Australia | Jul 30 2007
By Rudi Filapek-Vandyck
Expect even more growth for Arasor International (ARR) in the years ahead. At least, that’s the view of one of the closest followers of the company in the country.
Patersons analyst Russell Wright has been quick on his feet to respond to the company’s latest announcements involving two acquisitions. One involves US-based Alfalight Inc (in an all stock deal) and the second one involves buying AOFR from US-based parent Verrillon (also in an all stock deal).
Though details remain scant at this stage, Wright believes it is fair to assume the end result will be something close to EPS neutral for the short term, but offer significant growth in the longer term. In addition, he believes those pesky rumours about a pending significant equity raising may now finally be put to rest.
Alfalight is a designer and manufacturer of high-power diode lasers for the telecommunications market and AOFR is a manufacturer of optical couplers for fibre lasers for the telecommunications, defense and systems markets. Wright believes there seems to be a significant strategic value in the deals for Arasor as pulling the two companies into the group effectively gives Arasor full control over three critical technologies which are common to all of its key products, including Laser TVs.
The financial benefit will come from the fact that each of the three manufacturers may have been able to charge $100 revenue and $50 gross profit each for their part of a chip set whereas Arasor could now be able to charge $300 and keep $200 gross profit per chip set sold, the analyst says.
In theory these acquisitions could result in a quadrupling of gross profit per chipset for Arasor, he adds.
Wright has updated his model and forecasts, including for the impact of a stronger Aussie currency, and this has left his price target/valuation of $8.80 for the stock unchanged. His recommendation remains Buy.
Amidst an overall mildly positive share market, the shares were trading 4c, 1.31%, higher at $3.09 at around midday.
