Hemisphere GPS HEM
August 18, 2008 - 7:35pm EST by
issambres839
2008 2009
Price: 3.14 EPS
Shares Out. (in M): 0 P/E
Market Cap (in M): 185 P/FCF
Net Debt (in M): 0 EBIT 0 0
TEV: 0 TEV/EBIT

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Description

After soaring to as high as $4.92 per share less than three months ago, Hemisphere GPS has come crashing back to earth, not due to deteriorating fundamentals or a poor outlook, but due to Wall Street’s schizophrenic nature and margin call selling from a few funds and individuals.

With over $0.37 per share in cash, Hemisphere trades at 14 times my estimate for 2008 and 9 times my estimate for 2009, despite a sales growth outlook of 20% to 30% for the next three to five years.

This is a stock in which investors have repeatedly been rewarded by taking advantage of short-term sell-offs and looking longer term. For example, when I first recommended it (when it was called CSI Wireless) the stock traded at $1.50 per share, and last year it traded at $2.75 before rising to close to $5 per share. I expect it to trade to at least $6 by the end of next year, based upon soaring sales, earnings and cash flow.

GPS for the farm, otherwise known as Precision Agriculture (repeat from last report)

Precision Agriculture uses GPS to plant, fertilize and harvest fields with pin point accuracy. Instead of using traditional foam markers or guessing, farmers utilizing precision agricultural devices can save time and money with exact usages of fertilizer and fuel. Farmers can also work longer hours in any one day due to relying on GPS and not eyesight. This allows farmers to have a quicker harvest. The newest devices actually steer the tractor or vehicle for you according to the GPS layout of your field.

Precision Agriculture did not exist ten years ago. Today, approximately 30% to 40% of U.S. farms use some form of GPS device in their farming. With today’s high fuel prices and high fertilizer prices, it is not hard to see why Precision Agriculture has taken off. Input costs for farmers (oil, gas, fertilizer, seed, pesticide) have been soaring, and utilizing GPS and auto-steering can save you 3-5% of your input costs resulting in a payback that is less than one year and in some instances 6 months. GPS has become a must purchase.

Prices on products go from about $999 for a “hobby farmer” GPS device to $40K for the high end systems. The average price for precision agriculture systems is $8,585 according to Frost & Sullivan (a consultancy group).

A recent study by Caledonia Solutions found that one out of every four commercial corn producers already owned a guidance system and ownership should grow another 50% in 2008.

Check out the following excerpt from the AEFP (Alberta Environmental Farm Plan) Journal, which explains how and why GPS is so helpful and valuable to farmers:

“Outfitting the tractor with a Global Positioning System (GPS) has helped Tony Pliva reduce herbicide and other inputs used on his Southern Alberta farm. By reducing the amount of overlap on each equipment pass, he estimates he's saving about 6.5 acres worth of inputs on each quarter section.

Although it varies with the crop, the Drumheller-area farmer says that translates into an overall input savings of between $5,000 and $10,000 per year.

"It's surprising when you make the comparison," says Pliva, who crops about 2,800 acres of grains and oilseeds. "Without the GPS, during field spraying, I was overlapping about 100 feet over a quarter-section. And over the whole farm that adds up."

A quick calculation shows that a 100-foot spray overlap on a quarter section—a half mile-long field—equals about 6.5 acres and over 17 or 18 quarters, which totals about 112 acres of overlap. Although crop inputs will vary, if seed, fertilizer and chemical range between $50 and $100 per acre, that adds up to $5,000 to $10,000 per year.

The Outback GPS (A Hemisphere product) unit costs about $6,600. Considering the value it brings to his operation, Pliva estimates that the system will be paid off within a couple of years. "And reducing the inputs is also good for the environment," he says.”

Hemisphere sells a range of Precision Ag products (repeat from last report)

Hemisphere sells products for three separate markets: Ground Agriculture, Air Agriculture and Precision Marine. The two agriculture divisions’ sales represented about 85% of revenue in 2007 with 15% being in Marine. Hemisphere’s products range in price from as little as $999 hobby farmer solutions to $15,000 full sub-inch accuracy auto-steer solutions for farmers with 500 acres plus. Also included are guidance products that tell you when and where to drop seed and fertilizer to the company’s eDrive that actually steers the tractor for you.

In the North American aftermarket for precision agriculture market, Hemisphere has 50% market share based upon units sold and components in underlying products. For example, all of Raven Industries (NASDAQ: RAVN) precision agriculture products have Hemisphere’s Crescent chips inside.

Hemisphere’s strategy is to offer more software based solutions than hardware and to offer cost effective solutions to a farmer. It operates in the low to mid-end portion of the market. While there are some products and solutions that cost $30,000 to $40,000, Hemisphere’s goal is to try to find a lower cost solution and get more mass-market adoption.

Slew of new products coming out in q4

Hemisphere is about to launch a slew of new products in the fourth quarter that should drive revenue well into 2009. The most important in my opinion is new high-end auto-steering “Edrive” product that should be the most accurate auto-steering product in the market. Due to its Beeline acquisition last year, Hemisphere is the only precision agriculture company with steer-by-wire technology. This is an important advantage I don’t believe investors fully appreciate, not only for the competitive advantage but also for the margin enhancing aspects of selling a high-end product, which they haven’t offered before.

The company will also be launching an OEM special product that should make it even easier for HEM to gain new OEM customers. HEM is also introducing a dual frequency RTK product, a new base station and a new leisure platform for the marine industry.

Based on History, the Farming Boom has just begun

Wheat, corn and soybean prices have all sold off from their dramatic highs from earlier this year and many are commenting that the “commodity bubble” is over. A simple study of history shows that commodity bull runs are long term in nature and that it is quite normal to have very quick sell-offs. Historically, agriculture commodity bull markets last anywhere from 10 to 15 years in length and this one began three years ago.

