Good post from another I-Hub MB:
Posted by: stinkeye
In reply to: shmoopy38 who wrote msg# 68531
Date: 3/27/2007 9:18:26 AM
Post #of 68550
I'll share my CVV research...
~~~PASTE~~~
03/25/07
12:46:21am
3 Business units:
CVD Division
CVD (chemical vapor deposition) is a process by which a thin layer of advanced materials is grown on top of a substrate surface (generally silicon). The process is widely used in the fields of semiconductor and sensor design, and solar cells. CVV builds the equipment that end users employ for embedding chemical vapor systems into their production lines. This unit includes certain assets of First Nano Corp that were acquired in 2005 (more on this later).
SDC Division
Stainless Design Concepts build gas delivery sub-systems for ultra high purity semiconductor clean rooms. This unit also serves as an on-site maintenance arm for CVV.
Conceptronic Division
This division markets solder reflow furnaces which are used in the printed circuit board industry (PCB). PCB's must be soldered in atmospherically controlled furnaces as the presence of oxygen results in numerous solder defects.
Breakdown of revenues by unit:
For FY2005 CVV posted revenues of $11.22mm vs. $9.7mm in 2004. Representating revenue growth of 13.7%.
2005:
CVD $4.5 (40.7%) up from 28.5% in 04
SDC $2.2 (19.5%) unchanged from 04
CPD $4.4 (39.8%) down from 48.8% in 04
The CVD unit was the growth driver in 2005 and it continues to be in 2006. The company has stated in every 10Q since acquiring First Nano that demand is strong for their carbon nanotube machinery...
~~~PASTE~~~
As a result of an increase in the number of inquiries the Company has received and proposals
the Company has submitted, the Company has experienced an increased demand
for customized CVD systems along with requests for equipment provided by
the First Nano product line.
Strong Revenue Growth in 2006:
Through the first nine months of FY06, CVV has posted a fully taxed (40%) (NOL's are nearly depleted) diluted EPS of $0.11/share. Notably nearly surpassing in 3 qtrs the $.12/share untaxed earnings booked in all of fiscal 2005.
The $.11/share through 3qtrs of '06 reflects the 40% tax rate and $129,000 in stock compensation costs ($.04/share).
Revenues grew 17% sequentially in Q3 and 28% YoY. Through the first nine months of 2006 CVV has seen revenues jump by 20%. Again, this is driven largely by the ramp in sales for the CVD unit since it's acquisition of the promising carbon nanotube business of First Nano.
Gross margins in the quarter ended 9/30/06 increased by 300 basis points to 39%. CVV has successfully managed to offset increasing labor, energy and energy costs by taking full advantage of the economies of scale the First Nano investment has brought to their CVD unit.
CVV has managed to keep SG&A flat while growing revenues and profit at a double digit pace. SG&A in Q3 would have been unchanged from the same period in 05 had it not been for the recording of $43,000 of stock based compensation which was not recognized in 05. As it stands, SG&A was up only 5% despite the aforementioned increases in labor, insurance, and energy costs.
Earnings per share before the $173k in interest expense and 40% tax rate (EBIT) puts CVV at a $.26/EPS fully diluted compared to an untaxed $.18/EPS through the first nine months of 2005.
Q4 Forecast:
Q4 of FY2005 saw CVV book roughly 27% of the year's total revenue of $11.2mm. Using that ratio as a guideline and assuming a continuation of the 20% revenue growth trend we can extrapolate the following....
Q4 revs = ~$3.5mm
margins = ~40% (lower energy and shipping costs in Q4 vs Q3)
gross profit = ~$1.4mm
selling/shipping = ~$225,000
G&A = ~$725,000
EBIT = $.14/share vs $.02/share in Q4 2005
interest expense = ~$60,000
taxes (39%) = ~$152,000
Fully diluted and taxed EPS = ~$.08/share
This would bring full year 2006 EPS (taxed and diluted) to $.19/share of a trailing P/E of 28. The growth in the CVD unit and the key markets it sells into (namely solar cells and semiconductors) should portend a continuation in the 20% growth rate witnessed in both 05 and 06.
The company has shown the ability to control G&A costs while ramping revenues and profits. Assuming they can continue to maintain margins in the ~39% area and control costs, EPS for 07 should come in at $.30. Earning CVV a forward P/E of 18. The P/E's of comparable names in the nano/semi equipment space average 28x EPS. A similar forward P/E for CVV would put the PPS at $8.40, a 57% increase from Friday's close.
