The NBF Daily Bulletin: Communications Equipement – VCom Inc. Q4 Preview

September 26, 2006

Release Date: September 26, 2006
VCM (T) Cdn$10.40
Stock Rating: Outperform (Unchanged)
Target: Cdn$14.00 (Unchanged)
Risk Rating: Above Average (Unchanged)

Stock Data:
52-week High-Low (Canada) $11.00 – $7.15
Bloomberg/Reuters: Canada VCM CN/VCM TO

(Year-End June) 2005 2006e 2007e 2008e
Sales $63.0 $79.4 $98.4 $120.5
Sales Change Y/Y 42% 26% 24% 22%

EPS $0.55 $0.52 $0.61 $0.77
EPS (Calendar) N/A $0.57 $0.69 N/A
EPS Change Y/Y 12% -5% 17% 26%

P/S 3.7x 2.9x 2.4x 1.9x
EV/S 3.5x 2.8x 2.2x 1.8x
P/E 18.9x 10.0x 17.0x 13.5x
P/E (Calendar) N/A 18.2x 15.1x N/A

Fiancial Data:
Shares Outstanding (diluted) 22.5
Market Capitalization (mln) $233.7
Book Value per Share $3.23
Enterprise Value $218.7
Price/Book Ratio 3.2x
Total Debt (mln) $0.0
Total Cash (mln) $15.0

Industry Rating: Overweight
(NBF Economics & Strategy Group)

Company Profile:
Established in 1988, VCom Inc. is a designer and manufacturer of Data over Cable, Digital Video, and manufacturer of Broadband Wireless telecom products. The company recently completed its IPO in November 2005, raising approximately $28 million.


VCom Inc. Q4 Preview
Expect Business to become more balanced

– Q4 Preview: Results Wed., Sept 27, after market close
VCom will be reporting its Q4 for the quarter ending June after market closes on Wednesday, Sept. 27, with a conference call at 5 p.m. The dial in number is 604-638-5340 or 1-800-319-4610 (replay is 604-638-9010 or 1-800-319-6413, passcode #7354). For the quarter, we are forecasting revenues of $21.6 million and an EPS of $0.13. Consensus is at $22 million and $0.12. For f2006, we are estimating $79.4 million and EPS of $0.52; while consensus is at $78.9 million and $0.51. Guidance for the year is for sales of $75-$80 million.

– Expect slight shift in revenue mix
We expect that Cisco sales were slightly down in Q4 from Q3 as order intake in Q3 was exceptionally strong. As a result, Data-over-cable sales are forecasted to decline to 53% of revenues from 58%. That said, we are forecasting the Digital Video and WiMAX sales to make up the difference. During the quarter, the company was shipping WiMAX products to MRO-TEK of India and several other service providers. Overall, the slight change in mix is positive as the company’s revenue line will be more balanced.

– Expect to provide some clarity in f2007
For f2007, we are forecasting revenues of $99 million and EPS of $0.61 (which includes the $5 million in revenues acquired with the Wireless Wave acquisition). Given the push by cable operators to add more bandwidth, the increasing traction of tis WiMAX products and potential product certification at Comcast, our forecasted growth of 24% for f2007 could be slightly low. Maintain Outperfrom rating and $14 target.