Consider that corn prices have only pulled back to the prices they averaged in March of this year, and that today’s prices of $5.75 a bushel is dramatically higher than the $2 to $2.25 a bushel they averaged in 2005.

The pullback in grain prices doesn’t change the fact that worldwide inventories are at 30-year lows; there is consistently increasing demand from Asia and surging ethanol demands. The price for agricultural land has doubled in many parts of the country despite farmers planting crops fence post to fence post. And the fundamental drivers of price are actually just as bullish if not more so now then they were last year.

Due to massive water problems in Asia and increased urbanization of agricultural production, inventories are suffering. Look at the decision Saudi Arabia made to stop producing 2.5 million tons of wheat. The water problem is the big key for agriculture prices and may be the reason that prices continue to rise. Also, considering that a cow eats as much as ten times the grain as a human; when meat consumption increases, so paradoxically does grain consumption.

Precision Agriculture should grow faster than the farm economy as well (updated)


Only 30% to 40% of farmers have GPS guidance systems in North America and less than 10% have auto steering. Adoption is growing every year, and auto-steering especially is becoming a requirement. Where 18 months ago for every 6 GPS units sold, 1 auto-steer was sold, now it is close to 1 to 1.

I encourage investors to take a demo of a tractor with auto-steering and you will realize that there is simply no reason to own a tractor that doesn’t have auto-steering in it. The ease of use combined with the fatigue factor and that’s not to mention the cost savings.

Hemisphere’s chief competitor confirms the precision agriculture growth story. Trimble Navigation (NASDAQ: TRMB) said this on the company’s last conference call:

“The agriculture story remains centered on strong farmer cash flows, the need to mitigate high input costs for fuel and fertilizer, and strong product innovation. Beyond those factors, agriculture continues to develop as an international story with rapid market development beyond our historical core geographies in North America, Brazil and Australia, with new regions such as Europe growing at strong double or triple-digit growth rates.

We believe we can sustain strong performance in this business for the foreseeable future because the underlying market drivers are not likely to subside and since we believe the addressable market remains substantially un-penetrated worldwide.”

International Opportunity, Brazil is just the beginning


In the second quarter, Hemisphere announced that international revenue surged 91% year over year. This is a stunning number, and I think growth internationally is going to continue to be very high.

Hemisphere has developed a very strong relationship with its OEM partner in Brazil, Stara. And Stara has the potential to be Hemisphere’s largest OEM if it keeps growing at its current growth rate. From my research, Brazil has only begun to start using GPS. This is a very large market and growth should continue for years.

I just finished reading a report from the Ag Equipment Intelligence Report on Russia, Kazakhstan and former Russian states and the report described that technologically those markets were 30-40 years behind North American farmers, but that they were now making tremendous changes.

There was also an article in Wall Street Journal in May, on how Ukrainian farms were being cobbled together into larger farms and the very end of the article was how they were just starting to use GPS.

Potential AGCO contract and other OEMs


I believe that in the next few months, Hemisphere will sign a very large OEM agreement with AGCO (NYSE: AG), the $8 billion in revenue tractor manufacturer. Through Hemisphere’s acquisition of Beeline last year, they acquired a relationship with AGCO and I believe that Hemisphere has an opportunity to take over all precision agriculture products for AGCO products, which includes Massey Ferguson tractors.

Right now AGCO uses GPS boards from Novatel Wireless, but software from Hemisphere through Beeline. This will change once the contract is signed.

AGCO is behind technologically to Deere (NYSE: DE), the largest tractor manufacturer in the world. I believe that AGCO is going to make a big push to catch up technologically. What happens when an $8 billion tractor company meets an $80 million equipment supplier? I think that in the next three to five years, AGCO could be larger than all of HEM’s revenue this year.

Freedonia Group, a market research group based in Cleveland, just came out with a report on the long-term demand for ag equipment. In the report, Freedonia says that the big differentiator between North American equipment manufacturers and their up and coming Chinese and Korean competitors was technology and in specific precision agriculture. Could an OEM customer like AGCO buy Hemisphere to keep its competitive advantage?

Other growth Opportunities include Sugarcane equipment and Survey industries


Beyond new OEM customers, consider that GPS penetration in sugarcane equipment is negligible. HEM is working with Stara now to integrate GPS into sugarcane equipment. I expect revenue for this to start in 2009 and this could be a very large market.

HEM is also making inroads into the survey market and is doing testing in mining as well as defense applications. I expect to hear more and more about these new markets in 2009.

Tax bill benefit for q4


Another tailwind for HEM should come in q4, as farmers do their tax planning and realize that the 2008 economic stimulus bill increased the amount you can now write-off to $800,000 of equipment, up from $510,000. But more important, the amount you can write-off in the first year increases from $128,000 to $250,000.

The last time Congress increased the amount you could depreciate, ag equipment sales in the fourth quarter exploded 45%, in an otherwise bland ag year. Now, all the tractor companies are generally sold out of tractors this year, so precision ag equipment could really benefit from year-end buying with farmers looking to offset tax payments. Combine that tax related buying with the launch of a slew of new products and q4 could be much higher than analysts expect.

2009-2010 should see sharply higher earnings


With new products, new markets, new OEMs and new verticals, Hemisphere is poised to keep growing for a while.

Specifically, Hemisphere should grow sales 49% to C$80 million in fiscal 2008 and EPS should be C$0.20 per share. And in 2009, I estimate C$100 million in sales and the company should earn C$0.30 per share.

Comparables and Competition


Hemisphere GPS’ chief competitors are Trimble Navigation (NASDAQ: TRMB) and Raven Industries (NASDAQ: RAVN) and two private companies, Novarient and Novatel Wireless, which was recently bought out by Hexagon AB, a Swedish conglomerate.

