider. The new technology has been endorsed by one of the
largest electric utility providers in the nation.
The Company, through its subsidiary, TechniLink, Inc., develops and
manufactures a Local Operating Network (LON) system based on LonWorks
networking software developed by Echelon, a leading industrial automation
software developer. The Company?s primary product, The LonWork?s based?
Cube 2001? system is an end-to-end electromechanical and Network Operating
System (NOS) solution. Cube 2001 systems include computer controlled
electric motors for gateway and valve control with controller cards similar
to hard drive controller cards in a PC, industry standard based
cabling/connectivity, and
Communications protocols (such as 10Base-T, coaxial cable, Ethernet, RJ-45,
etc), LonWorks client/server network software, and proprietary data
manipulation/reporting applications.
The product allows the user to control electromechanical devices, such as
valves and relays in a refinery (valve and relay control is critical in the
Petrochemical and Utility industries). It also gives real-time diagnostic &
historical audits of all device and network functions, as well as a host of
other functions. The hardware/software architecture design is based upon
industry standards (OSI) and is interoperable across most platforms.
Several large petrochemical companies are currently evaluating the Cube 2001
system on a pilot program basis. The Company has initially targeted
customers in the process of modernizing their industrial plants from C2
military standards. Due to the Year 2000 problem, many companies are
currently replacing their current legacy systems to avoid system failure.
The Market
Conectisys currently markets its wireless remote data gathering &
acquisition system primarily to the Electric Utility Industry, petrochemical
(refineries, pipelines, chemical mfr., etc) industry, and retail vending
industry (VMM). These markets combined are currently in excess of $1
billion and growing at a rate of 10% per year. Future applications are
being targeted at transportation monitoring & tracking, home health care
monitoring, and commercial & residential security monitoring, all of which
are multi-billion dollar markets.
Market Positioning
ConEdison: Conectisys has the contract to provide ConEdison with up to
4,000 units of its PrimeLink system. The units will be sold for $1,144
each. This price could increase to over $2,000 per unit due to
configuration demands of the ConEdison system.
The PrimeLink system will be implemented along one of ConEdison?s primary
distribution networks for industrial/commercial customers. Initially, 2,000
units will be installed beginning in Q398, with the remaining 2,000 units to
be installed on a replacement basis over the next 2-quarters.
SoCal Edison: Conectisys has had preliminary indications from the Electric
Utility for the pilot testing of as many as 50,000 units of its Next
Generation PrimeLink product which will be available in Q3 and Q4 of FY1998.
The new product is being positioned as an essential component of the power
distribution network under de-regulation rules. Conectisys has not
indicated a price point of its newest products as of yet.
Technilink Pilot Testing: Conectisys is currently in the final phase of
negotiations with several large petrochemical companies for the pilot
testing of the ?Cube 2001? system. The Company expects to have
approximately 50 companies testing the system. Each company will initially
purchase between 5 ? 10 units for the pilot program. Each unit will be sold
at a price point of approximately $650. These programs are expected to be
implemented over the next 12-months, beginning in Q398.
Northern Technology (NTI: AMEX) is currently negotiating with the Company to
integrate their board level instrumentation device with the Cube 2001
product. This agreement will allow Northern to license and market the
Company?s technology only overseas. Northern Technology believes it will be
able to leverage the technology into its existing customer base primarily in
Asia.
Currently, Conectisys is marketing its PrimeLink products primarily as an
AMR device (automatic meter reading) to electric utilities. Systems are
also marketed through a Strategic Joint Marketing & Development agreement
with Mtel?s wireless network provider, SkyTel. This agreement continues to
bring the Company face-to-face with many large potential users of the
system, including Utilities (ConEdison and the other Edison energy
generation divisions), VMM, Home Health Monitoring device manufacturers, and
others.
U.S. Postal Service: The USPS is currently evaluating Conectisys systems for
use at their high-density drop-off points. The system would involve a
nationwide rollout of the technology with several hundred thousand units.
This contract will take at least 1 ?to- 2years to negotiate due to the
strict requirements for contracting to supply government agencies.
Utility De-Regulation & The Conectisys Symposium: The Electric Utility
Industry is currently in the process of being de-regulated. Utilities have
been mandated to divest and competition is being forced on the large
monopolies. Deregulation will require a separation of utility power
generation, transmission, and distribution. Rates will be set by
competition instead of by state PUCs (public utility commissions). The
deregulation process will mirror the AT&T divestiture in 1984 where
resellers/aggregators and independent network providers flooded the market
with cheap long-distance.
In order for electric power aggregators/resellers to purchase power
efficiently, they will need to measure the use of power by their clients on
the existing power delivery systems to determine how much power to purchase
from the generation companies. Currently, usage is manually measured on a
monthly basis. Due to the constantly changing nature of power usage, and a
fluctuating price/market for purchasing the power, aggregators need to
measure usage much more often. New regulations require aggregators to
measure metered electricity usage as often as every 15-minutes. To manually
read one-meter (on-site hand held infrared reading devices) costs on average
$1 per residential unit and as much as $30 per meter per commercial unit.
