March Networks Share Discussion Threads

[lordcoco] 25/5/2006 07:54

Even better!



Perhaps some saw transportation as March's weak link, but like in their other areas it seems they just like to go for the big ones.

[mitzis] 25/5/2006 07:51

Another transport related contract win announced today.

[lordcoco] 23/5/2006 15:00

Come on March, wakey wakey! Half hour gone and only 600 traded, what's going on? I thought the national holiday was yesterday.

[elsworth] 22/5/2006 18:27

£7-£8 Target

Hope it helps

[lordcoco] 18/5/2006 20:28

Hadn't noticed the "department store" part of the announcement, that rules out most of my guesses, plus several seem to have grown massively in size from the data I used, oops.

Having had a look at all US dept. stores on wikipedia the only one that seems to fit the bill in terms of numbers is Stage Stores Inc. Unless it is one part of Federated Department Stores, such as Macys - which would be a potentially huge contract were they to deploy across all their nameplates.



I see the dow and nas are taking a late night nose dive - bolleaux.

[mitzis] 18/5/2006 16:57

Up nearly 10% on TSX..

[lordcoco] 18/5/2006 15:56

Some ideas of who the mystery retailer might be:

Sears
Barnes&Noble
Toy r Us
BestBuy
Costco
Kohls
Ross Stores

A diverse range, one thing they do have in common though, all have around 600 stores and revenues in the multi billions of $. Though to put it in context with WalMart, WalMart have over 5000 stores though it isn't known how many will be installing or upgrading to dvrs. It still looks like a significant win to me.

[mitzis] 18/5/2006 08:29

Down this morning despite the contract win but no surprise due to the large correction on the Dow last night.

[lordcoco] 18/5/2006 08:25

I'd say that is a pretty big win! And also clear that they have chosen the hardware and the software, maybe 4000c NVRs with R5 Suite and the pos software?

"The retailer, with approximately 600 stores and outlets, has started deployment
of the March Networks solution that will be used to improve store security,
reduce loss, and enhance operational efficiency. The March Networks solution was
selected over competing systems due to its high performance in-store video
recording capability combined with the ability to centrally manage and monitor
the video over the corporate network. As part of the solution, the retailer will
also deploy the March Networks point-of-sale transaction software solution that
seamlessly links specific cash register transaction data with stored video files
allowing for efficient and centralized investigations."

Once again March is chosen above the competition in a large deployment. Because of NDAs, whose to say there haven't been similar wins of late?

[lordcoco] 17/5/2006 12:08

Greg Reid from Wellington West had a small slot on RobTV last night. Remains bullish on March. The usual - sell-off down to unsubstantiated rumours etc. Target $45, which I think is up $5 from previous.

No mention of the tax issue though.

March looking very unloved at the moment, quotes are terrible. Yesterday on TSX looked like fence sitting as the US decided which way to go short term, any strengthening there and I'd expect March to add a fair bit prior to results. Trying to work out what effect the US$ might have on March, if any, any ideas anyone? (If there's anyone left that is - apart from Elsworth, who looks to be budgeting to buy a carpet or something, couldn't work out that last post).

[elsworth] 15/5/2006 13:32

I have a coverage target for the floor at £7.50/£8

[lordcoco] 12/5/2006 08:16

Apparently there were a couple upgrades yesterday, which I suppose was inevitable at some point given the continual slide, good to get them anyway.

Dundee and Scotia and Wellington West all upgrade. WW to strong buy.

Cannaccord start coverage tgt $36.

[lordcoco] 11/5/2006 14:32

No worries john. Just opened up over a dollar on the TSX btw.

[johnroger] 11/5/2006 14:19

lordcoco
Thanks for posting your research.
Hope we have seen the bottom now!

[lordcoco] 11/5/2006 09:30

Had another go (but left out the tables as cannot tabulate):

10, 2006
All values in C$ unless otherwise noted.(TSX: MN; AIM: MNW) Outperform Above Average Risk Sharp Decline Unwarranted; Upgrading To Outperform Event MN shares have continued to decline in recent weeks, with no new fundamental reason evident. We view current risk/reward as compelling, and upgrade our rating on MN to Outperform. Investment Opinion

• 45% Decline From Recent Highs; No Sufficient Fundamental Explanation Evident: MN shares have plummeted roughly 45% since just before FQ3 results, with no identifiable changes in the fundamentals or outlook for the company. There are a number of "partial explanations" for the decline (itemized below), but nowhere can we find a lost contract, product issue, imminent new competitive threats, financial shortfall, etc. Clearly there are risks out there for MN, but we do not see major new threats that would justify such a move.