The largest GPS company is actually a Deere (NYSE: DE) subsidiary, ComNAV. They sell only on John Deere tractors and to John Deere customers and do not participate in the aftermarket. They do about $400 million in revenue.

Valuation


TRMB trades for 22 times 2008 earnings estimates and 19 times 2009 estimates and RAVN trades at an average PE multiple of 24 times 2008 and 22 times 2009.

If I put a 20 multiple (which is a discount to competitors despite HEM growing faster!) on C$0.20 in earnings for 2008 and I add in C$0.37 a share in cash, Hemisphere should trade at C$4.37 a share. If you apply that same multiple to 2009 earnings and add in the cash you get C$6.37 per share. At its current price, Hemisphere trades at less than 9 times next year’s earnings despite excellent earnings growth.

Why does Hemisphere trade for half of its comparables? I could understand this last year, before it proved it could earn money and perform, but why now?

I would also add that Hemisphere is an excellent acquisition opportunity and a larger company could remove a lot of public company expense and corporate overlap with an acquisition. Further, there could be a bidding war as this is a hot space and Hemisphere has an excellent market share position, distribution network and brand name. Note that competitor, Novatel Wireless, was bought out last year a competitor for 4.5 times sales in 2007. That would give Hemisphere a value of over C$6 per share.

Summary


Time and again Hemisphere has offered investors excellent price point entries that seem at odds with the performance of the company and its inherent value. I believe that now is one of those times and that investors should pick up this very strong growth company at silly value prices.

Catalyst

-Agco contract
-International growth
-Margin expansion
-New OEM partners
-Realization of how good q4 and 2009 will be
-Potential acquisition of HEM
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    Description

    After soaring to as high as $4.92 per share less than three months ago, Hemisphere GPS has come crashing back to earth, not due to deteriorating fundamentals or a poor outlook, but due to Wall Street’s schizophrenic nature and margin call selling from a few funds and individuals.

    With over $0.37 per share in cash, Hemisphere trades at 14 times my estimate for 2008 and 9 times my estimate for 2009, despite a sales growth outlook of 20% to 30% for the next three to five years.

    This is a stock in which investors have repeatedly been rewarded by taking advantage of short-term sell-offs and looking longer term. For example, when I first recommended it (when it was called CSI Wireless) the stock traded at $1.50 per share, and last year it traded at $2.75 before rising to close to $5 per share. I expect it to trade to at least $6 by the end of next year, based upon soaring sales, earnings and cash flow.

    GPS for the farm, otherwise known as Precision Agriculture (repeat from last report)

    Precision Agriculture uses GPS to plant, fertilize and harvest fields with pin point accuracy. Instead of using traditional foam markers or guessing, farmers utilizing precision agricultural devices can save time and money with exact usages of fertilizer and fuel. Farmers can also work longer hours in any one day due to relying on GPS and not eyesight. This allows farmers to have a quicker harvest. The newest devices actually steer the tractor or vehicle for you according to the GPS layout of your field.

    Precision Agriculture did not exist ten years ago. Today, approximately 30% to 40% of U.S. farms use some form of GPS device in their farming. With today’s high fuel prices and high fertilizer prices, it is not hard to see why Precision Agriculture has taken off. Input costs for farmers (oil, gas, fertilizer, seed, pesticide) have been soaring, and utilizing GPS and auto-steering can save you 3-5% of your input costs resulting in a payback that is less than one year and in some instances 6 months. GPS has become a must purchase.

    Prices on products go from about $999 for a “hobby farmer” GPS device to $40K for the high end systems. The average price for precision agriculture systems is $8,585 according to Frost & Sullivan (a consultancy group).

    A recent study by Caledonia Solutions found that one out of every four commercial corn producers already owned a guidance system and ownership should grow another 50% in 2008.

    Check out the following excerpt from the AEFP (Alberta Environmental Farm Plan) Journal, which explains how and why GPS is so helpful and valuable to farmers:

    “Outfitting the tractor with a Global Positioning System (GPS) has helped Tony Pliva reduce herbicide and other inputs used on his Southern Alberta farm. By reducing the amount of overlap on each equipment pass, he estimates he's saving about 6.5 acres worth of inputs on each quarter section.

    Although it varies with the crop, the Drumheller-area farmer says that translates into an overall input savings of between $5,000 and $10,000 per year.

    "It's surprising when you make the comparison," says Pliva, who crops about 2,800 acres of grains and oilseeds. "Without the GPS, during field spraying, I was overlapping about 100 feet over a quarter-section. And over the whole farm that adds up."

    A quick calculation shows that a 100-foot spray overlap on a quarter section—a half mile-long field—equals about 6.5 acres and over 17 or 18 quarters, which totals about 112 acres of overlap. Although crop inputs will vary, if seed, fertilizer and chemical range between $50 and $100 per acre, that adds up to $5,000 to $10,000 per year.

    The Outback GPS (A Hemisphere product) unit costs about $6,600. Considering the value it brings to his operation, Pliva estimates that the system will be paid off within a couple of years. "And reducing the inputs is also good for the environment," he says.”

    Hemisphere sells a range of Precision Ag products (repeat from last report)

    Hemisphere sells products for three separate markets: Ground Agriculture, Air Agriculture and Precision Marine. The two agriculture divisions’ sales represented about 85% of revenue in 2007 with 15% being in Marine. Hemisphere’s products range in price from as little as $999 hobby farmer solutions to $15,000 full sub-inch accuracy auto-steer solutions for farmers with 500 acres plus. Also included are guidance products that tell you when and where to drop seed and fertilizer to the company’s eDrive that actually steers the tractor for you.