Due to the measurement frequency required by deregulation, aggregators and
distributors are implementing AMR solutions prior to entering new markets.
The opportunity is for outside ?data-providers,? aggregators/resellers, or
community-based co-operatives (Co-ops) to own the wireless, remotely
controlled AMR systems in high-density MSAs (metropolitan service areas),
selling the data and wireless network time to distributors.
Conectisys is currently working towards setting up an industry association,
The Conectisys Symposium, which will educate, advise, and market services to
small resellers, aggregators, and community-based Co-ops. The Company is in
the process of developing its Website for the Symposium and meetings are
being scheduled with market research firms such as The Gartner Group, META
Group, and Seybold to discuss nationwide showcasing of the Symposium
concept.
Competition
Conectisys competes primarily in the AMR market, providing wireless, remote
automatic meter reading and data gathering & acquisition to electric and gas
utility companies. Small-to-medium sized instrumentation companies whose
technology dates back as far as 30-years characterize the AMR market. The
Company competes directly with several small suppliers and system
integrators, and a few large, publicly traded companies such as Itron, Inc.,
(ITRI), and Cell Net Data Systems, Inc., (CNDS).
Technological advances have dramatically changed the nature of the AMR
market. Systems developed by Conectisys, ITRI, and CNDS have been
cost-prohibitive due to network setup and airtime costs, telemetry network
availability, and unit installation density issues. However, due to
dramatic network expansion by wireless carriers, advances in wireless
technology (i.e. New spectrum, digital vs. analog, etc.), and the needs
created by deregulation, wireless AMR companies are experiencing rapid
acceptance by the Utilities Industry.
Upon thorough review and examination of the products offered by Conectisys
and its competitors, we feel the Company?s technology is far superior and
will win a large portion of the market for AMR (a billion-dollar market)
over the next several years. With the release of the Next Generation
PrimeLink system, Conectisys will be able to dramatically reduce the cost to
provide wireless network service, as well as increase the robustness of the
network. Furthermore, this product will allow Conecticsys to immediately
expand into markets other than AMR that require inexpensive wireless network
airtime, dynamic network resource management, remote data acquisition, and
data processing solutions.
Valuation
Based upon the Company?s projected high growth profile, technologically
advanced and competitively advantaged product/service offering, and the
dramatic increase in revenue which will be generated from the fallout of
electric utility deregulation and divestiture, we believe the Company should
be valued at approximately 20X ?to- 25X projected FY 1999 EPS, or $20 ?to-
$25. Companies such as ITRI and CNDS currently trade in excess of 400X
current year revenues.
Current Trading Activity: Conectisys common stock trades on the over the
counter bulletin board under the symbol CNES (OTCBB: CNES). The Company
hopes to begin trading on the Small Cap NASDAQ within the next 12-months.
In our opinion, Conectisys trades at a significant discount due to a lack of
coverage by NASDAQ broker-dealers.
John Switzer has worked for several major brokerage firms as an analyst and
has generated research reports at the firm?s request. From time to time,
John Switzer offers his services and opinions as an independent contractor.
As an independent contractor, Mr. Switzer is compensated from the company or
it?s affiliates in exchange for his independent valuation of the company.
The information in the above report is believed to be true and accurate,
however these are projections only. This report is the opinion of John
Switzer. Due to constant changes in the industry, projections can change at
anytime.
Analyst Resume: John Switzer
1988 - 1990 Fixed Income Trader; Bear Stearns, NY, NY
Traded U.S. yield curve; MBS, CMO, and all derivative securities.
Responsible for risk analysis & position management of entire desk.
1990 - 1993 Institutional Research Analyst, Pacific Growth Equities, San
Francisco, CA
Worked as jr. analyst for leading small cap telecommunications Analyst, Mark
Bergman. Promoted to Sr. Analyst in 1993; responsible for over 5 IPOs or
secondary financing of telecom companies. Received national recognition
among telecom industry journals for research and recommendations.
1993 - 1994 Sr. Telecom Analyst, Wedbush Morgan Securities, Los Angeles, CA
Responsible for institutional telecom research used by institutional and
retail sales, corporate finance.
1995 - 1996 Sr. Telecom Analyst, H.J. Meyers & Co., Los Angeles, CA
Responsible for institutional telecom research used by institutional and
retail sales, corporate finance.
1997 Sr. Institutional Equity Research/Sales Analyst, Charles Blair, Los
Angeles, CA
Generated fundamental research for my institutional clients. Sales traded
my research and generated corporate finance leads.
1998 Independent Institutional Equity & Corporate Finance Analyst, Based in
Los Angeles, CA
Providing small cap equity research to institutional investors on a
subscription basis. In addition, providing Corporate Finance consulting to
my client companies, including structuring, valuation, funding access, due
diligence reports, and Merger & Acquisition consulting services. |
