January 18, 2012 PSW Staff |
motion picture industry. What has spurred a recent surge of growth for the company has been its digital motion picture projection products and services, including cinema screens, digital film projection lenses and periodic maintenance plans. What is key here is the company's role in the digital transition occurring in the movie theater business, a transition that, fortunately for Ballantyne Strong, has been slow to gain steam, until now. The technology has been in place since the late nineties but Ballantyne did not begin offering digital equipment until 2007. High costs and a lack of standards has stalled a widespread changeover until recently and this company may be in just the right place at just the right time. The concerns have all but been completely eliminated with the growing influence of the Digital Cinema Initiatives (DCI), addressing standards, and the Virtual Print Fee (VPF), alleviating cost concerns through a financing model that shifts a majority of the monetary commitment to the film distributors. In 2010, digital cinema grow by 122%, but more than half of the worlds 150,000 screens still need to be upgraded at between $75,000 and $100,000 a pop. This means that billions of dollars are to be made over the next few years by a handful of companies (many of which are private) scattered throughout several different industries. Ballantyne Strong, currently worth in the neighborhood of just $66 million, is one of these companies, and dramatic growth has already begun to take hold. Revenues have climbed substantially with $55, $72 and $136 million seen in 2008, 2009 and 2010 respectively. Revenue for the first nine months of 2011 is already at $133 million thanks in part to a $63 million third quarter on strong digital demand. Earnings have climbed sharply as well, but with slightly less vigor than revenues due to the tighter margins associated with higher end digital equipment. After losing 22 cents a share in 2008, the company earned 15 cents a share in 2009, 59 cents per share in 2010, and has already earned 60 cents per share for the first nine months of 2011, with 33 cents per share coming during the most recently reported quarter ending in September. It's worth noting here that the fourth quarter has been a strong one for this company during recent years. The stock certainly appears grossly undervalued, even without any of the future growth prospects figured into the equation. With only one analyst officially covering the stock, valuations based on estimates, which already seem low, should be even lower. For example, the company is only expected to earn 66 cents per share for all of 2011, 80 cents per share for all of 2012 and annual earnings growth of just 15% for the next five years. This means that both the forward P/E of 5.67, and PEG of 0.47 could be substantially and erroneously high. Meanwhile, the Price to Sales ratio is at 0.37 and the price to book ratio is at 1.08. The company has more than doubled its assets over the last three years, has 22 million in cash and has zero debt. The number of shares outstanding for this company has only grown from around 12.5 million in 2001 to where it is now at around 14.5 million. The company just announced a share buyback program for as much as 2 million shares at the current market price. Without any inorganic forces messing around, it seems that valuations have nowhere to go but further down, unless, of course, the price moves higher. The stock found a bottom near $2.50 back in October of 2011 and has since stair-stepped its way into the $4.50 range. Although the stock price is already close to doubling from its low, it traded between $7 and $9 dollars for most of 2010 with a similar number of shares out, but with less revenues, earnings and growth. Recently, on January 4, 2012, Ballantyne strong announced it will be selling its analog projector manufacturing facility and will be focusing almost wholly on digital with a more global strategy. The company has been digging its heals into the Asian market since 2008, where much of the growth is expected. The divestiture will free assets for the company to strengthen this position as well as plant additional seeds in Latin America. The company was founded in 1932 and has been publicly traded since the mid 90's. During the past 16 years, the stock has not looked cheaper, and earnings have not been stronger than now. Insiders own 5%, institutions hold 35%, and as of December 30, 2011, there were about 132 thousand shares, or just 1% of the float, held short. The company should release its fourth quarter and full year 2011 results in mid-March. Publicly traded competition includes RealD Inc. (RLD), Avid Technology Inc. (AVID) and IMAX Corp. (IMAX). |
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