Today's recommendation from "The Undervalued Dog" is "ITEL"
(FYI, Thursday's recommendation SCTI, is up 62%)
Wavetech Inc. (Nasdaq : ITEL)
Recent Price: $0.50-0.56/share
Daily Average Volume: 88 K
97 EPS: $0.09/share (loss)
Estimated 1998 EPS:$0.30/share(at a full dilution basis after the
merger)
Trailing PE:1.7
Industry Average PE:51.3
Div/Shr: None
Yield: None
52-week Range: $0.313-1.034/share
Outstanding Shares: 15.1M
Floating Shares: 3.6 M
Profit Margin: 20-25%
1997 revenues: $0.866 M
Estimated 1998 revenues: $100 M
SEC reporting:Yes
ITEL is extremely bullish. Tendencies for prices to continue to
advancing are extreme at 95-100% with a short term (3-6 months) upside
potential of $ 2.00 and a long term (12-24 months) upside potential of
$5.00.
BUSINESS SUMMARY AND CORPORATION BACKGROUND: ITEL's business consists
of developing, operating, marketing and selling interactive
communication systems through the application of "intelligent" call
processing technology and proprietary software to reflect or target
the needs of an identified audience. These systems are often used as
privatized networks for organizations and special purpose groups.
During 1995 and 1994, the Company remained focused on the development
of the infrastructure for its call processing and data management
systems. Operations in the USA and Canada commenced on a limited
basis in 1996. The Company signed a licensing agreement with Switch
Telecommunications Pty Ltd of Australia.
ITEL is a diversified telecommunications company. It is the developer
and distributor of Interpretel calling card products and is engaged in
the resale of international long distance. The Company's advanced
computer/telephony network provides subscribers a single point of
access to innovative communications and information services. The
Company markets its services in the United States and Canada under the
Interpretel name and through highly customized or co-brand
initiatives, as well as in markets in Southeast Asia through its
license agreement with switch Telecommunications Pty Ltd.
RECENT DEVELOPMENTS AND ANALYSIS: ITEL decided in January to have a
reverse merge with Imagitel, Inc., a privately held company in
Houston, Texas, in a move to become a larger sales organization and
profitable company. The new company will be called Imagitel, Inc. to
better reflect the broad range of enhanced telecommunications products
and services that the combined companies offer. Imagitel, Inc. has
over 750,000 customers. The Company is profitable with $42 million
revenues in 1997, versus $6.2 million in 1996. Combination of ITEL
and Imagitel businesses is expected to generate $100 million revenues
in 1998. Under the terms of the agreement, Wavetech shareholders will
receive all of the capital stock of Imagitel and own approximately
17.4 percent of the combined entity's common stock. The merger has
already been approved by the boards of both companies.
Imagitel is a holding company formed in December 1997 to consolidate
the ownership of two operating companies with the same ownership,
management and directorship. These two operating companies are now
wholly-owned subsidiaries of Imagitel. RRV Enterprises, Inc., a Texas
corporation doing business as Consumer Access ("RRVE"), is the primary
operating company. RRVE was formed in January 1996 and has generated
all of the revenues of Imagitel to date. RRVE is a switchless
reseller of long distance and enhanced telecommunications services
certified to conduct business in more than 40 states. DDD Calling,
Inc. ("DDD") is a development stage corporation organized under Texas
laws in January 1996. DDD is also a switchless reseller of long
distance and enhanced telecommunications services, and is certified to
conduct business in more than 40 states. Zapcom International, Inc.,
a Nevada corporation, is a newly formed subsidiary of Imagitel. It is
a development stage company that is engaged in marketing services for
the various Imagitel Companies. Comac Interim, Inc., a Delaware
orporation, is a newly formed subsidiary of Imagitel that is going to
be used to acquire another small telecommunications marketing company.
Imagitel has determined that strategic alliances with existing
organizations that have complementary assets and skills also offer the
potential for distribution partnering relationships.