    In the North American aftermarket for precision agriculture market, Hemisphere has 50% market share based upon units sold and components in underlying products. For example, all of Raven Industries (NASDAQ: RAVN) precision agriculture products have Hemisphere’s Crescent chips inside.

    Hemisphere’s strategy is to offer more software based solutions than hardware and to offer cost effective solutions to a farmer. It operates in the low to mid-end portion of the market. While there are some products and solutions that cost $30,000 to $40,000, Hemisphere’s goal is to try to find a lower cost solution and get more mass-market adoption.

    Slew of new products coming out in q4

    Hemisphere is about to launch a slew of new products in the fourth quarter that should drive revenue well into 2009. The most important in my opinion is new high-end auto-steering “Edrive” product that should be the most accurate auto-steering product in the market. Due to its Beeline acquisition last year, Hemisphere is the only precision agriculture company with steer-by-wire technology. This is an important advantage I don’t believe investors fully appreciate, not only for the competitive advantage but also for the margin enhancing aspects of selling a high-end product, which they haven’t offered before.

    The company will also be launching an OEM special product that should make it even easier for HEM to gain new OEM customers. HEM is also introducing a dual frequency RTK product, a new base station and a new leisure platform for the marine industry.

    Based on History, the Farming Boom has just begun

    Wheat, corn and soybean prices have all sold off from their dramatic highs from earlier this year and many are commenting that the “commodity bubble” is over. A simple study of history shows that commodity bull runs are long term in nature and that it is quite normal to have very quick sell-offs. Historically, agriculture commodity bull markets last anywhere from 10 to 15 years in length and this one began three years ago.

    Consider that corn prices have only pulled back to the prices they averaged in March of this year, and that today’s prices of $5.75 a bushel is dramatically higher than the $2 to $2.25 a bushel they averaged in 2005.

    The pullback in grain prices doesn’t change the fact that worldwide inventories are at 30-year lows; there is consistently increasing demand from Asia and surging ethanol demands. The price for agricultural land has doubled in many parts of the country despite farmers planting crops fence post to fence post. And the fundamental drivers of price are actually just as bullish if not more so now then they were last year.

    Due to massive water problems in Asia and increased urbanization of agricultural production, inventories are suffering. Look at the decision Saudi Arabia made to stop producing 2.5 million tons of wheat. The water problem is the big key for agriculture prices and may be the reason that prices continue to rise. Also, considering that a cow eats as much as ten times the grain as a human; when meat consumption increases, so paradoxically does grain consumption.

    Precision Agriculture should grow faster than the farm economy as well (updated)


    Only 30% to 40% of farmers have GPS guidance systems in North America and less than 10% have auto steering. Adoption is growing every year, and auto-steering especially is becoming a requirement. Where 18 months ago for every 6 GPS units sold, 1 auto-steer was sold, now it is close to 1 to 1.

    I encourage investors to take a demo of a tractor with auto-steering and you will realize that there is simply no reason to own a tractor that doesn’t have auto-steering in it. The ease of use combined with the fatigue factor and that’s not to mention the cost savings.

    Hemisphere’s chief competitor confirms the precision agriculture growth story. Trimble Navigation (NASDAQ: TRMB) said this on the company’s last conference call:

    “The agriculture story remains centered on strong farmer cash flows, the need to mitigate high input costs for fuel and fertilizer, and strong product innovation. Beyond those factors, agriculture continues to develop as an international story with rapid market development beyond our historical core geographies in North America, Brazil and Australia, with new regions such as Europe growing at strong double or triple-digit growth rates.

    We believe we can sustain strong performance in this business for the foreseeable future because the underlying market drivers are not likely to subside and since we believe the addressable market remains substantially un-penetrated worldwide.”

    International Opportunity, Brazil is just the beginning


    In the second quarter, Hemisphere announced that international revenue surged 91% year over year. This is a stunning number, and I think growth internationally is going to continue to be very high.

    Hemisphere has developed a very strong relationship with its OEM partner in Brazil, Stara. And Stara has the potential to be Hemisphere’s largest OEM if it keeps growing at its current growth rate. From my research, Brazil has only begun to start using GPS. This is a very large market and growth should continue for years.

    I just finished reading a report from the Ag Equipment Intelligence Report on Russia, Kazakhstan and former Russian states and the report described that technologically those markets were 30-40 years behind North American farmers, but that they were now making tremendous changes.

    There was also an article in Wall Street Journal in May, on how Ukrainian farms were being cobbled together into larger farms and the very end of the article was how they were just starting to use GPS.

    Potential AGCO contract and other OEMs


    I believe that in the next few months, Hemisphere will sign a very large OEM agreement with AGCO (NYSE: AG), the $8 billion in revenue tractor manufacturer. Through Hemisphere’s acquisition of Beeline last year, they acquired a relationship with AGCO and I believe that Hemisphere has an opportunity to take over all precision agriculture products for AGCO products, which includes Massey Ferguson tractors.

    Right now AGCO uses GPS boards from Novatel Wireless, but software from Hemisphere through Beeline. This will change once the contract is signed.

    AGCO is behind technologically to Deere (NYSE: DE), the largest tractor manufacturer in the world. I believe that AGCO is going to make a big push to catch up technologically. What happens when an $8 billion tractor company meets an $80 million equipment supplier? I think that in the next three to five years, AGCO could be larger than all of HEM’s revenue this year.

    Freedonia Group, a market research group based in Cleveland, just came out with a report on the long-term demand for ag equipment. In the report, Freedonia says that the big differentiator between North American equipment manufacturers and their up and coming Chinese and Korean competitors was technology and in specific precision agriculture. Could an OEM customer like AGCO buy Hemisphere to keep its competitive advantage?

