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Non-Tech : Radica Games (RADA) -- Ignore unavailable to you. Want to Upgrade?

To: Hank who wrote (6746)	3/13/1999 2:00:00 PM
From: Walker	Respond to of 7111

Radica Games: Fishing for Value (3/12) Individual Investor Online Analysis Tell us what you think in RADAF's Board. Analyst: Alex Yakirevich 3/12/99 Radica Games (Nasdaq:RADAF) is one of those companies that seems to fall between the proverbial cracks. It's sort of a video game company and sort of a toy company. But not in the true sense of the words. Hence, investors have overlooked the company. You see, Radica makes hand-held electronic games, the unglamorous slice of the video game world. Its product line currently includes Fishing and Casino games, two of its hot-selling categories, as well as Combat and Sports games. These kinds of games account for about 80% of revenue. Radica also provides original design manufacturing (ODM) services to the Hasbro Games Group. The ODM business currently generates approximately 20% of Radica total sales. According to statistics cited by the company, the U.S. market for hand-held electronic games reached $500 million in 1998. Radica claims approximately 28% of this market. The electronic games segment, however is a pretty good business. Darren E. Barker, an analyst with Wedbush Morgan Securities, estimates that the hand-held electronics games sector could post 20% to 25% annualized growth in the next three years. According to Barker, such level of growth is feasible since the technology is getting less expensive, and consumer tastes are increasingly shifting from "traditional low tech toys" towards technologically advanced gadgets. This is where Radica's expertise translates into a competitive advantage. The company is an industry leader in adopting the latest technological achievements in its products. For example, it incorporated voice-recognition technology in its Girl Tech line of products. In addition, Radica is currently developing a virtual reality concept-based electronic snowboarding game, which should be introduced later this year. Yet, investors seem to ignore this company, even though it's a cash machine. Its operating cash flow has expanded at an 80% annualized rate during the last three years and reached $43 million in fiscal 1998. Radica's balance sheet is exceptionally clean. As of the end of October (recently the fiscal year end has been changed from October to December), the company was debt-free and had more than $33 million in the bank. Radica's historic growth rates should subside in coming quarters. However, thanks to the Girl Tech line of products, which it bought last year, and the continued introduction of new electronic games, the company's performance should be in line with that of the industry. Wedbush Morgan's Baker, admittedly the only analyst following Radica, expects earnings to grow by 13% in 1999, to $2.43 per share on revenue of $$182.5 million. At Thursday's closing price of $13.63, shares are trading at only six times Barker's estimate. Bottom Line: We believe that Radica deserves a multiple of at least 10 times, not exactly rich, which would lift the stock to $24 within the next 12 months.