Lipman Electronic Engineering Ltd (LPMA) (LPMA)

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Merrill Lynch: Lipman results better than we expected

The investment house retains its "Buy" recommendation.

Globes correspondent 27 Jul 05 14:46

In a first response to the second quarter results released today by Lipman Electronics Engineering (Nasdaq: LPMA; TASE: LPMA), Merrill Lynch analysts Gregory Smith and David Parker say the electronic payment technology company performed better than they expected. They maintain their "Buy" recommendation for the stock, with a $36 price objective. This compares with a closing price yesterday of $31.14, at which Lipman has a market cap of $855 million.
"Following Lipman’s negative pre-announcement at the end of June, actual second quarter results were slightly better than our expectations due to slightly higher revenues, a higher gross margin, and a lower tax rate," Smith and Parker write..

"Lipman reported second quarter 2005 pro forma EPS of $0.31. However, this included $0.02 from an investment gain. Using $0.29,the company beat our $0.28. The company anticipated an EPS range of $0.25 to $0.29. We note that the company only narrowly missed our original EPS estimate of $0.30 when the $0.02 gain is excluded.

"Revenues of $58.3 million (+52% year-on-year) were slightly ahead of our $57.5 million estimate and slightly above management’s expected range of $57-58 million. Note that our original revenue estimate for the quarter was $61.5 million.

"The company reported a gross margin of 43.3%,a full 100 basis points higher than we were expecting. This was a nice sequential up-tick from 42.2% in the first quarter and it was also above our original expectation prior to the pre-announcement.

"The decline in gross margin on a year-over-year basis (was 47.1% in the second quarter of 2004) is due to mainly to the Dione acquisition - Dione’s products have lower gross margins. We attribute the sequential strength in gross margins to a higher proportion of Us sales and wireless terminal sales, both of which have higher margins.

"Lipman’s tax rate was 25.6% in the second quarter of 2005, vs.our expectation of 30.1%. We believe the company likely was conservative with its original expectations and subsequently received some additional tax relief in Israel. We think lower than expected sales at Dione also helped lower the tax rate in the quarter."

Published by Globes [online], Israel business news - www.globes.co.il - on July 27, 2005

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