    Other growth Opportunities include Sugarcane equipment and Survey industries


    Beyond new OEM customers, consider that GPS penetration in sugarcane equipment is negligible. HEM is working with Stara now to integrate GPS into sugarcane equipment. I expect revenue for this to start in 2009 and this could be a very large market.

    HEM is also making inroads into the survey market and is doing testing in mining as well as defense applications. I expect to hear more and more about these new markets in 2009.

    Tax bill benefit for q4


    Another tailwind for HEM should come in q4, as farmers do their tax planning and realize that the 2008 economic stimulus bill increased the amount you can now write-off to $800,000 of equipment, up from $510,000. But more important, the amount you can write-off in the first year increases from $128,000 to $250,000.

    The last time Congress increased the amount you could depreciate, ag equipment sales in the fourth quarter exploded 45%, in an otherwise bland ag year. Now, all the tractor companies are generally sold out of tractors this year, so precision ag equipment could really benefit from year-end buying with farmers looking to offset tax payments. Combine that tax related buying with the launch of a slew of new products and q4 could be much higher than analysts expect.

    2009-2010 should see sharply higher earnings


    With new products, new markets, new OEMs and new verticals, Hemisphere is poised to keep growing for a while.

    Specifically, Hemisphere should grow sales 49% to C$80 million in fiscal 2008 and EPS should be C$0.20 per share. And in 2009, I estimate C$100 million in sales and the company should earn C$0.30 per share.

    Comparables and Competition


    Hemisphere GPS’ chief competitors are Trimble Navigation (NASDAQ: TRMB) and Raven Industries (NASDAQ: RAVN) and two private companies, Novarient and Novatel Wireless, which was recently bought out by Hexagon AB, a Swedish conglomerate.

    The largest GPS company is actually a Deere (NYSE: DE) subsidiary, ComNAV. They sell only on John Deere tractors and to John Deere customers and do not participate in the aftermarket. They do about $400 million in revenue.

    Valuation


    TRMB trades for 22 times 2008 earnings estimates and 19 times 2009 estimates and RAVN trades at an average PE multiple of 24 times 2008 and 22 times 2009.

    If I put a 20 multiple (which is a discount to competitors despite HEM growing faster!) on C$0.20 in earnings for 2008 and I add in C$0.37 a share in cash, Hemisphere should trade at C$4.37 a share. If you apply that same multiple to 2009 earnings and add in the cash you get C$6.37 per share. At its current price, Hemisphere trades at less than 9 times next year’s earnings despite excellent earnings growth.

    Why does Hemisphere trade for half of its comparables? I could understand this last year, before it proved it could earn money and perform, but why now?

    I would also add that Hemisphere is an excellent acquisition opportunity and a larger company could remove a lot of public company expense and corporate overlap with an acquisition. Further, there could be a bidding war as this is a hot space and Hemisphere has an excellent market share position, distribution network and brand name. Note that competitor, Novatel Wireless, was bought out last year a competitor for 4.5 times sales in 2007. That would give Hemisphere a value of over C$6 per share.

    Summary


    Time and again Hemisphere has offered investors excellent price point entries that seem at odds with the performance of the company and its inherent value. I believe that now is one of those times and that investors should pick up this very strong growth company at silly value prices.

    Catalyst

    -Agco contract
    -International growth
    -Margin expansion
    -New OEM partners
    -Realization of how good q4 and 2009 will be
    -Potential acquisition of HEM

    Messages


    SubjectRE: estimates
    Entry08/19/2008 11:26 AM
    Memberissambres839
    I'm at $0.30 per share, I took out cash before I did my p/e. But I took out cash before I compared raven and trimble as well. I'm expecting a little higher margin than analysts due to price increases and the new autosteer product, which should command a higher margin. The AGCO contract is very important, could eventually bring HEM to a double digit stock price by 2010.

    SubjectComp RAVN posts great #s
    Entry08/19/2008 11:27 AM
    Memberissambres839
    * Q2 earnings per share $0.38 vs. Estimate $0.32 * Q2 sales rose 24 percent to $69.3 million (vs. estimate $61.9M) * Flow Controls Division sells Precision Ag products had the strongest growth. Sales grew 93% from a year ago, reaching $22.7 million compared with $11.8 million in the second quarter last year. Both U.S. and international shipments were strong. * increasing product prices to optimize margins in an environment of rising material costs - note HEM and TRMB also increased product pricing recently Key Quotes: "While crop prices are down from the records we saw in the first quarter, they remain at very high levels," "Growers are still facing rising input costs for items including fertilizer and fuel. As a result, leading growers in the U.S. and international markets are turning to precision agriculture products, which increase their crop yield while holding down expenses."

    SubjectThanks
    Entry08/19/2008 06:03 PM
    Memberelan19
    Issambres839 - you've done a terrific job with your write-ups on HEM and I have benefited this year as I buy the dips (including this one). My own research has not uncovered anything significant beyond all the major points you already hit. One risk with any kind of technology-based company is that some new, superior technology will come out of left field to render obsolete the current leading technology. However, at the moment, there does not seem to be anything to challenge the cost/benefit/reliability leadership of GPS-based systems. Thanks again - elan19

    SubjectRE: Thanks
    Entry08/19/2008 06:10 PM
    Memberissambres839
    I think you are right, that is why we are somewhat protected by the low valuation. Plus, you could short TRMB as a hedge, as it trades for twice the valuation.

    SubjectFT article from today
    Entry08/19/2008 08:36 PM
    Memberissambres839
    http://www.ft.com/cms/s/0/b894e74e-6d85-11dd-857b-0000779fd18c.html

    SubjectRE: FT article from today
    Entry08/20/2008 12:57 AM
    Memberissambres839
    key quote from the article: "The new way to apply fertiliser, rather than blasting it all over the surface of the soil, is banding it exactly below where the seed will be placed next year," Mr Mitchell says. He can inject fertiliser ex-actly 10ins below the surface, in perfect rows, and return months later to plant in the same pattern. ***** This is a huge deal for precision ag providers, this basically requires autosteering and GPS.

