int on boardroom radio , page-17

ok - lets assume:

1. embedded network delivers 500% more revenue than standard monitoring. (I dont think it will but lets do the numbers on this basis)
2. $1 million capital outlay is recycled every 6 weeks (within statutory construction payment cycle). Will be longer cabling timeline for higher rise or commercial.
3. 300 lines installed in each capital residential installation (say 300 apartments)or 300 lot subdivision.
4. Deal with the builder is 50/50 split going forward.
5. Each development takes 1 year to complete, followed by 2 years to sell out.

Looking at the facts:

1. bandwidth cost is going down, not up
2. pretty much open market is available for reselling of utilities, media and telecom, pressing margins.
3. Following offshore patterns landline telecom useage is falling, not increasing. Mobile voice and data are outside Intermoco's capture unless bundled with fixed.
4. Commercial users are moving to two lines (one dedicated fax) and one phone and then splitting pre switch to VOIP, saving about 40%.

Lets do the sums:

Current revenue is $10 per line per quarter.
Embedded revenue $50 per line per quarter, out of which Intermoco's cut is half under the JV deal.
2600 lines are installed each year, delivering $65,000 per quarter in 3 years time (when developments sold out), $32,500 per quarter in 2 years time.

So what are Intermoco basing their profit projections for the next couple of years - I think around a 2,000% return on their base model if their capital roll is according to plan - I do not think this is achievable. I do not think they have a higher level of working capital to roll out any faster and will not generate enough free cash to do it from current monitoring contracts. My experience is closer to $70 per quarter per res tennancy, granted higher, but this was when data costs were higher, cable tv was all premium priced, everyone had a landline and electricity reselling was in its infancy. The purchaser's of the various rights found this when they overpaid against historical revenue multiples.

Developer may also want to use discounted utilities as a selling point for their apartments.

Is this an annuity revenue stream - yup. Will it become cash flow positive - yes I think it will. Will it deliver the profit management has projected in the next few years - IMO no because they are overly bullish about return per line and they won't have the capital resources to deliver critical mass.

Triple my revenue calc will still not deliver the short to mid term profit expectations.

However, if they get contracts for another 30,000 or so lines for monitoring or 10,000 more for the embedded network, together with funding to deliver, or someone can convince me the return is closer to the 2,000% increase in return per line than my 500%, I believe the company represents a good punt at current prices.

In anticipation of the wave of thumbs down.