Australia | May 03 2007
By Chris Shaw
Just over a month ago integrated optical and wireless solutions company Arasor International (ARR), which has been covered previously by FNArena, raised almost $35m through a placement of shares at $3.05, with the funds to be used for operating expenses and ongoing development of its technology.
The deal had the effect of weakening the share price, which having traded as high as $4.00 just prior to the placement came down to around $3.20, but this week the stock is again attracting interest and has traded back up through $3.60.
Patersons Securities is one of the few to cover the company and analyst Russell Wright continues to rate it as a Speculative Buy for its strong growth prospects. He has recently compared the stock to a number of predictive protocols devised by Alexander Green in the US, which are useful in determining those companies with a good chance of outperforming.
While Green constructed a model with 29 such protocols, Wright points out there are seven major ones, and he has run an analysis grading Arasor on each of the seven. They include – annual EPS (earnings per share) growth of more than 24%; an average percentage increase for earnings in the current quarter of more than 34%; an increase in holdings from institutions; a rich product pipeline; a minimum of five million shares on issue; decent daily volume; and an industry group in the top third of the market overall.
Applying this to Arasor Wright points out the company is not yet profitable so the first two predictors don’t apply, but the company is expected to record annual compound revenue growth of more than 50% for FY05-FY07 and 800% revenue growth for 1H07 so the potential is there.
The recent issue of shares were placed primarily with institutions, so the stock is attracting increasing interest from the professional end of the market, while the company now has more than 100m shares on issue and daily trading volume of almost 250,000 shares since listing, so meets these two requirements.
In terms of a product pipeline, Wright is also positive as the company is continuing to spend heavily on developing its technology and is reaping rewards having secured a wireless terminal order worth around $40m as well as an order to supply optical chips in the past couple of months.
In summary then, the company passes four of the seven necessary criteria and is likely to pass a further two (annual and quarterly earnings growth) in the next year or so, while only the sector requirement remains unlikely to be fulfilled simply because the Australian market does not have a technology sector.
On Wright’s forecasts the company is expected to move from a small profit of around $11m this year to $35.5m in 2008 and around $52m in 2009, which equates to EPS of 11.5c this year, 34.1c next year and 50.4m in 2009. This generates a valuation of $8.89, showing the potential upside available given today the shares are trading at $3.63, up 7c.
No brokers in the FNArena database cover the stock.