Imagitel, through its principal operating subsidiary RRVE, currently
markets the Consumer Access(TM) benefits calling card. Although there
are numerous calling cards currently on the market, Imagitel believes
that its Consumer Access card offers customers a unique combination of
value and convenience. Consumer Access service is not canceled when
the customer changes long distance carriers. The only way that
Consumer Access loses a customer is if that customer calls or writes
to express a desire to cancel. The calling card offers long distance
calling services at that Imagitel believes this is one of the lowest
calling rates currently offered in the United States. Also, the
benefits include a discount dining program (which gives users a 20%
rebate at thousands of restaurants), discounts at golf courses and
hotels, a travel saving program, prepaid legal expenses and many
others. Many of Imagitel's customers also enjoy a marketing alliance
with Childhelp USA(R). Childhelp USA(R) is a nonprofit entity that
raises money to fund a national child abuse hotline, residential
treatment centers and outreach programs on a nationwide basis to help
end child abuse. Childhelp is backed by many celebrity spokespersons
and earns a royalty on every long distance dollar billed to a Consumer
Access user. The Consumer Access program was commenced in May 1996
and currently, Consumer Access has over 750,000 active customers in
over 40 states. The calling card program is marketed through a
nationwide independent agent network. Imagitel through its primary
operating subsidiary, RRVE, has grown from its first month's billings
of $160,000 in June 1996 to $4.2 million in January 1998.
In February, both companies introduced two new telecommunications
products, the Bill Zapper(TM) and the Travel Warrior(TM), during a
presentation at a major telecommunications conference hosted by the
University of Denver. The conference featured many of the major
players in the industry, including MCI, Oracle, Time Warner Cable,
AT&T, IBM, US West, DSC Communications Corporation and others. The
Travel Warrior(TM) electronic calling card is a patent pending device
aimed at the business traveler, by simplifying long distance
communication while on the road. This remotely programmable device
stores and dials all of the access numbers needed to complete a
calling card call. Just plug it into any analog line. No 800 numbers
to dial. No authorization codes to dial. The customer simply dials as
if at home or the office. The Travel Warrior(TM), smaller than most
cellular phones, weighs less than 5 ounces and is powered entirely by
the phone line. In addition to the electronic calling card feature,
customers may access voice mail, fax store and forward, electronic
billing and other virtual office features. The Bill Zapper(TM)
(patent-pending) is designed for use in the home and automates the
Dial Around process. This device allows customers the freedom and
cost savings of Dial Around, without the hassle of dialing additional
numbers. This line-powered, remotely programmable device is the size
of a computer mouse and weighs only 4.3 ounces. By plugging the Bill
Zapper(TM) into the phone line, customers are able to access cost
savings for both domestic and international calls without changing
long distance carriers. These two products are expected to bring more
than anual $40 million revenues for the company
Technical analysis indicates ITELs shares have been traded very
quietly last year at a trading range (a relatively equal number of
shares being bought and sold). Since last January, the daily trading
volumes have been gradually increased (from a daily average of 50 K to
110 K), signaling an impending breakout. Its On Balance Volume
indicates its shares are under extremely heavy accumulation. Its
trading logs show that ratio of buy to sell has been extreme at 9:1 in
the past three months. There is an important technical support in the
area of $0.40.
Imagitel Inc. had $42 million revenues with $10 million net profits in
1997. The company has more than $10 million cash. Why does Imagitel
want to acquire ITEL, a company at a developmental stage with less
than $1 million revenues and a loss $1.6 million in 1997? The
management presented us three major reasons. First, Imagitel wants to
raise more capitals for expanding its businesses by acquiring more
companies in telecommunication. The best way is to become a public
company. It will cost Imagitel much more money and time by directly
having IPO. Second, ITEL has incurred a tax loss of more than $5
million in the past several years. Thus, Imagitel will pay much less
income tax after the merger. Third, ITEL has the advanced computer
telephony platform and has signed up some big corporate clients,
including Don Ton Travel Associates, Inc., Delta Hotels & Resorts (the
largest privately-owned hotel company in Canada), Canadian Advanced
Technology Association, Language Arts International, Inc. of San
Francisco, Hollywood Park Race Track, etc.. ITEL does not have enough
capitals to set up its platform for its clients. However, Imagitel
has the cash to support this platform. In addition, Imagitel will
have distribute its products and services to ITELs corporate clients.
We believe it is a perfect marriage for both sides.
''Imagitel is an outstanding merger candidate for Wavetech,'' Gerald
Quinn, president and chief executive officer of Wavetech, commented.
''The acquisition significantly enhances existing shareholder value.
Imagitel has a natural synergy with us in the post-paid calling card
business. As a mass marketer of enhanced telecommunications services,
Imagitel has established a strong customer base and has become a
profitable operating company through its proven sales and distribution
infrastructure, meeting the criteria we were looking for in a merger
candidate. In addition, Imagitel has proven to have an unusual
capability to quickly develop very useful products for the rapidly
changing telecommunications industry.'' James B. Gambrell IV, chief
executive officer of Imagitel, said, ''combining Imagitel's
established marketing and distribution capabilities wit |
