1 | AIRG | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
2 | Current Price $14.39 | Target $18.50 | Worst $7.25 | R/R 1 to 0.6 | HOLD | |||||
3 | ||||||||||
4 | The Story | |||||||||
5 | ||||||||||
6 | Why the Stock is trading where it is | |||||||||
7 | ||||||||||
8 | The Catalysts | Risks | ||||||||
9 | Medium Term | $7.25 | ||||||||
10 | What has changes since the last STORY? | |||||||||
11 | ||||||||||
12 | The Assumptions | |||||||||
13 | Figures in USD | Base year | Year 1 to 5 | Year 6 to 10 | After year 10 | |||||
14 | 0 | 2018 | 1 | 5 | 6 | 10 | 11 | |||
15 | Revenues | 61 | 7.1% | 15.0% | 15.0% | 4.0% | 2.0% | These antenas will be highly demanded in smart cars and industrial iot applications. | ||
16 | EBITDA Margin | 1.7% | 3.6% | 9.9% | 11.0% | 11.4% | 13.0% | While gross margin will stabilize at 40% (currently 45%), dilution of SG&A will allow operational leverage. R&D will continue to be 15% of revenues to secure new tech antenas | ||
17 | Tax rate | 0.0% | 21.0% | 21.0% | 21.0% | 21.0% | 21.0% | As AIRG becomes profitable, tax rate will converge to the USA corporate tax rate. | ||
18 | Capex Intensity | 1.7% | 3.0% | 2.6% | 2.5% | 2.2% | 2.0% | I do not forsee the need for higher levels of capex | ||
19 | Cash Cyle | 74 | 72 | 72 | 72 | 72 | 72 | While I do not expect any changes in DSO, DPO and DSI, the improvement as a % of revenues is generated due to cost improvements. | ||
20 | Dividends | 0 | 0 | 0 | 0 | 0 | 0 | I do not see them starting to pay dividend and rather deploy the funds in high ROIC proyects. | ||
21 | ROIC | 3.4% | 1.7% | 12.3% | 14.4% | 12.1% | 12.8% | The moat that will allow to maintain a high ROIC is the investment in R&D and keeping innovative patented solutions. | ||
22 | Net Debt / EBITDA | -14.0 x | -14.4 x | -3.7 x | -3.3 x | -4.2 x | -4.3 x | |||
23 | Historical Figures | |||||||||
24 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | ||||
25 | Revenue growth | 39.0% | 0.8% | 9.0% | 56.1% | 15.2% | 21.2% | |||
26 | Gross Margin | 39.1% | 44.7% | 42.1% | 44.2% | 48.0% | 43.7% | Relatevely stable margins | ||
27 | EBITDA Margin | 0.0% | 0.0% | 0.0% | 2.3% | 2.0% | 1.7% | |||
28 | ROIC | 150.1% | 36.9% | 13.8% | 19.3% | 3.4% | -3.0% | |||
29 | FCF / Equity | 200.0% | 33.3% | 50.0% | 125.0% | 0.0% | 0.0% | |||
30 | Capex Intensity | 0.0% | 3.9% | 0.0% | 0.0% | 0.0% | 1.7% | |||
31 | Net Debt / EBITDA | #DIV/0! | #DIV/0! | #DIV/0! | -43.0 x | -14.0 x | -14.0 x | |||
32 | Prices | WACC | ||||||||
33 | Asset | $3.32 | 0.0% | U. beta | Link | 0.91 | Unlevered Beta for USA Electronics Damoradan | |||
34 | Adj. EV/EBITDA | $10.10 | 0.0% | Cost of Equity Adj. | 0.50% | Small cap less liquid | ||||
35 | DCF | $18.90 | 95.0% | Long-term debt rate | 4.00% | As they take on more debt, the interest rate should increase a couple of bps | ||||