    SubjectNovariant
    Entry08/22/2008 11:28 AM
    Membercameron57
    thanks for the write-up, this looks very interesting. We met with the management team from Novariant the other week (they are raising preferred stock), and were generally impressed by (i) the overall market opportunity, (ii) management expertise, and (iii) the value proposition for farmers.

    I'd be curious to hear your thoughts on Novariant, and other industry participants in terms of how you see M&A and industry structure moving forward. You mention M&A, and i'm just trying to get a sense as to who would buy these guys? Deere, or other OEM? Why do you think the AGCO deal will happen soon, and does this open the door for other partnerships?

    Also regarding the technicals - can you elaborate on 'margin call selling'? Was there a large holder who recently liquidated or someting to that effect?

    SubjectRE: Novariant
    Entry08/22/2008 01:23 PM
    Memberissambres839
    I don't have any current thoughts about Novarient, but I will check around thanks for your thoughts. Last I heard they were having problems, but this was late last year. I think that Trimble or RAVN could be buyers in this industry. So could Hexagon, the Swedish conglomerate that bought Novatel. AGCO or other OEMs could be buyers as well. I specifically heard that one broker gave at least two clients margin calls and then sold their shares of HEM. So, yes it was two large holders of at least 400K shares that were forced to sell on the Friday the 15th. There were some follow up shares on Monday and Tuesday as well.

    SubjectRE: RE: Novariant
    Entry08/22/2008 01:38 PM
    Membercameron57
    re Novariant - not intimately familiar with the situation but they breached covenants and are reworking their senior. Much more of a play on the GPS mining secotr, which is extremely compelling but very long sales cycle and the mass market is not there. They are targeting an IPO in 2009, the product / industry feels unique enough where you could almost see them getting this done amid a tough new issue market. Their ag product has been around for a while, really a question of how they grow their distribution channel. Agreed with respect to the OEMs, feels like the logical transition here.

    Certainly like Hemisphere's balance sheet as well, feels like barring a meltdown in the industry you see this thing much higher in a year. Counterintuitive - but drops in commodity prices might actually help these guys given the incremental productivity. Thanks again.

    SubjectAGCO
    Entry08/25/2008 09:44 AM
    Memberjoe661
    AGCO announced this morning that TSD Integrated Controls is going to be the supplier of their next-gen GPS solution. How significant do you think this is? People were hoping for HEM to get the deal, this removes upside for HEM but do you think it creates as much downside as the market thinks right now?

    SubjectRE: More margin call selling?
    Entry08/25/2008 09:54 AM
    Memberjoe661
    elan, see my previous post. This is definitely due to the AGCO announcement from this morning.

    SubjectRE: AGCO
    Entry08/25/2008 10:06 AM
    Memberelan19
    Thanks Joe - I can see why some would react to this announcement. While the range of possible earnings for next year is probably wide depending on sales growth rates (I figure .20 to .40 EPS for 2009), the stock price is still very cheap. A good chance to buy in volume for those who want to. Just my opinion. I added a little more this morning.

    SubjectRE: RE: AGCO
    Entry08/25/2008 10:18 AM
    Memberjoe661
    This removes a big source of upside, but doesn't seem to add a whole lot of downside, AGCO isn't currently a big source of revenues for them. Maybe you can extrapolate beyond this and wonder why AGCO didn't choose HEM, but in and of itself I don't think it's a big deal because you really weren't paying for an AGCO contract at recent prices. FYI - the CEO and CFO did some more open market buying in the past couple weeks.

    Subjectre: AGCO
    Entry08/25/2008 11:54 AM
    Membervanbr707
    quick comments from Wellington West brokers

    • AGCO Corp. (AG-N) announces a GPS partnership with TSD.
    AG-N indicated a new partnership with Topcon Sauer-Danfoss to supply
    next-gen satellite-guided steering assist systems for core global brands.
    • Potential negative implications from competitive threat to BEELINE.
    We believe AG-N is ~80+% of BEELINE sales, and estimate ~$7M sales
    @ ~50% EBITDA margins contribution from BEELINE in F09.

    Subjectthoughts
    Entry08/25/2008 02:02 PM
    Memberissambres839
    Let's assume that HEM loses Agco as a customer. What would HRM look like next year? I estimate that HEM would do around $95 million in sales and $0.22 to $0.25 per share in earnings. Right now it trades at 12 times that $0.22 per share earnings outside of cash and 1.65 times sales. This is why HEM at these prices is such a good investment, you can have a lot of bad news come out and the stock is still selling for a very low multiple. That said, I think information should come out that will show that they haven't lost Agco as a customer and that Agco revenues will grow next year. I also hope to see a press release that shows a new contract being signed. I will post more information on this as I get it. I'm not sure what it is about August for this company, but we seem to be going through a deja vu moment with last year.

    Subjectdevils advocate
    Entry08/26/2008 01:45 AM
    Memberosotorro1044
    hate to play it, but I liked the write-up, was doing more work, but as I'm still fairly "dumb" on this space (and since 12x current eps isnt that cheap in value-land): 1 - if AGCO went with someone else, does this imply there are quite a few players with sufficient technology here? Is there an edge for HEM, or is there a risk that as a small player they may miss out on other large or exclusive deals and eventually lose business? 2 - for HEM to now put up nice growth #s for the next 2 years, what must happen and which end customers will purchase in larger size? Do they have any inked agreements providing a backlog or visibility for growth? 3 - who can or is HEM taking market share from now, and why - or is the thought that they maintain market share and current customers and grow with high market growth rates? 3 -

    SubjectRE: devils advocate
    Entry08/26/2008 01:14 PM
    Memberissambres839
    1)I think growth in the market, especially internationally is such that many players can coexist in this market and still do will, including HEM. 2)What must happen is adoption for autosteering must continue strong and international markets adoptions rates increase. HEM doesn't need big OEM customers to continue growing. It was always gravy to the story. 3)I think market share is somewhat overrated, but they can keep growing with existing OEMs and still maintain their market share.