• Risk/Reward Now Compelling: At current levels, MN trades at 21.8x our C2007E GAAP EPS estimate, now in-line with peer companies. On this we note several points: MN has much a much higher growth rate than peers – almost 2x earnings growth and 3x revenue growth(see table below). 1-2 months ago, MN traded at a 5-7 P/E multiple premium, which we viewed as justifiable given MN's higher growth outlook. MN will pay no taxes for several years, though they are applied at a 36% rate in the GAAP EPS calculation – a higher rate than peers (see discussion and exhibit 3 below). On an untaxed basis, MN now trades at roughly 14.2x our C2007E Adj. EPS of $1.63. We note that this is now below the IPO valuation level (which at the time was roughly 16x forward year untaxed EPS). Netting out cash (mostly built through the IPO) and the cash benefit of the tax shields (which seems fair if we are to look at taxed EPS), then MN trades at approximately 15x 2007E GAAP EPS.

• FQ4 Results To Be Reported on June 7th: We expect a solid quarter, with revenue of $21.6 million yielding EPS of $0.27. We will publish a full preview closer to the release.

• Valuation: Our target remains $40.00, reflecting roughly 25x C2007E cash EPS of $1.63. This multiple is in line with our expected growth rate for MN over the next 3-5 years. Viewed another way, the target reflects roughly 30x C2007E GAAP EPS, plus cash (including the effect of the tax shield). We now rate MN Outperform, AAR with a $40.00 target.Priced as of prior trading day's market close, EST (unless otherwisestated).

RBC Capital Markets March Networks
Shares Were Arguably Overbought A Quarter Ago, But 40%+ Selloff Unwarranted, In Our View At their peak just before FQ3 results (late February, 2006), MN shares traded as high as $42. At that time the shares appeared fully valued – i.e., fully reflecting a premium valuation for very strong execution and market outlook. Since then, the shares have plummeted roughly 45%, with no identifiable changes in the fundamentals or outlook for the company. There are a number of "partial explanations" for the decline (itemized below), but nowhere can we find a lost contract, product issue, imminent new competitive threats, financial shortfall, etc. Clearly there are risks out there for MN, but we do not see major new threats that would justify such a move. Accordingly, we are upgrading the shares to Outperform, Above Average Risk from Sector Perform, Above Average Risk. Looking for Explanations There are a number of items frequently discussed to explain the move. In our view, many of these are 'after thefact'explanations, and not triggers for sellers of the stock. A number of the most common factors (some real, some perceived), Inclusion of taxes (at 36%) now planned in F2007 GAAP earnings: In conjunction with the FQ3 conference call, the company discussed the need to account for taxes beginning in FQ1/07. While there will be no cash impact for several years (MN is shielded by extensive tax losses), the move highlighted the aggressive valuation metrics at the time. While investors were somewhat accepting of forward P/Es in the high 20s, looking at GAAP earnings led to multiples in the low 40s. Even though there was no economic impact, valuation issues were a reason for profit-taking, and little incentive to buy (at the time). Entry of Cisco to the market: Shortly after FQ3, Cisco announced the acquisition of SyPixx for US$54 million. While relatively small, this did signal Cisco's intention to move perhaps more aggressively into the space. Large competitors are not new for March, but Cisco's reach cannot be ignored, and the potential for a new large competitor in the years to come again was a new concern to some holders. The "Large Customer" may seek a second source: This possibility has been well documented and discussed since before the IPO, and we have seen nothing which indicates a change in the planned deployment for that customer. Customer concentration has always been a consideration, but we expect this to decline in time as the rest of the customer base grows (as we saw in an exaggerated way last quarter). To our knowledge, this customer remains happy and steadily deploying March solutions. Potential sale of stock by Wesley Clover and TPC: Wesley Clover, controlled by Terry Matthews (MN's Chairman), owns just under 30% of March and its lock-up recently expired (1 year after the April 27th IPO). Wesley Clover is now in a blackout period pending the reporting of year-end results, and will be unable to sell shares until some time after June 8th. In our view, should such a transaction come forward, we would fully expect it to be handled in an orderly manner, as was the case following the 6-month lock-up on Insiders. If this is the reason (at least in part) for the share price weakness, then we would expect a rebound once such a trade is executed (again, if that were to be the case). The fear that "March missed Q4": We have heard many times in recent weeks about potential weakness in March's
FQ4 (ended April), though we can never find a source, or even a reasonable discussion as to why this may be the case. We are comfortable with and reiterate our FQ4 forecast (revenue of $21.6 million yielding EPS of $0.27). We note several points: o We are now 10 days past quarter-end with no pre-announcement. While this does not necessarily preclude one, we note that the company's only previous pre-announcement (to the upside) came on November 3, 2005 – 3 days after the quarter end. o Our top-line forecast has relatively modest assumptions, in our view: We look for "Large Customer" revenue to rebound from $7.5 million in FQ3 to approximately $9 million this quarter. This compares to $9.7 million in FQ2, with the FQ3 dropoff related to a seasonal slowdown in deployments (the customer is a retailer). All other revenue is flat in our forecast – quite a conservative stance, in our view. o FQ4 expenses may be higher: March intends to aggressively hire additional salespeople, so it is possible that we are light on our Opex forecast. If so, we would expect a modest ($0.01-0.03 per share) impact to earnings, which is more than adequately reflected in the share price, in our view.



