William Blair & Company has initiated coverage of Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE: GILT) with an “Outperform” rating and an “Aggressive growth” profile. William Blair was one of the co-lead managers in Gilat’s secondary offering last month.
William Blair analyst William Benton says, “Gilat designs, produces, and markets very small aperture terminals (VSATs) capable of transmitting voice, video, and data to customers, including service providers, governments, small businesses, enterprises, and consumers. Gilat’s target VSAT market applications include enterprise communications, business continuity, disaster recovery, wireless backhaul, rural telephony, and universal service offerings.”
He predicts “revenue growth of 18.7%, 12.2%, and 10.4% in 2006, 2007, and 2008, respectively, leading to our pro forma earnings per share (EPS) estimates of $0.49, $0.48, and $0.56 and GAAP EPS estimates of $0.42, $0.43, and $0.51.” He also predicts that Gilat will post $248.5 million in 2006, split equally between products and services, $279 million revenue in 2007 and $308 million in 2008, the same figures as the market consensus.
At its current price of around $8.80, Benton says Gilat is a “relatively attractive valuation”, with better than its multiples of its peers Hughes and ViaSat. He notes that Gilat founder Amiram Levinberg returned as chairman and CEO in July 2005, which “has been followed by a successful return to profitability for Gilat over the past four quarters. Management continued incremental cost-cutting and quickly refocused the company on core, profitable niche markets where Gilat’s satellite solutions add significant value to target markets.”
Benton says, “Before the return of the founding CEO, Gilat had lost hundreds of millions of dollars over several years, chasing growth opportunities in larger but highly competitive markets... While Gilat’s two primary competitors maintain a focus on these markets, we believe Gilat has smartly focused on growth in niche markets where the customer value proposition (primarily ubiquity and uniformity) is relatively high for satellite solutions, such as enterprise markets for business continuity needs and rural telephony, where government-driven universal service initiatives for communications are helping drive adoption.”
In addition, “Gilat’s relationship with Cisco Systems Inc. (Nasdaq: CSCO) appears to be an excellent opportunity to expand the company’s business continuity solutions.”
In summarizing the risks, Benton states, “While the majority of Gilat’s growth and current revenue exist outside Israel, the company is based in Israel and is therefore exposed to unique risks. Gilat receives significant R&D grants from the Israeli government that could be reduced or eliminated. We believe political and military instability could result in business interruption or increased costs, a risk heightened by recent increased hostilities in the region. Every male Israeli citizen is required to serve in the military for up to 30 days per year, potentially resulting in operational volatility.”
Gilat has a market cap of $335 million. It posted a pro forma net profit of $9.2 million on $183.4 million revenue in January-September 2006.
Published by Globes [online], Israel business news - www.globes.co.il - on January 18, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007