NEW BUY
RECOMMENDATION
ORBIT
INTERNATIONAL
(National Market NASDAQ ORBT)
Dramatic earnings turnaround solidly in place, disposal of
non-profitable operations, solid balance sheet, core business growing - 1996 PE
estimates look like a steal. STOCK SHOULD BE DOUBLE THE
PRICE.
On October 15, 1996, our Super Fast Phone Services was informed to buy
shares of ORBT @ $2.56 for short and long term gain.On October 16, 1996, our
900# investors were informed to purchase Orbit International ORBT.
BUSINESS DESCRIPTION
Orbit Instrument designs, manufactures and sells customized electronic
components and subsystems for military, and to a lesser extent, nonmilitary,
governmental applications. Products include positional devices (ball trackers,
force transducers and joysticks), data entry and display systems (computer
controlled action entry panels, rear projection readout panels and manual entry
displays), customized keyboards, plasma units and other specialized electronic
systems. The Division also sells, on a repeat order basis, previously designed
equipment, such as magnetic clutches, gear heads, indicators and differentials
for console applications.
ORBT's products, which in most instances are designed to customer
specifications on a firm order basis, are utilized in surveillance aircraft,
missiles, torpedoes, nuclear subsystems, naval vessels, guidance control and
ground console radar equipment.
Products
Positional
Devices
The Company designs and manufactures ball trackers, joysticks and force
transducers which are incorporated into radar and sonar display systems. These
devices enable an operator to move a cursor across a screen for tracking
missiles, ships, aircraft and other moving targets.
Data Entry, Keyboards and Display Systems
Orbit
manufactures a computer-controlled, action entry panel ("CCAEP") which
provides a console operator with multiple displays of computer-generated data.
The Segment's other data entry and display systems, digital data and manual
entry units and panels are used in readout and switch panels located in fire
control, sonar control and command communication consoles.
The Company also manufactures a family of keyboards designed to military
specifications and has added to this product group, keyboards which include
backlit and multifunction panels. These new keyboards have been sold for use in
ships and aircraft.
Orbit has designed, and is selling, a low-power, lightweight, minimum-depth
display unit providing output similar to cathode ray tube displays by utilizing
AC plasma technology, a flat panel display technology. This technology
eliminates bulk and space requirements of cathode ray tube displays, and offers
improved visual resolution and lower power requirements at environmental
extremes. The Division is currently under contract to incorporate the plasma
display panels in display consoles for Aegis class ships.
Positional Readout Devices
Nuclear rod position
indicators manufactured by the Orbit control and measure the depth of rods going
into the core of a nuclear reactor energy source. The Division's rear projection
readout devices provide operators with multiple sources of film stored display
information capable of storing up to 48 messages per unit.
Graphic Display Terminals
The Company's family of
graphic display terminals enables the operator to monitor and control a ship's
radar and sonar systems and subsystems through the ship's central computer. The
terminals are used throughout a ship as adjuncts to large display consoles. The
modular design of these terminals facilitates applications on all size surface
ships, submarines and aircraft.
Operator Control Trays
The variety of operator control
trays engineered and manufactured by the Division help organize and present an
influx of data created by interactive communications systems, making such data
more manageable for operator consumption. The tray can be used for patrol and
surveillance aircraft, standard shipboard display consoles, shore or
mobile-based defense equipment and subsurface sonar displays. The Division's
control trays are currently used in both naval service and operator simulators.
Plasma Flat Panel Technology
The Division has designed
an intermediate sized display using AC gas discharge plasma technology. This
touch sensitive unit allows interactive capability for communication between the
operator and the host computer. Applications for this unit include weapons
control, ships status, target recognition, air traffic control plus information
exchange panels used in conjunction with image processing.
Proposed Products
Substantially all of the Division's efforts in the development of new
products consist of design and engineering services associated with, and
necessary for, the manufacture of new products. The Division generally begins
development efforts after its customers have indicated that the proposed new
products or improvements are desirable. The following is presently being
developed by the Division; however, there can be no assurance that the
Division's development efforts will result in any marketable products. The
Division does not yet have any firm orders for products described below and
there can be no assurance that any sales will be made.
