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

To: wpckr who wrote (1114)	5/20/1998 5:05:00 PM
From: Richard Silvers	Read Replies (1) \| Respond to of 1671

UGLY DUCKLING!

To: wpckr who wrote (1114)	5/20/1998 6:48:00 PM
From: Noblesse Oblige	Read Replies (2) \| Respond to of 1671

Hi Wpckr, It appears to me that the market (at least temporarily) has no interest in the underlying improvement now underway in Simula's financials. The damage done by the out-of-control third and fourth quarters of 1997 has been inestimable, and in my worst dreams I never expected the stock to trade below the prices it did after the announcement of the third quarter results. Just think, we have gone another 2+ quarters, and the shares trade at a price below where the bad news first moved them. And this, in a market that is the best I have seen in my professional career. Undoubtedly, the market is awaiting a firm order for ITS, and with all the heat surrounding the product, it is amazing that there still is very little "light" about when we might get one. All of the signs (TRW coming on the board, Delphi signing a joint development agreement, and Breed's continued accelerated interest) point in the direction of orders, but it is my seasoned judgement that Mr. Market simply is tired of hearing "things have never been better", "we have great momentum with the first-tier's", etc., etc. Despite the fact that I personally like and respect the entire management team, it is clear that the major question with the stock is "credibility." Even good stories become "stale" when there is no real data to feed the market, particularly when making money elsewhere appears to be so easy. My own view is the shares are a steal at current prices assuming the following ramp in earnings... 1998 First Quarter breakeven Second Quarter $ .05 - $ .10 Third Quarter $ .10 - $ .15 Fourth Quarter $ .25 ...and something around a buck for 1999. If the 1999 numbers are on the money, the stock should move up 50% from the current price even without a new ITS order in the next 6 months. The cream in this stock remains ITS, however. I am of the sincere hope that the management of Simula will give some consideration to the announcement that it is considering the spinoff to shareholders of the ITS operations. This alone would raise the price of the stock at least 5 points in my view, particularly when one considers that the revenue flows and earnings for ITS (as a standalone) would probably look like something along these lines... ITS Division 1996 Sales N/A 1997 Sales approximately $ 8 million 1998 Sales approximately $ 21- $ 23 million 1999 Sales at least $ 34 million ...which, assuming pretax profit margins of about 25%, results in pretax earnings of $ 2, $ 5.25-$5.75, and $8.50 million, respectively. Assuming taxes of 40% and a 12 million share count (which is Simula's own share count fully diluted), post-tax earnings would be about 1996 Earnings N/A 1997 Earnings $ .10 1998 Earnings $ .26 - $ .29 1999 Earnings $ .44 The numbers speak for themselves, with this result coming from an environment where no additional contracts are delivered against for the next 2 years. My own guess is that these shares would trade at a significant premium to the current "market" (which itself is now priced at 25-28 times earnings), perhaps resulting in immediate value of $ 10 per share for the ITS division alone. In 1999, however, I can see no reason why the shares of this division wouldn't be valued (again, on a standalone basis) at better than $ 15. Above and beyond that, the aircraft seating operations will have substantial value by yearend, with a reasonable assurance that 1999 sales and earnings (again, assuming 12 million outstanding shares) of roughly $ 60 million and $5.4 million (fully taxed), respectively. Value? Perhaps not the current market multiple, but even at 20 times earnings, this would be worth $ 9 per share as a standalone operation as early as next year. On top of that, there is a considerable R&D and government related business that has substantial value, as Simula is a sole source supplier on varying helicopter protection programs, has 70% of the market in domestic mass transit seating, and is looking forward to (among other things) a considerable business in military parachutes. Perhaps all those things could be worth another $ 4 - $ 6 dollars per share. Total value by my accounting is at least 60% -70% above the current market price, perhaps even 100% more by next year, and this doesn't even assume another ITS contract, which would have the effect of moving the auto spinoff's value off my existing price chart. Though management focuses on the long term (as it should), inherent in its total responsibility is one to shareholders, who presently are being deprived of the true value of this company. My sincere hope is that management will give consideration to a spinoff of the auto division now...during a time when the overall market will give it an optimal evaluation, and where the significant benefit of any new auto platforms will be undiluted by the sub-par valuations attached to the rest of the company's business. Considering how long the shareholders have been patient, in my view it is the least the Board should endeavor to do. Have a good evening.