While desktop publishing may well turn out to be much less of a runaway moneyspinner than its protagonists hope, there is no question that demand for laser printers is on the up-and-up, and Karen Payne of Philadelphia stockbroker Butcher & Singer reckons that shares in printer specialist QMS Inc, the Mobile, Alabama former Quality Micro […]
While desktop publishing may well turn out to be much less of a runaway moneyspinner than its protagonists hope, there is no question that demand for laser printers is on the up-and-up, and Karen Payne of Philadelphia stockbroker Butcher & Singer reckons that shares in printer specialist QMS Inc, the Mobile, Alabama former Quality Micro Systems, have been unaccountably neglected by investors. She points out that at their current price of around $23, the shares are trading at about 11 times projected earnings for fiscal 1988, against a sector average for the more widely-hyped desk-top publishing players of nearer 30 times. She looks for a near doubling of sales and profits next year – to September 30 1988 – from an estimated $1 per share on $120m sales, and sees the company maintaining growth rates of 35% to 40% for the next two or three years. Most pressing argument for a re-rating of the shares is that agreement with Hewlett-Packard Co, which is buying its new JetScript controller that includes the Postscript page description on-board, under an OEM contract with QMS (CI No 735). Moreover the agreement covers joint marketing, giving QMS access to Hewlett’s 2,000 plus retail outlets, a quantum leap from the 600 it had before the agreement. The board goes between a Personal Computer and the Hewlett-Packard LaserJet printer, and the agreement follows a two-year-old pact between Hewlett and QMS on controllers for high-speed matrix printers, so the two companies were already well acquainted. Ms Payne reckons that the announced value of the agreement – $50m – will prove conservative, and even at that rate, the volumes are so much higher than QMS is used to that it is subcontracting manufacture to Sir Clive Sinclair’s new partner and QMS’ Alabama compatriot, SCI Systems Corp. The $50m figure is based on the assumption that fewer than 10% of Hewlett-Packard’s 200,000 LaserJet 2 users decide to buy the board – and Hewlett is selling the printers at a rate of 30,000 a month: if penetration proves to be greater than 10%, the $50m figure will be left way behind. Compound 70% annually Since 1981, the company, founded in 1977 to enhance printers to provide special characters they couldn’t previously handle, has grown at a compound 70% annually, with net profits growing at 51% compound. Since the low-price Kiss laser printer – using engines from Canon in Japan – was launched two years ago, laser printers and boards for use with them have grown to account for 85% of the company’s business, and Ms Payne looks for this sector to continue to grow at over 50% through 1990. Despite farming out the Hewlett business to SCI, it manufactures most of its own boards in a 100,000 square foot plant in Mobile, where it also assembles its laser printers around the bought-in engines – from Canon Inc for the low-end models, Ricoh Co for the premium products. Ms Payne looks for the company to maintain its gross margin of 35% on the JetScripts for Hewlett-Packard despite its decision to farm out the manufacture, and is forecasting pre-tax margins of over 15% and net margins of near 10% for fiscal 1988. The company’s shares closed at $22 even on Friday, a couple of bucks off its all-time high: Ms Payne is recommending the company as a buy at up to $25, and sees the shares going to $40 within the next nine to 12 months.