Australia | May 17 2007
By Rudi Filapek-Vandyck
High technology broadband developer Arasor (ARR) has been on our radar since January this year when the share price was at $2.47. Since then there have been quite a few jumps, taking the share price at one stage close to the $4 mark.
Arasor has won fans inside the small cap team at Macquarie, but several other institutional investors have been won over since its IPO in 2006. Today the share price gained more than 5%, 17c, to $3.53 on the announcement of a successful tender in India.
According to the announcement, made this morning, Arasor is to supply India’s largest telecom service provider, BSNL, with one million broadband modems (termed as “broadband access terminal devices” in the announcement). To do this, the company has entered a strategic alliance with India’s leading integrated semiconductor, SemIndia.
Financial details of the tender, or with regards to the strategic alliance, have not been disclosed. Patersons analyst Russell Wright, without any doubt one of the closest followers of the company in the market, has little doubt to describe the contract as “significant”.
Although the company has not altered its $12m profit guidance for the second half of 2007 (Arasor’s fiscal year runs from Jan-Dec), Wright believes the contract should make a “material difference”.
The reason for not disclosing the financial size of the contract is because it was won through a competitive tender for a given number of units, says Wright. But even though Arasor has said nothing about its gross margins on this contract, Wright believes the company should make healthier margins on the modems than on phones since it will subcontract the manufacturing operation externally in China. Manufacturing is under the Qualcomm license rather than products being purchased directly from Qualcomm, says Wright.
Patersons rates the stock a Speculative Buy with a revised valuation (following the recent issue) of $8.89.
Prior to the Indian contract, the company announced some 105,146 shares and 33,978 options will be released from escrow on May 25.