May 10, 2006 2
RBC Capital Markets March Networks
F2007 guidance may be more of an issue: Following FQ4 results wee expect March to issue F2007 annual guidance (as it did last year). We again expect management to be quite conservative in its forecast, including primarily revenue to be derived from current customer rollouts or firm contracts. Last year, we saw numbers far in excess of initial guidance, which was followed using the same principals. We expect revenue guidance to be on the order of 30% growth. We currently forecast 34% growth with relatively flat margins (EBT down 40 bps to 23%), and are comfortable with this given the firm nature of the revenue guidance. We may see some investor concern should official revenue guidance
fall modestly short of consensus expectations, but we would be comfortable with revenue growth guidance in the 30% range. Profit-taking: In the recent decline we sometimes forget that MN shares are still up just under 100% from their $12 IPO price a year ago (though down from their one-time 240% gain). With uncertainty as to why the shares have been in decline, we expect some investors have opted to "take some off the table until they figure it out" – a direct quote from one former holder. In a sense, this becomes self-fulfilling, though does not offer a better explanation. Current Valuation Parameters At current levels, MN trades at 21.8x our C2007E GAAP EPS estimate, now in-line with peer companies. On this we note several points: MN has much a much higher growth rate than peers – almost 2x earnings growth and 3x revenue growth. 1-2 months ago, MN traded at a 5-7 P/E multiple premium, which we viewed as justifiable given MN's higher growth outlook. MN will pay no taxes for several years, though they are applied at a 36% rate in the GAAP EPS calculation – a higher rate than peers. On an untaxed basis, MN now trades at roughly 14.2x our C2007E Adj. EPS of $1.63. We note that this is now below the IPO valuation level (which at the time was roughly 16x forward year untaxed EPS). Netting out cash (mostly built through the IPO) and the cash benefit of the tax shields (which seems fair if we are to look at taxed EPS), then MN trades at approximately 15x 2007E GAAP EPS.