The Division is expanding its design and development of AC plasma display
panels to include bit mapping and graphics technologies. These next generation
panels are intended to be used in aircraft and naval applications. The graphics
version of the AC plasma display panel was completed in mid 1995 and the
Division received contracts for these units on two separate programs. The
Division has also been contracted to deliver a more advanced version of its
panel with embedded intercommunication capability.
The Division has designed and developed a flat panel technology based
communication panel. The Company has received prototype orders for these units
for the LHA ship class. A flat panel development has been commenced for
interactive color liquid crystal and Electroluminescent displays.
BEHLMAN ELECTRONICS, INC.
In February 1996, the Company, through its wholly-owned subsidiary, Cabot
Court, completed the acquisition of certain of the assets, subject to certain
liabilities, of Astrosystems and Behlman Electronics. Concurrently with the
purchase, Cabot Court changed its name to Behlman Electronics, Inc. ("Behlman").
The military division of Behlman designs and manufactures power conversion
devices and electronic products for measurement and display. The commercial
products division produces high quality, distortion free commercial power units
and low noise uninterruptable power supplies.
FUNDAMENTAL ANALYSIS
ORBT has successfully transformed itself from a hemorrhaging military
electronics and apparel company with huge losses to a refocus military
electronics company that has obviously downsized itself and returned to
impressive profitability. It is estimated for the year ending December 1996 that
ORBT will earn at least .34 from continuing operations (does not include 12¢
royalty payment) and .44 during 1997. At present ORBT's stock price in our
opinion does not reflect the true current value or for that matter, any future
potential. Orbit International trades on the National Market System of the
NASDAQ and at this writing was selling for $2 9/16. Based upon 1996 and 1997
earning projections ORBT currently sports a very attractive PE multiple of 7.5x
and 5.8x, respectively, indicating to us that dramatic upside potential exists
today as well as during the next 12 to 18 months.
According to the latest 10K and 10Q filings, ORBT's management hopes to
finish the divestiture of all apparel division by the end of 1996. Once this
happens, ORBT will have in excess of $6.5 million in cash, which, of course, is
intended to be used for acquisitions of complementary businesses.
At present there are only 6 million shares outstanding - management owns 2
million shares and recently has been buyers of shares in the open market - a
very bullish signal. Institutions currently own another 800K - the remaining 3
million shares are held by the public - some 800 shareholders.
At present, the stated book value as of June 30th was 72¢. It is
anticipated that by the close of 1996 the value will grow to 88¢. It should
be noted that by year's end ORBT's cash will equal at least $1.00/share.
Investors should also realize that ORBT at the end of 1995 had a NOL (net
operating loss carryforward) of $13.3 million, which expires in 2009, and a NOL
of $2 million, which expires in 1999. Obviously, this size NOL will shelter a
huge amount of tax liability during the next 12 years.
Upon comparing ORBT with peer companies, a very compelled picture surfaces.
We basically compared ORBT to the average PE multiples of three companies that
are involved with military business. Our first comparison dealt with earning for
96 or current fiscal year. We used GMH-PE-19.5x LGN-PE-18.6x and RTN-PE-13.1x.
When we average them out, we calculated a PE average of 17 - during 1997 or the
fiscal year, we calculated a PE average estimate of 15x
At present, ORBT trades at 7.5x 1996 and 5.8x 1997 estimates. If we were to
assign certain conservative PE values that could and should be more suitable for
the earnings that are estimated, one would see a dramatic difference in share
price.
Let us first assume that since ORBT will grow by 10% over this year's
revenue that we assign a super conservative PE valuation of 10 to ORBT. If that
was the case, ORBT's estimated earning of .34 and .44, respectively, would yield
a stock price of $3.40 and $4.40, respectively.
