LON:PIC^J17 | Bullish Outlook - Will The Magic Continue?

10th Apr '09 by Murakami

3 comments 3325 reads

Shares in West Yorkshire-based firm, Pace were up more than 50% this week after a very bullish trading update. http://www.stockopedia.com/news/announcement/PIC/090407pic3079q.htm
Pace said demand for its products had "increased across many of the group's global markets and technologies". The firm has rolled out several new products for digital television customers - in particular high definition and personal video recorders (PVR) - which helped it build market share during 2008.
It said that the market for high-end products is growing rapidly, even in an advanced market such as Western Europe, less than 2% of television households are so far subscribing to a high definition TV service. "The Pace Board recognises that these factors have created an exceptionally positive situation for Pace, which is expected to continue, reflecting the strong foundations established over the last three years".
Altium Securities lifted its earnings per share estimate for 2009 to 18.2 pence from 9.9 pence, and for 2010, to 22.1 pence from 12.2 pence, while raising its target price to 200 pence from 125 pence: "This is a truly stunning performance by Pace and is a demonstration not only of the outstanding momentum in the business but also of management's focus on the bottom line... With 100 percent upside to our new target price and with the shares trading on just 5.4 times our new full-year 2009 EPS estimate, we believe that it is not too late to jump on board".

All in all, this kind of optimism feels pretty out of place right now - are they being too bullish given the threats to global consumption in 09 and 10? Or will they continue to benefit from the "Domino's Pizza" effect of the recession, as people stay in but spend money on takeaways and satellite TV to keep themselves entertained?

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Gradders73

11th Apr '09

I thought they must have gone bust years ago. I was aware of them when they were the provider for Telewest and they were chaotic at the time. I remember they couldn't fulfill orders for Telewest as they hadn't ordered the component parts. However, taking a look at their client base, they have a dominant position in the set-top box market. I've recently got BT Vision, so have another one of their products and it is as badly designed as ever, but then I am not their customer, BT is and I don't actually pay for the box (or have a choice), so the position seems secure. Given the amount of money invested in the broader infrastructure, and the fact it doesn't matter to them which technology wins, they seem in a good position.

As for changes in global consumption, it shouldn't harm them too much, especially if on-demand films, HDTV etc grow in popularity and the amount of money the industry as a whole has invested, means the £50 cost of one of these boxes is trivial.

However, I find myself reluctant to invest in a company who's products I detest as much as this.

MrT

I am pretty perplexed by their performance too - as you say, maybe the market structure is such that they can get away with not keeping the end-customers happy... Surprised that they aren't getting caned by the Asian technology players!

Interesting - cable bubble memories come flooding back.

Share price 1 Feb 1998 - 31p

Share price 1 Feb 2000 - 1297p

Share price 1 Aug 2002 - 23p

This was a name that was going gangbusters on the back of the cable boom at the end of the 90s, when the analyst expectations for the market departed from reality. I remember a media & telco analyst presentation for UPC (Holland) which predicted revenues of 40,000 Euro per end user and I asked him where people were going to get money for food if they were spending so much on the tv....

Investors got totally burned in this market, except those that lent money at the opco level, where the assets were, i.e. the banks. The PIC shareprice back at it's peak seems to have priced in the expectation they would be installing cable on Mars.

Now, is much more interesting. There's probably a good reason to do with competition, bundling and regulatory requirements which makes them useful. Until we have totally integrated internet and tv, they seem to be in the driving seat. It's a classic widget company.

It's a debt free business with strong cashflow, I wonder why nobody's tried to buy it yet or management hasn't tried to take it private? It could be worth a flutter, I'm not sure what impact high inflation would have on the value, but there could be a nice little return over the next few months....

The one thing worth digging on is contractual arrangements with suppliers (what hurt them last time) and whether the have the capacity to increase production to meet growth in demand, but you'd hope they learned their lessons last time...

Bullish outlook - will the magic continue?

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Murakami

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