Paradigm research makes smart call on Webtech Wireless
I’m not an equity research analyst, but I do know when I see a good report. Here is something from Barry Richards at Paradigm that the shareholders of Webtech Wireless (WEW:TSX) should be asking themselves:
“How Can This Company be Worth $180m?
• Last night, Webtech reported Q4 results with revenues of $3.8m and a loss of $7.1m or EPS of $0.13 and restated lower results for Q2 and Q3. Revenues for FY07 were just $15m and actually declined over FY06.
• The Company’s policy of offering extended credit terms to start-up partners internationally presents considerable risk to investors.
• With $15m in annual revenues, only $5.5m of which are recurring, we are at a loss to explain the current market cap of the company.
Last night, Webtech Wireless restated previous quarterly results and reported Q4 results with revenues of $3.8m and a loss of $7.1m or $0.13 per share. The results include significant writedowns related to Crown Telecom (Brazil), a large VAR partner. For the year, the company actually reported revenues of $15.6m, a decline of 6% over FY06 revenues of $16.3m. We were looking for $4m in revenues and a loss of $0.02 per share.
The company restated Q2 and Q3 results to reduce revenues by $10.6m. The company also had a variety of new writedowns related to its Brazilian operations. It is still unclear how soon WEW will revive its deal in Brazil and how it can avoid this same challenge with other early stage companies working as partners internationally. We now forecast revenues of $22m and an EPS loss of $0.02 for FY08 (from $30m and EPS of $0.04). The company has burned $6m in cash each
of the last three quarters and has approximately 1 year of cash left at that rate.
Overall, we are amazed that Webtech’s stock continues to defy gravity despite poor results and a very uncertain outlook. Webtech has not proven its technology is unique nor has it proven it can outlast the competition. The company continues to promise “big deals that are close”, but a long sales cycle for the industry makes that an impractical view. As a result, we are lowering our recommendation to a Sell (down from Hold) and reducing our target price to $1.60 (from $2.00).”