Saturday, December 25, 2010

10 reasons to own NETSOL



 

10 reasons to own ntwk
1.Fourth quarter EPS of $0.04 soundly beat RedChip analysts' estimate of $(0.00), and its $10.7 million in revenues far surpassed our $7.9 million estimate.
2.Significant cost management and streamlining during the year paid off. Revenues grew by almost 40%, while cost of sales simultaneously fell nearly 20% from fiscal 2009, resulting in gross margin expansion from 35% to 62%.
3.Operating efficiency improved dramatically over last year – cash from operations was up 604% and receivables turnover increased noticeably.
4.NetSol's management has given EPS guidance of $0.15 to $0.20 for FY11, representing 275% to 400% YoY growth from this year's earnings of $0.04.
5.New clients added in the most recent quarter included Mercedes-Benz of Japan, Minsheng Bank of China, Volvo Auto Finance of China, GMAC, GAC-Sofinco, and Sany Corporation of China (the world's largest concrete equipment manufacturer).
6.NetSol signed a Global Framework agreement with Daimler Financial Services in Singapore on September 16, 2010. Details of the contract are not yet available, but it is likely to provide significant new market exposure to the Company.
7.In August, NetSol was recertified as a CMMI Level 5 company, a status it originally achieved in 2006. NetSol is the only Pakistani software company and one of 162 companies in the world, including IBM, Motorola, Boeing, and Raytheon, to be rated CMMI Level 5.
8.FY11 guidance does not include the effect of any potential contracts with the Pakistani government due to the focus on rebuilding infrastructure destroyed by the recent flooding. However, NetSol is still the leading bidder for significant contracts relating to Pakistan's land records management system and the digitization of the nation's military.
9.In responding to a question on the year-end earnings call, CEO Najeeb Ghauri commented that the stock "is very undervalued without question." Open market share purchases by the Company's founders and a 6-month, 2 million share buyback program have implicitly confirmed this belief by management.
10.Mr. Ghauri further acknowledged that NetSol could be an attractive buyout target at its current levels, but that a reasonable takeover valuation would likely be in the $8-$10 range and that management would resist lower offers in the interest of shareholders.
NetSol is growing its sales and adding new world-class clients while the global economy is still floundering in low post-recession growth. It has succeeded in reducing cost of revenue and operating expenses while growing sales, resulting in a significant improvement in efficiency and profitability, and management expects a strong year in fiscal 2011. NTWK is an incredibly attractive investment opportunity at its current valuation around $1. Look for strong price appreciation in the near future as the market begins to recognize this stock's full potential.


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NETSOL - Future Prospects


 

NTWK's CEO bought 279,000 shares in the open market on 12/10/2010. This is in addition of 1.1 million shares purchased by him and his 2 brothers in May 2010 to raise their combined ownership to 10% of the O/S or 4 million+ shares!! You don't see this type of insider buying anywhere.

NTWK is on the verge of a major move up due to positive development in all fronts. The fundamentals can easily support $5.

Key NTWK Highlights:

- 15 - 20c/share net income in current fiscal year 2011 (per recently reaffirmed guidance)
- $40 - $44 million revenues, a 20% growth
- $70 Million market cap
- The CEO and his brother bought 279,000 shares on 12/10/2010. This was the catalyst for the significant gain last week.
- Insiders bought 4% of all outstanding shares in the open market so far this year
- Explosive China growth
- Global alliance with Mercedes Benz....exclusive leasing/financing software provider
- New JV in Saudi Arabia with Atheeb Group ran by the Royal Family
- Buyout candidate

NTWK has focused its attention on expanding its huge success and exponential growth in China/Asia, and emerging markets.

NTWK currently owns 90% of the auto leasing and financing software sector. The company is expanding its Beijing Headquarters to bring in more people and penetrate other high-growth areas like banking/lending/insurance/healthcare/government.

In China alone NTWK has their software running the operations of Mercedes Benz, BMW, Ford, GM, Nissan, Toyota, BYD, and many others

NTWK has recently signed a global alliance with Daimler Mercedes Benz. The initial agreement calls for licenses in India, Japan, and Korea and upgrades in 6 more countries in the region., Eventually this bonanza will spread to the over 50 countries where Mercedes has a big presence.

NTWK's CEO has said in the last CC that there is significant interest in a buyout of the company due to its global footprint, blue chip client, growing revenues and profitability, and low market cap. However, he insisted that he would not consider an offer unless it is North of $8/share.

This past weekend's positive developments between the Pakistan and Chinese governments will be a catalyst for further NTWK growth in China and Asia in general

The following are two major positive news for NTWK which has major operations in China and Pakistan

1. SBP grants license to ICBC

The State Bank of Pakistan (SBP) has granted license to a Chinese Bank "Industrial and Commercial Bank of China (ICBC)," to commence its operations in Pakistan. ICBC is China's largest bank with a market capitalization of $300 billion. The bank is pursuing an ambitious expansion drive in the Middle East and in big cities across Europe.

