STRONG BUY ON
GALTON BIOMETRICS INC. (GALB.pk)
February 16th, 2005
3 Months High / Low:
$3.30 / $0.88
TTS Zurich 12 Months Price Target:
Potential 12 Months Upside:
Consensus Price Target (www.stocktargets.com):
Average Daily Shares Traded:
- A promising new industry of biometrics
- A good portfolio of technologies and solutions for many types of customers
- The company could benefit of the “Homeland Security Effect”
- The stock price is low by comparison to peers and needs to be discovered
- TTS Zurich’s target price for Galton is $5.10 , consensus stock price target is at $5.62
- 90% of the companies in the security industry are profitable, with stable margins and growth rates
- Security systems and biometrics benefit from strong overall demand
Galton Biometrics Inc. (GALB.pk) is a biometrics company. By biometrics, we understand a company owning a technology enabling biometric recognition of individuals. The purpose of such recognition is to enhance or replace humans and human error in security access. Biometrics extends from fingerprint, facial recognition to iris reading, body measurements or equivalent, in order to identify an individual in a minimally invasive way. We recon that biometrics is a new and promising industry, which is to security what biotechnology is to pharmaceutics. Galton Biometrics Inc. owns a portfolio of biometric “solutions” for any type of customer willing or needing to enhance its security systems. The demand for biometrics is being driven mainly by global threats, such as terrorism or corporate espionage. Galton Biometrics inc. has gathered a substantial portfolio of technologies, which it owns or in some cases has a license agreement for in order to service its customers.
Galton Biometrics Inc’s stock has been trading since November 15th, 2004 with an average of 171’000 shares per day. After the initial euphoria on the stock, GALB.pk has stabilized on a few announcements by the company on its strategy for the future. Since February 1st, the stock is back on an uptrend. This timing should be taken advantage of. TTS Zurich’s stock price target is 5.10 US$ as detailed in the following pages and this target should play itself out within a 12 to 18 months horizon.
An Industry Comparables Analysis (ICA) has been performed on Galton Biometrics Inc. The biometrics industry is quite new and fits into the broader industry of Security Systems and Services. The major players in the sector are tabulated here below. A few elements characterize this industry:
- More than 90% of the companies in the security hardware and software business are profitable companies. This has been an industry standard for years and is not likely to disappear. The nature of this business is that companies regularly achieve high profit margins (in percentage to sales).
- The industry has been growing quite well also. A good year for the present companies is 25% and a bad year would be 15%. This trend is also an expression of the “Homeland Security Effect”. Most companies potentially benefiting from a contract with a large government agency (customs, defense or equivalent) will perform well and deserve higher multiples.
- Investors appreciate security stocks and thereby the price multiples found are quite high by comparison to other industries. Global threats, such as terrorist threats or corporate espionage and factors that construct these high multiples. They are the expression of the trust of investors for the need to such products and services.
- When a company has higher component of software rather then hardware, its margins will be higher than the industry’s margins and also its stock price multiples will be higher.