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Non-Tech : Simula (SMU) -- Ignore unavailable to you. Want to Upgrade?

To: Jaime H. Ayalde who wrote (797)	11/24/1997 4:55:00 PM
From: Noblesse Oblige	Read Replies (1) \| Respond to of 1671

Hi Jaime, My sons are visiting this week, so after Tuesday it will be golf, turkey, golf, turkey...well you get the picture. Brean Murray analyst Steve Slawson (generally regarded as the "axe" among Simula's analytic coverage) had some additional commentary out today. He has rated the shares a "Strong Buy." His earnings projection for 1997/4 is roughly breakeven, and his judgement for 1998 is for earnings to be sharply ramping thoughout the year (following a very modest profit in quarter one, which is prior to manufacturing beginning at the new airline seat plant in San Diego at approximately April 1st), resulting in a profit range of 63-75 cents. Parenthetically, assuming that the first quarter has earnings of about a nickel...roughly the amount I have in mind...the rest of the year will show earnings of approximately twenty cents per quarter, albeit with a steady ramp throughout. For 1999, Mr. Slawson is carrying a range of estimates between 99 cents and $ 1.21. For what it is worth, it should be noted that he prudently hasn't included any potential earnings from additional ITS agreements that may be signed in time to generate some revenue during that calendar year. Importantly, it should be noted however, that ITS carries the highest profit margins of any product in the Simula "stable," and even a mere $ 10 million increment to expected sales will result in additional per share earnings of approximately 15 cents. My own view (corroborated to a degree by Mr. Slawson's published piece) is that additional ITS orders will be signed following NHTSA's publication of the new Regulations regarding Standard 201. Any agreements announced by Simula will have the beneficial effect of calming investors uneasiness about the lack of additional signed contracts for the last year. Moreover, ITS shipments will (once started) ramp rapidly in magnitude, as additional agreements (including those already signed) start from relatively modest amounts (and a small number of platforms) and are very likely to include a much larger number of platforms as time goes by. If one can assume a few additional agreements in the next six months (a view we hold as most likely, as there is a 15-18 month lead time necessary to get engineering issues completed prior to launching a new car model with ITS protection), it is clear that new revenue flows will come in the latter part of 1999 that will require revamping of Mr. Slawson's estimates. Moreover, the hockey stick nature of the rampup could very well lead to revenues of $ 250 million (his number, too!) by 2001. Assuming profit margins remain stable on ITS (as the company moves down the learning curve and sharply boosts production) a 25%-30% pretax margin is highly likely. Thus, we can hypothesize ITS pretax profits of about $ 70 million in that year, which after relevant taxes, results in an ITS earnings contribution of about $ 3.50 per share. The next six months will likely tell a goodly portion of the tale. I expect that the publication of the new Regs will start everything off. Enjoy your Thanksgiving. <S>