    SubjectSilliness
    Entry09/04/2008 04:16 PM
    Memberissambres839
    This stock outside of cash now sells for 1)10 times 08 estimates 2)7.6 times my 09 esitmate 3)1.7 times EV/S 4)1.3 times EV/S for 09 5) 13 times the first half of the year's earnings Why do comps such as RAVN/TRMB trade for 20 times earnings estimates for 2009 and near 3 times sales? And why was Novatel Wireless bought out for 4.5 times sales last year? This is silliness and should be taken advantage of, just like last year around this time.

    Subjectpayback period
    Entry09/05/2008 06:48 AM
    Memberheffer504
    any idea what the payback period is with current fertilizer and diesel prices, which are down 20-50% from peaks? is it still very quick? thanks...

    SubjectRE: payback period
    Entry09/05/2008 11:45 AM
    Memberissambres839
    I think that the payback had fallen to as low as 6 months with fertilizer prices being so high. Its probably back to 1 year payback.

    Subject2.8 million share buyback
    Entry09/10/2008 08:33 PM
    Memberissambres839
    HEM announced after the close that it was initiating a normal course issuer bid to buy back up 2.8 million shares. One of the great things about being a very cash flow positive entity with $0.37 per share in cash is that you can use that $22 million in cash to take advantage of rock bottom ridiculous stock prices to the benefit of all shareholders. Anyone wondering why the stock is down so much only has to look to Canada, where the Toronto Venture index is down 44% YTD. Funds are blowing up left and right, margin selling is rife. Sprott Funds are holding a conference call tomorrow and RAB Capital is trying to stop investors from redeeming. This has spurred a massive flight out of these stocks and created an incredible bargain in HEM. I continue to think this is a screaming buy. Apparently so does management.

    SubjectRE: 2.8 million share buyback
    Entry09/11/2008 09:31 AM
    Memberjoe661
    Would the upcoming buyback announcement have prevented insiders from buying? There had been some modest buying by the CEO and CFO on previous dips, and they bought some at the end of August, but given the AGCO news and the further decline it would be nice to see some more buying if they are allowed to.

    SubjectRE: RE: 2.8 million share buyb
    Entry09/12/2008 04:31 PM
    Memberissambres839
    There was more insider buying reported today, 12,500 shares or so.

    SubjectCorn
    Entry09/12/2008 04:32 PM
    Memberissambres839
    Someone please tell the corn market the commodity bubble is done and finished. It was up limit today. The grain markets including corn continue to be very tight and inventories very low. I expect prices to remain high and if we have a drought in a major grain producer watch out. HEM continues to be a ridiculous buy here.

    Subjectworldwide GPS market to double
    Entry09/23/2008 04:58 PM
    Memberissambres839
    Worldwide Precision GPS Market Forecast to Rise to US$ 6-8 Billion by 2012 NewswireToday - /newswire/ - Brisbane, Queensland, Australia, 09/23/2008 - The worldwide precision GPS market is forecast to rise from US$3 Billion in 2008 to US$6-8 Billion by 2012 according to a new report by Position One Consulting Pty Ltd in conjunction with Eric Gakstatter, Contributing Editor to GPS World magazine. The report includes global trends, demand and applications for high-precision GPS technology; starting with precision GPS infrastructure, continuing through the market for GPS receivers, finished GPS goods and concluding with GPS augmentation and distribution services. Markets covered include surveying, engineering, agriculture, mining, deformation monitoring, GIS, marine and aviation for both machine control and non-machine control applications. At the core of the 200 page report are five year growth and financial projections for the high precision Global Navigation Satellite Systems (GNSS) markets surveyed as well as analysis of the competitive landscape. “The adoption of precision GPS and GNSS products and services, particularly for machine control, are reaping impressive productivity gains for innovators and early adopters”, said Rob Lorimer, Managing Director of Position One Consulting. “This report is in response to the growing demand for more detailed market intelligence regarding precise positioning products and services and the markets in which they are used”. Background and status of the entire spectrum of GNSS (Global Navigation Satellite Systems) includes GPS, GPS modernization, GLONASS and GLONASS modernization, SBAS (Satellite-Based Augmentation Systems), Galileo and Compass/Beidou, QZSS and IRNSS as well as technology/market trends and potential disruptions. The report was introduced at the Institute of Navigation GNSS meeting in Savannah, Georgia September 17-19, 2008.

    SubjectRE: RE: worldwide GPS market t
    Entry10/10/2008 12:14 PM
    Memberissambres839
    I agree, but the market is not acting rational right now. I think this is a fantastic opportunity to buy. We are just in panic mode right now.

    SubjectLatest Ag Equipment Survey
    Entry10/15/2008 03:39 PM
    Memberissambres839
    The latest survey of over 500 dealers in North America just came out today and it shows that the best bet for the third year running for increased ag equipment sales is "GPS and autosteer". The percentage of dealers who foresee higher sales actually increased from 97.4% to 98.2%. Further, 82% of dealers see the prospects for all ag equipment sales in 2009 to be as good or better than 2008 despite what is going on economically right now. Finally, in another report they highlight that the change to the "accelerated depreciation" tax code from the 2008 economic stimulus bill, which increases the amount a person can write-off from equipment purchases in the first year from $128K to $250K, is a big positive for ag equipment sales. And the graph on the last page which shows demand growing consistently, yet year-end stocks at historic lows, going back to the 1970s. This is very bullish for HEM.

