todays ssb private client research

Company Update
No near-term catalyst but cheap on arguably trough earnings
We argue that the continued share price capitulation is a result of extreme negative sentiment over-powering the group’s fundamentals.

.. Indeed, despite the poor handling of the recent profit warning, we believe the current share price implies the group will never again rise to achieve its FY05 earnings level – a year which was not particularly strong.

.. And while a near-term catalyst for a share price turnaround is lacking – the 1H06 result is unlikely to provide any relief – we do believe that the

stock offers medium-long term value, trading on a FY06e EV/EBITDA multiple of 2.7x – arguably on trough earnings.

.. Looking at it another way, the services business is performing to plan, growing at 15%-20% on the pcp, and should achieve EBITDA in the order of $15m. A conservative EBITDA multiple of 6x effectively implies the hardware business is being valued in the current share price at 4.7¢ps, or at an EBITDA multiple of 0.4x.

.. We retain our Buy rating for longer-term investors with an appetite for risk while minor adjustments to our EPS forecasts (-1%, +4% and +0% over FY06e-FY08e) has had no impact on our $1.22 target price.