Lipman Electronic Engineering Ltd (LPMA) (LPMA)

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Dione isn't only factor behind margin decline at Lipman, says Deutsche Bank
06.10.2005 | 15:25
TheMarker

Dione alone is not responsible for the margin decline at Lipman Electronic Engineering (Nasdaq, TASE: LPMA ), suggest Deutsche Bank's equity analysts Dan Harverd and Michael Klahr.

Last week Lipman issued its second guidance warning in a row. But the Deutsche analysts calculate that Lipman's organic margins are declining 5% this year, despite roughly 20% organic revenue growth.

"Sustainable margins are above estimated 2005 operating margins of 16%, but below the 21-31% margins reported in the years 1999-2004," they wrote.

Dione aside, Klahr and Harverd point at two other factors pressing Lipman's margins. One is expansion into emerging markets and large U.S. financial institutions, where margins tend to be tighter. Secondly, they say, Lipman expanded its previous "bare-bones infrastructure" by establishing local subsidiaries in various countries and improving internal systems.

The analysts repeated a Buy rating for Lipman stock and set its 12-month price target startup $26, compared with its closing of $21.01 on September 30.

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