EGNS dd (inside)
Taken from EGNS thread:
This will prove to be a very long post, so if you don't have the time or aren't interested, maybe you can go and read a good book or call your broker and order 10.000 more shares of EGNS :-)
I've noticed some new posters and there are no doubt some new lurkers out there in consequence of the recent publicity. Some of them might be possible investors, so this is a good time to recap on everything that has been going on with EGNS the past few months.
In march or april of this year, stock price surged to its all time high of just over 3$, solely based on the fact EGNS is one of the top companies in COBOL programming, has some very good contacts and overall had very good prospects.
This rise in stock price had nothing to do with NUMBERS (sales in q1 98 were the same as in all of the quarters in 1997, i.e. 250.000$ per quarter).
Expectations were too high and weren't reflected by the numbers, so a lot of OTCB 'investors' (most of those take a lot of risks and want a quick return on their money) were too impatient, sold and stock price went down to its current levels.
Now the situation is reversed : we're not talking about expectations any longer (that is to say in the shortterm), but about NUMBERS AND SALES. At one point, the investors community will see that all of the good contacts they knew about before are being exploited and stock price will soar. There will be fresh buying (some of it is being done right now) and stock price will react. From that point in time onwards, price will never look back (of course, there will be some more temporary setbacks) and current levels will be ancient history, because this time (as opposed to march-april of this year) stock price will be based on the fact EGNS is actually making MONEY !
So, let's talk numbers.
1. Core-business (COBOL programming). Up till now, most of the sales made by EGNS are in this field (70% of q3 98 sales are to be situated here) In May of this year, EGNS signed a salesagreement with Data General (which has an impressive database of big clients). q2 (which includes June) showed the first improvement : 350.000 $ in sales. The first complete quarter (q3) showed sales of 650.000 $ X 70% = 450.000.
So, this business is growing dramatically and exponentially. I think they will do even much better in q4 (let's say 600.000).
2. y2k business. Sales have been moderate (about 100 -150.000) in q3. Things are turning around fast though. Today they announced 2 contracts worth 500.000 $. A few weeks ago, when EGNS was still part of the JV with Intermost, they announced ongoing negociations with three financial institutions in China (contracts worth about 1.000.000). With the sale of the JV, it is hard to tell how much they will get out of this when negociations are successfull. It will be several hunderds of thousands though.
EGNS is excellently positioned to get more y2k business. They are negociating for a JV with the Asian subsidiary of Data Dimensions (based in South-Africa) AND they have an agreement with Computer Associates (CA, a 'major league player').
It is hard to predict how many y2k sales will be included in q4, but it should be several hunderds of thousands.
3. There is NO DEBT, so a very limited risk. Cash is just over 1 million and total assets on the balance sheet is over 4 million, which is a minimum requierement to get a Nasdaq listing.
4. On top of all this, they have recently acquired over 1 million shares of PRIME COMPANIES (PRMC) which will try to get a hand in the internet business in China, which is only just taking off.
So, if you compare the situation with that of six months ago, numbers are simply excellent. q4 will have sales over 1 million, possibly even 1.5 million. Don't forget, profit margins are very high (over 90%).
How does all of this reflect on stock price ?
EPS in q3 was just under 2 cents. EPS in q4 will be 4 or 5 cents (maybe even more). A very conservative but REALISTIC EPS for 1999 would be 4 cents X 4 quarters = 16 cents. Take in account a P/E ratio of 20 and you have an OBJECTIVE stock price of over 3 dollars. Remember, this is a very conservative calculation. If ENGS gets sales up to over 5 million in 1999 (it should be much more), stock price will be higher because of the expectation value and the fact sales are growing so FAST. My personal belief is a price of 5 or 6 dollars by the end of 1999.
On top of all this, we must take in consideration that the y2k could very well be very big and there will be a real y2k mania which would have a considerable impact on price.
Bottom line : this is a top investment for a bargain price. If you invest, don't be discouraged by the fact price doesn't react that much the coming weeks. I have seen it many times : at one point, stock price will double or triple in a few days or a week or so. The reason why is that the current buying is being absorbed by people selling who bought at lower prices and want a quick 20 or 30% gain. Once this resistance level (currently around 1$) is broken, stock price will rise very fast.
This is a good post to summarize some things that have happened. I don't totally agree.
The reason why the stock price went up in april this year to over 3 was the fact that it was mentioned they were going to acquire a company that was going to built the Chinese Yahoo. But what he said played also an important role.
Important to know is the fact that EGNS has now the ability with the deal they signed with CA, to go after the mainframe business which is easy money made fast (look at the contract of today, lines of code is the key here).
What happens in China with the JV? The agreement will not change, the conditions will remain the same, only he gets now shares of PRMC with great management and who are going to exploit the database of Intermost and concentrate on doing business with it and it will involve also Internet business.
About the numbers: I expect that in q4 they will show also revenues somewhere between $ 1 mln. and $ 1,5 mio. which is a large improvement (300% of numbers from last year).
But next year this company will really take off. More business in the US, more in China and more out of the JV with a subsid. from Dimension Data. These earnings will hit up in the next quarters.
I think the company can easily grow to over $ 10 mln. in revenues next year and we all can guess where the stock will be then, over $ 5.
And what if it hits that. Ed is open for taking another person on the board, he knows the growth possibilities are there now, he is looking at an acquistion to broaden the company's base, get assets even higher and apply for Nasdaq listing as soon as possible. Then he will get an Investment banker behind the company (they are looking it also now) and acquistions, mergers or a take over of EGNS is then possible very easy.
The balance sheet looks great, low risk investment at this level. Like I said before, I am following this company a long time and now I think the time has come that the company takes off. Within 6 months I will be a very happy investor and in a year even happier, haha.
Any comments???
Rene.
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