I am sure there are not too many intelligent value investors on this board, but to anyone who is listening:
At $4.30, CAMP has a TEV of $103 million. For this price, you get:
Wireless Data business that has Q1'08 run rate revenues of $84 million (at the low end of guidance), 40% gross margins and 10% operating margins. That means $8.4 million of operating profit, possibly $10 million of EBITDA. CAMP paid roughly $150 million for the acquisitions that created this division (although they have written down $30 million of the price). Wireless Data is growing at 12% per year and has a lot of momentum with new contract additions. With multiples between 8x and 10x EBITDA, isn't this business roughly worth $80 to $100 million?
They had $30 million of losses in 2007, which should create an NOL balance. This is $10 million in future tax savings.
They also have a software solutions business that did $12 million of revenue. What is this worth? Who knows. Let's assume $5 million.
If you add these three things it, you account for $100 million TEV (or more, if you take the high end of my range)
So, tell me if I am crazy, but at this price aren't we getting the DBS business for free? I know there are huge issues with Echostar which is a very big deal, but this business has to be worth something. They allegedly are on the cusp of an HDTV upgrade cycle that should improve CAMP's unit economics.
In addition, CAMP generating $14mm of OCF-Capex in 2007 and $22mm in 2006. Those are FCF yields of 14% and 22%, respectively.
Seems like a good risk-reward to me. Let me know if I am missing something. Feel free to e-mail me.
Lowering Rating to Neutral from Buy
"non-GAAP EPS estimate is being lowered to $0.08 from $0.44, and our
revenue projection to $182.0mm from $249.7mm. CalAmp's FY07
non-GAAP EPS was $0.39 on revenues of $222.3mm. Given the potential for
challenging quarterly comparisons during FY08, it is difficult to see how the
shares can outperform the market.
CalAmp reported results for the February quarter that were generally in
line with expectations. Revenues were $57.0mm, compared to our forecast
of $55.0mm and the analyst consensus of $56.4mm. Non-GAAP earnings per
share were $0.08, the same as our estimate. Sales to EchoStar were
$20.8mm (36.5% of revenues) and to DIRECTV (DTV, $23.46, Neutral) were
$16.2mm (28.4% of revenues). For FY07, in total, EchoStar accounted for
48.2% of CalAmp's revenues.
The company's guidance for the May quarter was materially below
expectations. CalAmp estimates that revenues will be in the range of
$44.0mm to $47.0mm, versus our prior forecast of $60.0mm and the
consensus of $60.6mm. Non-GAAP EPS is expected to be in the range of
breakeven to $0.02, compared to our forecast of $0.10. Sales to DBS
operators are expected to decline sequentially to a range of $23.0mm to
$24.0mm, compared to $37.0mm in the May quarter. During FY07, EchoStar
uncovered a manufacturing problem associated with the laminate material in
circuit boards manufactured by one of CalAmp's suppliers, Rogers Corporation
(ROG, $40.10, Not Covered) from CY04 through CY06.
As a result, EchoStar has decided to halt purchases from CalAmp,
involving both new and old products. A sequential decline in CalAmp's
sales to EchoStar appears likely in the August quarter, as well. CalAmp needs
to have its products re-qualified by EchoStar before shipments can resume.
EchoStar's other suppliers, Microelectronics Technologies, Inc. of Taiwan (2314 TT, TWD
16.80, Not Covered) and Sharp (6753 JP. Y 2240, Not Covered) have replaced CalAmp.
Previously, CalAmp had enjoyed a substantial portion of the EchoStar business. According to
CalAmp's 10-K, published yesterday evening, during FY07 250k units were returned for possible
rework, the majority of which were received in the February quarter. Subsequently, an additional
113k units have been returned.
We intend to monitor the situation closely to see when CalAmp can be re-qualified. In the
interim, given CalAmp's reliance on EchoStar, it is likely that the company's results will be adversely
impacted. On the plus side, CalAmp's sales to DIRECTV should not be affected, as DIRECTV uses
a different design.
CalAmp exited the February quarter with cash and equivalents of $37.5mm and debt of
$34.3mm. Subsequent to the end of the quarter, CalAmp made two acquisitions. In March, CalAmp
acquired AirIQ's Vehicle Finance division for $19mm. In April, the company closed the acquisition of
SmartLink Radio Networks, a supplier of public safety radios, for $8.1mm
I think CAMP is overvalued now and will highlight why
a. acquisition of Vytek was a total and 100% failure, less than $2M a quarter of revenue and they paid about 1/3rd of the company
b. product recall issues might come up for the 400000 units. Not that they will or even if there is indication that they will, but if they did, with a 20% gross margin product this means an enormous liability in cost to repair and fix
c. $35M of debt to purchase the Canada radio company is its own ball and chain
What do the others here think
You've made a few errors:
1) After the end of 4Q07 they spent approx. $27m of cash on 2 acquisitions. That brings TEV up to $130.
2) Solutions business appears to be dissolving to nothing.
3) they will have to spend some $ fixing the problem with DISH. I wish they would give a hint as to what that ticket is?
Also, why did they indicate that there is no organic growth in wireless datacomm? It seems they paid some fancy prices to acquire business with no growth.
Agree - Eggplant. On #1, do you know if they have included full revenue conribution from those businesses in their Q1 guidance? Not clear when they will close. I would typically take any acquisition they do and assuming it will destroy value up to 40% of the purchase price. So maybe the right analysis is to add $27mm to TEV, but add 60% of $27 to the valuation analysis.
This went to the basement on uncertainties which couldn't be answered by Freddy Boy and his clueless accomplices on the CC.
6.00 by July -- 8.00 by year end (All this predicated on the DBS HDTV business being unaffected by the materials issue on the older models)
BTW -> This issue has to have been known by management for some time now, so wait for the lawsuits to fly, because the leeches will be latching on soon with their torts....