veritas update 5/2012

Full PDF report on: https://www.dropbox.com/s/8u8d07eq24soci6/TZL_3152012.pdf


TZ Ltd (TZL) - BUY - While TZl missed a significant Australian Contract, outlook remains positive.


Misses significant Australia PAD contract
TZL has advised that it had missed out on a significant PAD tender with a leading Australian parcel delivery and logistics operator, despite having four custom designed and manufactured SMArt parcel lockers operational at prominent outlets. For this tender, TZL was a subcontractor to Pitney Bowes Australia.
The major factor for the tender loss appears to have been the Pitney Bowes Software and its overall tender pricing. There does not appear to have been any problems with TZL’s lockers and software, which has been operating successfully in trial sites.
However, TZL will continue to supply the balance of 6 locker systems to Australia Post over the next 2 months.
The failure to win the tender will result in the following:
Ø TZL will reduce overheads in the Australian operations at every level within the next 30 days. TZL had significantly increased its employee and infrastructure base to cater for the prospective contract.
Ø John Wilson, the current CEO, has resigned, with the CEO function to be shared by the current executive directors.
Ongoing Opportunities remain
TZL has also indicated further opportunities, with:
Ø An invitation to submit expressions of interest to assist postal organisations in Asia, Middle East and North America with the rollout of smart locker projects.
Ø TZL is in current discussions with Australian logistics suppliers and online retailers to support parcel lockers initiatives in Australia and North America.
Ø TZL to continue to investigate the OurPAD solution, with a study establishing significant interest and discussions underway with interested partners.
Meanwhile the rollout of the 6 PAD sites for Coles Express and the current IXP rollouts for NextDC and Macquarie Telecom in Australia and overseas deployments are unaffected. Based on current orders, TZL expects to be cashflow positive during Q4 FY2013.
Forecasts
As the tender had not been included in our PAD forecasts, and the forecasts for IXP and PDT are unchanged, the impact on our forecasts is limited to:
Ø Some additional trial sites expected as an extension to the current trial.
Ø Reduced take-up assumptions on PAD installations for FY2013 and FY2014 as a result of any negative publicity and missing it as a reference site.
Ø A reduction in Price Target from $ 0.82 ps to $0.56 ps, based on a DCF valuation, with a reduction in forecasts and a higher discount rate.
Recommendation
We maintain a BUY recommendation, based on:
Ø A strong and extensive patent position, supporting significant growth opportunities in the area of smart devices and global growth markets.
Ø Through PDT, a leading position and strong growth in client product development and the ability to support TZI’s developments.
Valuation, trading at a 71% discount to our new Price Target of $0.56 ps