36 | Propierty MULTIECON | $11.49 | 5.0% | Optimal Debt to Capital | 25.0% | Right now they have very little debt making the structure inefficient, i forsee that they would take some debt to pay dividends, growth or share repurchase | ||||
37 | Target | $18.50 | WACC | 8.00% | Higher than the average as I expect they would pay 21% tax rate (the industry is paying 8%) | |||||
38 | DCF Valuation | Top 13 Questions | ||||||||
39 | Discounted terminal value | 117 | What are you expecting tax rate to be in the coming years | |||||||
40 | NPV Cashflows | 39 | Verify the capex level for this growth | |||||||
41 | Enterprise value | 156 | What are they proyecting for revenue growth | |||||||
42 | (+) Cash | 14 | Why arent they considering taking on more debt | |||||||
43 | (+) Investments | 20 | ||||||||
44 | (-) Debt | 0 | ||||||||
45 | (-) Minority Interest | 0 | ||||||||
46 | (-) Preferred Stocks | 0 | ||||||||
47 | (-) Other | |||||||||
48 | Market Cap | 190 | M USD | |||||||
49 | Number of shares | 10.1 | mm shares | |||||||
50 | Fair share price | $18.90 | ||||||||
51 | Multiples | Base | $3.30 | |||||||
52 | Current | Avg. 5 yr | DCF | Fair impl. | EBITDA | 0.90 | ||||
53 | P/B | 3.2 | 2.2 | 3.9 | 5.0 | Capex | 0.00 | |||
54 | P/E | 176.5 | 51.3 | 73.9 | 10.6 | Tax | -0.20 | |||
55 | EV/EBITDA | 47.6 | 49.2 | 32.9 | 6.9 | WACC | 0.10 | |||
56 | EV/FCF | -351.4 | #DIV/0! | 346.1 | ||||||
57 | EV/IC | 2.4 | 1.4 | 3.2 | 1.4 | g | 6.00 | |||
58 | Asset Aproach | Mar-19 | Adj. | Recovery | ||||||
59 | Cash | 12 | 100% | 12 | ||||||
60 | Short term Investments | 21 | 100% | 21 | ||||||
61 | Account Receivables | 8 | 90% | 7 | ||||||
62 | Inventories | 1 | 0% | 0 | ||||||
63 | Other current assets | 1 | 0% | 0 | ||||||
64 | PPE | 1 | 0% | 0 | ||||||
65 | Other Long Term Assets | 8 | 0% | 0 | ||||||
66 | Total Assets | 53 | 76% | 40 | ||||||
67 | Account payables | 5 | 100% | 5 | ||||||
68 | Note Payables | 0 | 100% | 0 | ||||||
69 | Debt and capital leases, current | 0 | 100% | 0 | ||||||
70 | Other current liabilities | 2 | 100% | 2 | ||||||
71 | Long term Debt | 0 | 100% | 0 | ||||||
72 | Other long term liabilities | 0 | 100% | 0 | ||||||
73 | Total Liabilities | 7 | 100% | 7 | ||||||
74 | Minority | 0 | 100% | 0 | ||||||
75 | Equity | 46 | 73% | 33 | ||||||
76 | Equity per share | $4.57 | $3.32 | |||||||
77 | EV/EBITDA Aproach | 4Q18 | Adj. | Proforma | ||||||
78 | EBITDA Margin | 1.7% | 330 bps | 5.0% | ||||||
79 | Capex Margin | 1.7% | 0 bps | 1.7% | ||||||
80 | Tax Rate | 0.0% | 1,800 bps | 18.0% | ||||||
81 | WACC | 8.0% | -120 bps | 6.8% | ||||||
82 | g | 0.0% | 200 bps | 2.0% | ||||||
83 | EV/EBITDA | 0.0 x | 11.4 x | 11.4 x | ||||||
84 | Adj EBITDA | 1.0 | 500.0% | 6.0 | ||||||
85 | Fair share price | $3.30 | $10.10 | |||||||