2. China, Pakistan ink deals worth $15 billion

Burying differences, the entire Pakistani leadership  both civil and military  was out in strength in the capital on Saturday, along with the business community, to honor Chinese Premier Wen Jiabao on the second day of his three-day visit to Pakistan.

Mr. Wen's visit to the country carries as much weight as the slew of agreements worth billions signed by his delegation. Besides agreements/memoranda of understanding worth $15 billion, Mr. Wen announced a $410-million package for flood relief.

Thia is positive indirectly because some of the larger projects that NTWK was a front runner were postponed because the Pakistan government had the flood relief efforts as a major focus of were $$$ were spent.

One such a project is the $350 million Pakistan Army Digitization Project which is on hold. NTWK and its US defense partner bid on this project and are thought to be front runners because of the excellent relationships, reputations, and products the partners offer.


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GHGL Future Outlook


GGL's International business division is currently working diligently to explore untapped markets and boost its export sales. For this purpose, the company actively participates in local and international Expos, holds dealers and customers conferences and also introduces incentive packages.

In addition, GGL is also proposing to setup a high tech glass plant (state-of-the-art technology used worldwide for glass container production) in the Middle East in collaboration with foreign investors, for glass markets in the Middle East, EU and USA. This decision can move the company to the list of MNCs and turn more opportunities for GGL's growth in the coming years.

The company plans not only to expand internationally but also nationally. The CEO of Ghani Group signed a contract for setting up its second float line at Sheikhupura, which will be capable of float glass production capacity of 500 tons per day (180,000 tons per annum). The overall production will increase to 850 tons per day after this project. This new plant will be counted amongst the latest glass plans with advanced machinery and equipments. The new plant will not only fulfil the local demand of glass within the country but it also will be exported (70% of production) and will help Pakistan earn foreign exchange.


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Friday, December 24, 2010

Cement Price Decline Rumors


 

  • According to market rumors, retail cement prices have come down to PKR 280 per bag in the north zone, from ~PKR 330 per bag.
  • However, channel checks revealed that some smaller players have cut their prices to as low as PKR 280 per bag, due to the ´end of quarter phenomenon´ whereby smaller players try to sell their closing stock at a discount.  Due to the reason, both LUCK and DGKC have also reduced their prices by only ~PKR 5-10 per bag during the week.  As we believe the decline is temporary, we choose not to incorporate it in our valuation as we believe prices would revert back to their original levels in Jan11.
  • Retail prices for LUCK are currently hovering at PKR 325 per bag, while DGKC is selling in the local market at PKR 300 per bag. Our full year retail price assumption for LUCK is PKR 320 per bag and DGKC is PKR 310 per bag.
  • We continue to maintain liking for LUCK (TP: PKR 95 per share) and DGKC (PKR 38 per share), as we believe demand could pick up post Jan11, which could give a significant push to dispatches coupled with strengthening of prices in the local market.

IGI Research


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Dawood Hercules demerger

Dawood Hercules demerger


The board of directors of Dawood Hercules Chemicals Ltd.announced de-merger by separating its fertilizer undertaking withthe rest. Dawood Hercules Chemical Ltd. has decided to demerge its
business into two companies such that the name of the company will be changed to Dawood Hercules Corporation Ltd. and its fertilizer business will be separated as a solely owned subsidiary to
be named DH Fertilizers Ltd. The rational behind de-merger is mainly that parts are greater than the whole. This form of restructuring allows subsidiaries to raise additional equity funds. Therefore we feel that Dawood Fertilizer will raise capital form the general public just after acquiring a legal status as a subsidiary company of Dawood Hercules Corporation.Raising equity funds through subsidiaries in the form of public offering is a corporate re-structuring called carving out. Carving-out unlocks the hidden value of one of the company's subsidiaries.


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DOL: All-time high prices to boost earnings


DOL: All-time high prices to boost earnings

 

Local Hydrogen Peroxide (H2O2) prices have touched all-time high of PRs70/kg as (1) global pulp & paper industry is on a roll and (2) imports have started to slow following imposition on anti-dumping duties.

 

Adjusting for higher selling prices, we revise DOL's FY11E EPS estimates by PRs0.29 to PRs0.83 and PO to PRs10.8/sh, though retain our estimates for going forward.

 

Although the recent gas price hike by OGRA was lower than expected both the utilities have moved the courts, where last year's precedence of relaxed UFG terms may support their case for increase in gas prices.

 

DOL has appreciated 17% since our last upgrade on 6th Dec and is currently trading at FY12E P/E of 5.6x and offers 28% upside to our PO . We reiterate Buy.

 

In the near-term, we see sustainability of prices at current levels and company posting first-ever quarterly profits for 2QFY11E (PRs0.2/sh) as key price triggers.

 

 


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