RBC Capital Markets March Networks
RBC Capital Markets estimates Given a 50%+ EPS growth rate for MN over 2004-2007 (74% pre-tax growth), we view current multiples as very compelling. On a sustainable basis over the next 3-4 years, we anticipate EPS growth on the order of 30%+. Taxes skew the valuation and peer comparison: March's tax situation complicates the measurements somewhat, and unfairly depicts EPS trends as we move from F2006 to F2007. As discussed at the end of Q3/06, March will begin accounting for Income Tax at a 36% tax rate beginning in Q1/07, though previous losses, etc. will shield the company from paying cash taxes for several years. On a cash basis, we expect MN to generate EPS of approx. $1.60 in C2007,
implying a P/E multiple of 14.2x on Cash EPS. Further complicating the comparison, NICE and Verint have expected tax rates of 19.5% and 25%
respectively for F2007, well below MN's accounting levels. RBC Capital Markets estimates Note this table assumes constant share counts for all companies, unlike our calculation above (14.2x for MN) which assumes growth in share count through C2007. Notably, on an untaxed basis MN trades at a discount to the peer group, despite higher projected growth rates. Looking for Upside Potential New Enterprise Deals: The first and most obvious driver of the share price will be large contract announcements. We have seen several moderate deals in recent months, with Union Pacific being the last "large" deal. Watching the news releases is not a reliable measure of contract wins, however, with many customers not permitting MN to publicize their security initiatives. New deals are difficult to forecast, though we expect a relatively steady flow (including in the transportation vertical) in F2007. Potential Acquisition: An acquisition by MN would likely be viewed positively by the market. Assuming MN stays within their specified parameters for such a deal – complementary software offerings, customer base in a defined vertical (likely retail), and accretive to earnings, then this should boost the growth outlook and alleviate some longer-term concerns as the company diversifies beyond hardware. Stronger Revenue Growth: In our view, the real upside driver will be higher levels of revenue growth, along with sustained or improved operating margins. Currently, MN is operating with very strong gross margins and controlled OpEx, yielding Operating Margins around 22%. It will be difficult to improve margins beyond current levels, in our view. In fact, we could see margins decline modestly in coming quarters/years as the sales force grows more aggressively (with expenses likely leading their contribution). So earnings growth over the next several years will primarily be driven by revenue growth, in our view. Revenue Growth Sensitivities: We are forecasting 34% revenue growth in F2007. Each 2% increment in revenue growth adds $0.03 to EPS. This implies the following range of P/E multiples based on sensitivity to revenue growth: May 10, 2006 4

RBC Capital Markets March Networks
RBC Capital Markets estimates Valuation and Recommendation With the recent share price weakness and no evident change in fundamental outlook, we believe the risk/reward profile of MN is compelling and upgrade the shares to Outperform, Above Average Risk. We remain firm believers in the market opportunity facing March over the next several years, and in their product strategy and execution ability to capitalize on that. Valuation has been our primary concern in recent months, but we believe the declining share price has mitigated the risks that are out there. MN now trades at similar multiples to the peer group, yet has a higher projected growth rate and faces many of the same risks. Our price target remains at $40.00, reflecting roughly 25x C2007E Cash EPS of $1.63. This multiple is in line with our expected growth rate for MN over the next 3-5 years. Viewed another way, our price target reflects roughly 30x C2007E GAAP EPS, plus Cash (including the effect of the tax shield). We upgrade our recommendation on MN to Outperform, Above Average Risk (from Sector Perform) with a price target of $40.00. Price Target Impediments Our financial forecasts are predicated on the continued deployment of March's solutions at existing customers, and continued wins with new customers to replenish the backlog.
Severe pricing pressure, or major technological advances by competitors would threaten these assumptions and therefore impede achievement of our price target. Company Description March Networks is a leading provider of IP-based digital video surveillance solutions to the banking, retail and transportation sectors. March introduced its networked Digital Video Recorder (DVR) product in 2002, and since then has grown its installed base to over 21,500 DVRs worldwide. The company has an impressive list of clientele including U.S. Bancorp, Wachovia Corp., DHL International, Cadillac Fairview, Singapore Mass Rapid Transit, and the Royal Bank of Canada.

[lordcoco] 10/5/2006 16:15

Sure milesy.

[milesy] 10/5/2006 16:14

Lord - thanks...do you have a link to the Bullboards site?

TIA

>M

[sandbank] 10/5/2006 08:52

LORDCOCO: Thanks for that - useful data. Bears out that the volume remains low despite the occasional spike. What we need is evidence of a nice consistent buildup betting under way before going back in.

[lordcoco] 10/5/2006 08:39

sandbank,

A link to recent price history and volume on the TSX (from where the share price here is driven):

[sandbank] 10/5/2006 08:25

Interesting pick up this morning - but this may not be the low water mark. I reckon the key here is volume...which is pretty low at the moment - hence the drift down.

[Abuse team] 09/5/2006 22:47

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