March 11, 2012 - 8:37pm EST by
2012 2013
Price: 28.00 EPS SEK2.26 SEK2.70
Shares Out. (in M): 19 P/E 12.4x 10.4x
Market Cap (in $M): 79 P/FCF 12.4x 10.4x
Net Debt (in $M): -21 EBIT 9 11
TEV ($): 58 TEV/EBIT 6.3x 5.3x

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  • Telecommunications


I recommend Doro AB (ticker = DORO.ST) as a LONG. Doro is based in Sweden and currently trades at SEK28.00 per share.
Doro produces "elderly friendly" telecommunication devices and generates the majority of its revenue from selling mobile phones. While the mobile phone market is extremely competitive and highly saturated -- the market for elderly phone users is generally an afterthought for phone producers. In the US, for example, there are really only TWO phone brands that are specifically designed for the elderly market: GreatCall's Jitterbug and Doro's PhoneEasy and related products.
The Jitterbug is considered the best and most high-end phone for the elderly market -- it is the simplest and easiest to use -- but it also costs ~ $100+. Doro's PhoneEasy costs ~ $25-50 and is very easy for seniors to use. The key design elements for an elderly-friendly phone are:1) it needs to have an EXTREMELY simple and clear display, 2) it needs to have an EXTREMELY simple and clear user interface, 3) it needs to have extremely clear, big, and easy-to-manipulate buttons.
A phone that would be preferable to a 70 year-old would look downright silly in the hands of a 25 year-old. On the other hand, most elderly -- up until recently -- have simply opted for the simplest phones they could find -- which tend to be simple clamshell or bar designs with minimal features. Nontheless, a standard low-end phone is not designed to be user friendly to the elderly.
Most elderly want a phone that is easy to use and low-cost -- they don't plan to spend hours on the phone every month -- they simply want a phone in case of emergency. Related, many baby boomers want THEIR parents to have a phone accessible in case of emergency.
Doro phones are easy to use, very inexpensive -- and, for example, are distributed by ConsumerCellular in the US which has arrangments with AARP to offer special deals and plans.
While the market for mobile phones is ~ 1-2 billion units per year -- Doro sold ~ 1 million in 2011. While they don't have technological advantages over anyone -- what they DO have is an very focused and targeted NICHE strategy -- they pursue a market that is extraneous to most phone producers or carriers.
The elderly use very few minutes a month on average -- they want a low cost in-case-of-emergency plan -- so they tend to go for simple pre-paid plans and use very little data -- they are not the customers buying the high-end plans from Verizon, ATT, T-Mobile, or Sprint.
Again, Doro sold 1 million phones last year -- they are NOTHING compared to the major handset producers. They designed their phones for a niche market below the radar of the majors.
Nevertheless, they grew ~ 20% last year and expect similar growth in the future.
Additionally, they expect margin expansion based on efficiencies and operating leverage over the next few years --> they expect 2011's operating margin of ~ 8% to reach ~ 10% over the next few years.
Doro currently trades at ~ 9x earnings (excluding cash) on 2011's numbers and ~ 7x (excluding cash) on 2012's numbers -- assuming their growth rate continues.
So what we have is an attractively valued, fast-growing microcap w/ an intelligent niche strategy (they are #1 or #2 in all of their markets), high returns on capital, and trading with an 11% free-cash-flow yield (14% yield on next year's earnings).
As mentioned, Doro does not have any technological advantages -- their competitive advantage is their market segmentation and their laser-focus on a neglected market segment -- if the elderly market gets big enough it may eventually attract the attention of larger competitors with great resources.


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