The NBF Daily Bulletin: Communications Equipment – VCom Inc.

July 5, 2006

Release Date: July 5, 2006
July 5, 2006 The NBF Daily Bulletin
Communications Equipment

VCom Inc.

VCM (T) Cdn$9.45

Stock Rating: Outperform

Target: Cdn$14.00

Risk Rating: Above Average

Stock Data:
52-week High-Low (Canada) $10.70 – $7.15

Bloomberg/Reuters: Canada VCM CN / VCM.TO

Financial Data:
Shares Outstanding (diluted) 22.5

Market Capitalization (mln) $212.3

Book Value per Share $3.23

Enterprise Value $197.3

Price/Book Ratio 2.9x

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 Broadband Wireless telecom products. The company recently completed its IPO in November 2005, raising approximately $28 million.

Deepak Chopra – (416) 869-8049

Lakshmi Thurai – (416) 869-7495

VCom Inc.
Announces strategic wireless acquisition
Increasing EPS estimates


. Adds more wireless through acquisition

VCom just bulked up its wireless capabilities. The company announced that it has acquired certain assets from Wireless
Wave Corporation (OTC:WVWC) for US$1 million. While the amount paid is small, the acquisition is expected to be accretive immediately as it adds about $5 million in sales through a supply agreement with little in extra costs. Incrementally, the deal could add $0.05+ to EPS per year. The acquisition also further rounds out VCom’s intellectual property (IP) and adds another distribution channel in the wireless space in the U.S. market. Overall, we are positive
about the transaction and are slightly increasing our estimates. We maintain our Outperform rating and $14 target.

. Supply agreement and IP

For 0.2x sales, VCom acquired a licence and related IP to manufacture and supply 900 MHz wireless radios to Wave Wireless. Known as SPEEDMobile, the radios are sold primarily to first responder services such as police forces and ambulance services and provide bandwidth of around 2Mbps. Under the terms of the agreement, VCom will shift production
of the radios to its facilities from Solectron and will continue to supply Wave Wireless. VCom will also begin to market the
product directly through its own sales and distribution channels. Additionally, Wave Wireless will become a distribution channel for VCom’s other wireless products
(proprietary radios and WiMax) in the U.S. The acquisition from an IP perspective is important as it enhances VCom’s knowledge in mobility, which is key for future generations of its WiMax products.

. Why so cheap?

Wave Wireless recently completed its merger with WaveRider of Canada. The two companies have consistently lost money and as part of their merger are looking to reduce costs, gain synergies and get to near break-even status. This sale represents part of that process. For VCom, it’s a relatively low-risk way of bulking up its wireless sales and more importantly its profitability, and gaining some intellectual property.

. Increasing EPS estimates slightly

With the acquisition, we are slightly adjusting our EPS estimates. At this point we are only including half the potential EPS impact from given potential issues on moving the manufacturing. We have not included any other sales synergies at this point. For
f2007, we are now looking for revenues and EPS increasing to $98 million and $0.61
from $94 million and $0.59, respectively. For f2008, we are increasing our estimates to $121 million and $0.77 from $116 million and $0.74. Our C2006 EPS estimate is now
$0.69, up from $0.66. The company expects that gross margins for the newly acquired
business will start near 10-15% and over the next couple of quarters get to its corporate average of 35-39% margins. VCom also acquired tax losses carry-forwards with the acquisition, which could lift the company’s cash flow.

. Gets MIMO knowledge

With the acquisition, the company also acquired Avendo Wireless, which was
developing technology in the MIMO (multiple input multiple output) area. MIMO technology effectively increases the bandwidth of non-line of sight (NLOS) wireless solutions to nearly 100 Mbps by using multiple antennas in a system. MIMO is also one of the multiple antenna techniques used in WiMax to increase the speed of system. Avendo was originally acquired by WaveRider in July 2003 and was founded in 2001. Avendo’s investors were originally a number of Canadian venture capitalists, including Primaxis Technology, BDC Venture Capital and Venture Coaches.

. Picks up a service provider as well-Not bad for US$1 million

There is even more. With the acquisition, VCom also acquired service operator
JetStream and its 1,400 subscribers based in British Columbia. This asset will be merged with VCom’s YourLink service provider subsidiary. Jetstream offers Internet
service over dial up (1000 subscribers) and wireless (400 subscribers). VCom will convert the entire base over time to its broadband wireless platform. The unit is
operating near breakeven status. YourLink will now have around 15,000 subscribers.

Ratings And What They Mean:

PRIMARY STOCK RATING: NBF has a three-tiered rating system that is relative to the coverage universe of the particular analyst.
Here is a brief description of each: Outperform – The stock is expected to outperform the analyst’s coverage universe over the next 12 months;

Sector Perform – The stock is projected to perform in line with the sector over the next 12 months; Underperform – The stock is expected to underperform the sector over the next 12 months.

SECONDARY STOCK RATING: Under Review – Our analyst has withdrawn the rating because of insufficient information and is awaiting more information and/or clarification; Tender – Our analyst is recommending that investors tender to a specific offering for the company’s stock; Restricted – Because of ongoing investment banking transactions or because of other circumstances, NBF policy and/or laws or regulations preclude our analyst from rating a company’s stock.

INDUSTRY RATING: NBF has an Industry Weighting system that reflects the view of our Economics & Strategy Group, using its sector rotation strategy. The three tiered system rates industries as Overweight, Market Weight and Underweight, depending on the sector’s projected performance against
broader market averages over the next 12 months.

RISK RATING: NBF utilizes a four-tiered risk rating system, Low, Average, Above Average and Speculative. The system attempts to evaluate risk against the overall market. In addition to sector-specific criteria, analysts also utilize quantitative and qualitative criteria in choosing a rating. The criteria include predictability of financial results, share price volatility, credit ratings, share liquidity and balance sheet quality.

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