Zeev's Turnips Patch-No Politics (ZEEV)

[Bearmove]

http://www.mdb.com/research_page.php?keyword=215


MCZ Update: BUY, $2.00 PT
11/29/2007


MDB issued a research report today on Mad Catz Interactive (MCZ) upgrading its recommendation from NEUTRAL to BUY with a $2.00 price target.

Upgrading MCZ to BUY from NEUTRAL and establishing a 12-month price target of $2.00.
Video game industry fundamentals continue to show increasing strength; PS3 hardware sales have increased 298% since November 2 when the 40GB $399 PS3 version was introduced in North America and the price of 80GB PS3 was reduced to $499 (from $599).
We also view the recent acquisition of Saitek, a UK-based, leading maker of PC game controllers and accessories very positively, as it reflects MCZ’s commitment to growth and expansion beyond its traditional video game console controllers and accessories products. The acquisition is expected to be accretive in FY08 and beyond.
The Saitek acquisition significantly increases the Company’s size and scalability and expands its product portfolio and geographic reach.
We continue to believe that MCZ will introduce a Wii controller in calendar 2008, enabling the Company to capitalize on the strength of Wii sales.
With the Company’s increased size and scale, along with industry trends becoming increasingly more favorable, we believe MCZ now represents a compelling and unique investment opportunity in the video game sector.


Valuation: Our $2.00 price target implies a forward Price to Sales (P/S) multiple of 0.8x based off of our FY09 revenue estimate of $138.7m, and forward P/E multiple of 14x, which are reasonable, in our view, given the projected revenue and EPS growth rates of 35% and 75%, respectively.


Risks: Must smoothly integrate recent transactions (Joytech, Saitek) over the next few quarters; Introduction of a controller product for the Wii is an important growth driver.