If we were to assign a share value based upon the average of our peer stocks
of 17x and 15x, respectively, then our stock price of ORBT would be $5.78 and
$6.60. If we were to assign a PE value of the SP 500, which is around 16x to
ORBT, then our stock price would be $5.44 and $7.04, respectively.
Lastly, if we assigned a PE to ORBT based upon the estimated growth in
earnings during 1996 and 1997 of 29% and used that value as a PE standard, then
our price could approach $12.76.
Anyway you slice it, carve it, chew it, or digest it, ORBT in our opinion
deserves to trade higher from current levels.
In summation, we have a NASDAQ listed turnaround situation, has ample cash,
strong book value, solid earnings picture, insider buying, low PE, experienced
management, large NOL, and most importantly, an under valued and under-followed
situation.
For more information - broker contact: Mike Chesler at 1-800-331-1355;
corporate contact: Mitchell Binder at 516-435-8300.
BRIEF NEW
BUY RECOMMENDATION
TEMPLETON RUSSIA
FUND
(NYSE TRF)
We informed our 900# Investors on September 27, 1996 to purchase shares in
TRF @ $21.50 for percentage gain performance.
We cannot ignore Russia as an investment opportunity for the 90s and beyond.
We have tried to play in the market with individual stocks, but find it
extremely difficult. This is why we have chosen this vehicle which will allow us
to benefit from this once-in-a-lifetime opportunity.
A small investment in Russia has the potential to 10 to 20x itself over the
next 10 years. The real risk is to not participate. The Fund became effective
during June of 1995. Templeton Russia Fund has around 5.3 million shares
outstanding. As of September 30, 1996, the funds NAV/share equalled $19.01 - at
present 75% invested in equities, while the remaining is in short-term money
instruments. The majority of holdings in the Russian Fund are 50% energy
related, 10% metals and mining, 20% consumer good, 14% telecommunication and the
remaining 6% in other stuff.
A recent Bullish development for Russia results from S & P rating agency
pegging Russian risk between double B minus and double B plus, which is on par
with US corporate junk bonds, but ahead of Brazilian bonds and below the
investment grade debt of Poland.
Mr. Yeltsin's health, of course, remains a wild card, but in reality, there
is no turning back. There, of course, will be problems along the way, but some
sort of hybrid democracy will take hold in Russia.
Other positives: inflation has dwindled and in August prices fell slightly
for the first time since reforms began in 1992. The much-maligned ruble has
appreciated somewhat in real terms. The country boasts a favorable balance of
trade, and 70% of the economy is in private hands.
We are Bullish on Russia!
We are playing TRF for the long
term.
Broker contact: Greg Nelson at 1-800-453-9408.
Snake
Bits
1. As you may recall, our September
1996 newsletter featured HIA, Inc. (HIAI), a company that distributes turf
irrigation equipment and commercial, industrial and residential well pumps and
equipment. The company serves customers in the Rocky Mountain region. We
initially recommended HIAI @ 7/16, an attractive price when one considers sales,
earnings, book value, no debt and solid growth. The stock was received by
investors with a BIG YAWN.
Recently HIAI released its nine-month sales and earnings ending August 31,
1996. Not only is the price of the stock about 40% cheaper than when we
recommended it, but based upon the nine month results, HIAI is even cheaper than
before. Currently, HIAI is offered at 25¢, a super steal for a boring
company that will make money for the patient investor type who doesn't only have
to buy tech stocks all the time.
For the year HIAI will probably have revenues of $16 - $17 million. Fourth
quarter earnings will probably be a brake-even due to onset of Winter. So in
essence, we have a company selling at a PE of 5, a PSR of .13 based upon
estimated sales of $17 million, a book value of 27¢, no long-term debt and
continued strong regional growth.
LOOKS AND FEELS attractive for the long-term investor type. We think that it
is worth $.75 - $1.00. What do we know?
Broker contact: Mike Chesler at 1-800-331-1355.
2. American Education Corp. AEDU,
developer and publisher of educational software, recommended @ $1.125 on or
about June 18th, is currently back at the level - second quarter sales around $1
million and earnings of around 3¢ - third quarter due out any day -
anticipated at $1 million in sales with earnings of 3¢. Long-term AEDU
looks attractive.
3. Other attractive issues: SEQS,
EuroDisney 2004 Warrants, EPLTF, EGLS, UTEK, TNGI, Shinawatra Computer and
Communication, Wiltek, ALMI, ISSI, ISOL.
4. Shinawatra Computer &
Communication (25 baht/$1.00 - Bangkok-Thailand - Symbol SHWXF - currency in
baht) current price around 400 baht or $8.00/share ADRs - dramatically lower
than our initial recommended price of $12.25 on or about 5-18-94.
Thailand's largest telecommunication conglomerate covering telecommunication
services, satellite broadcasting services, broadcasting and the overseas
telecommunication business. The group's main contributor is 58% owned subsidiary
ADVANC, which is Thailand's number one mobile phone operator.
At current price of 400 baht, SHIN is trading at 30% below the
sum-of-the-parts. 52 week range 400-712 baht - book value around US $2.75.
Shinawatra owns 58% of ADVANC (mobile phone operator), 60% SATTEL (satellite
transponder projects), and IBC - 18%, (broadcaster of subscription TV)
Earnings/share in baht for 1996 and 1997 are 22.8 and 26 baht, respectively.
Note: the ADR shares are actually half the size of ordinary shares.
Bottom line: one ADR costs around $8.00 - the earning/share in US funds
equals around 40¢ for 1996 and 50¢ for 1997. SHIN, as well as the
whole Thai market are having problems. The whole market is down around 27% this
year due to political uncertainty and economical growing pains. In addition,
margins are being squeezed by competition and government regulators looking for
more income.
LONG TERM STILL LOOKS VERY ATTRACTIVE.
We intend to monitor another position of Shinawatra in our Global portfolio
for percentage gain performance. For more information call Greg Nelson at
1-800-453-9408.
5. EuroDisney 2004 Warrants (franc
currency - current price around 11 franc - warrants are exercisable and
noncallable at 40 franc). Current price of warrants are 25¢ - shares
outstanding as of June 96: 765 million.
While earnings outlook is still very difficult to assess, we still believe
that EuroDisney is on the right track. Its costs are well under control and
revenues for the coming two years should be boosted by two major events: its
fifth birthday next year, followed by the World Cup the year after, which should
bring more foreign visitors to Paris.
We still have seven years left for EuroDisney to work on our behalf. We see
little purpose to buy the common shares. The warrants are our only interest,
due, of course, to the tremendous leverage that is attained. If Mickey is going
to survive, the warrants should do the trick with a very small investment.
Consider this: 1000 shares of common cost around $1.75 - $2.00, or $1750 to
2000. If we purchase 10K of the warrants at 25¢, our cost is $2500. The
current exercise price is around $6.75.
If everything imaginable for the Magic Kingdom turns to gold by the year
2004 and our common shares are worth $10.00, our investment would have
appreciated 400%. If this scenario unfolded, our warrants would have to be worth
around $4.50 or a 1700% appreciation.
You can see that the leverage is extraordinary - minimum risk for ultra
maximum return potential.
We are not professing that this could or would happen by the year 2004, but
other scenarios could develop and profits may emerge. Our initial visit to
EuroDisney @ 12¢ appreciated to 75¢ within six months. This could
happen again.
The Mouse could roar again. For more information call Greg Nelson at
1-800-453-9408.
In order to stay in line with SEC guidelines, S.A. Advisory may buy, hold
or sell positions in all securities recommended. The portfolios are all
hypothetical in nature. It is likely that all recommendations were purchased
prior to the recommendation. We may buy additional shares or may sell shares at
any time. S.A. Advisory's portfolios are geared towards sophisticated investors
aiming for long-term capital gains. Our trading habits may vary at our own
discretion. Most recommendations are based upon strict fundamental analysis.
Usually revenue and earnings EST for low priced common stock result from
management discussions.
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