    SubjectRE: RE: Latest Ag Equipment Su
    Entry10/17/2008 12:28 AM
    Memberissambres839
    Thanks for the head's up, though at this valuation I'm not sure it matters that much. That said, it absolutely stunning that at 30-40 year lows in worldwide inventory, the current delevering is causing a short term squeeze on producers of grains, exactly when the world needs them most. Next spring could be a an absolute reckoning for grain prices, especially if there is a drought somewhere.

    SubjectBest Year Ever for Farmers
    Entry10/19/2008 11:48 PM
    Memberissambres839
    There's sure no recession in U.S. agriculture - "Big Farm" is doing very, very well this year, according to data from the USDA: 1. Farm income in 2008 ($95.7 billion) is up by almost 64% compared to 2006 ($58.5 billion), see top chart above. 2. Farm real estate has increased in value by 53% during the last four years, from $1.34 trillion in 2004 to more than $2 trillion in 2008, see middle chart above. 3. Farm equity has increased by almost 50% since 2004, to a record $2.147 trillion, see bottom chart above. And the debt to asset ratio for farms is at a five-year low of only 9% (down from 11.3% in 2004), since farmers are carrying only $211 billion in debt on $2.359 trillion of farm assets.

    SubjectTrimble reports
    Entry10/23/2008 04:17 PM
    Memberelan19
    And here's what they had to say about their Field Solutions division: Third quarter 2008 Field Solutions revenue was $64.4 million, up approximately 44 percent compared to revenue of $44.8 million in the third quarter of 2007. Revenue growth was once again driven primarily by strong demand for agricultural products. Third quarter 2008 operating income in Field Solutions was $22.1 million, or 34.3 percent of revenue compared to $11.9 million, or 26.7 percent of revenue, in the third quarter of 2007. Non-GAAP operating income in Field Solutions was $22.3 million, or 34.6 percent of revenue, in the third quarter of 2008 compared to $12.1 million, or 27 percent of revenue, in the third quarter of 2007. Expansion in operating margin was due primarily to strong revenue growth.

    SubjectIf this idea were posted today
    Entry10/23/2008 04:26 PM
    Memberelan19
    It would be the first time I've ever rated an idea on VIC 9 or 10. I'd probably give it a 10. I can't recall if I rated this 7 or 8 when you posted this on on 8/18/08, but at this price it is possibly the best risk/reward I've seen in my career. HEM will have over .40/share in cash when they report on Nov. 4. Even assuming things slow a bit they'll earn .20/share next year easily. We just got confirmation from Trimble that all is well for HEM's segment. Stripping out the .40/share cash, this fast grower is trading at $1.20/share cash, or 6x (a pessimistic projection for) next year's earnings. I wasn't old enough to be investing in 1974 but perhaps we're getting a taste of what it was like. Wow.

    SubjectRE: If this idea were posted t
    Entry10/23/2008 05:05 PM
    Memberissambres839
    I agree with you 100%, but fundamentals just don't matter right now. Its all about fear and selling. Eventually this will end and people will return to the market. All we need to worry about now is how is the business doing, in the end we will be rewarded. A large seller appeared to today and that is why the stock got hammered.

    SubjectTrimble results
    Entry10/23/2008 05:48 PM
    Memberissambres839
    - Field solutions division was up 44% over last year driven by continued strong demand in Ag products. - not detecting any credit related problems in Ag yet. - expecting Ag to have strong double digit growth rates in FY09 (compared to extraordinary growth rates in FY08) - company is expanding their exposure to Ag and sees many opportunities in this market. - expect increased international sales

    SubjectGreat quarter
    Entry11/04/2008 09:32 AM
    Memberissambres839
    From Canaccord: 1) Revenues USD$13.2M up 46% yr/yr, Gross profit margins 51.6% and EPS (0.00) was better than consensus 12.6M GPM 48% EPS -0.01 (our forecasts 13.2M, GPM 50% /-0.01) 2) Company maintained FY guidance of revenue growth of greater than 45% (we believe mgnt will likely increase its FY guidance to better than 50% on the 11:00am CC) 3) Gross profit margins big positive surprise at 51.6% (slowest qtr of the yr) up 500 bps yr/yr, this should support current forward estimates if not cause some EPS estimates to increase in 2009 (street is 0.25-0.30 USD in FY2009) 4) FX trend of weakening cdn$ is positive for HEM margins (substantial cdn based operating costs), these margins were realized against a cdn$/USD$ spot of 1.06 (obviously we are at 1.18 now) 5) No signs of AG related slowdown 6) At C$1.70 share stock HEM has 20.5M in cash or 0.37/share, is trading at 4.4X 2009 EPS , growth rates in excess of 50% (and company now benefiting from favourably FX trends) 7) Company bought back 181,00 shares in Q3 @ 2.46/share Why the heck is this at $1.70? Seriously, this is one of the most ridiculous malfunctions of the market that I've ever seen. 46% revenue growth, much better than expected margins and the stock is at 4.4X earnings?

    Subjectquestions
    Entry11/21/2008 12:47 PM
    Memberelan19
    Someone asked me the following questions, most of which I don't have the answer to. Some of the questions in the first paragraph you've addressed, but I though some of the comments/questions in second paragraph were pretty interesting. What's your take on these: The market for precision ag probably won't be saturated for another five years. Is this a big enough market for all the players? Does HEM sell a better mousetrap or are all the systems comparable? It appears that they may have a cost advantage. I'm under the assumption (maybe wrong) that most new tractors will have GPS and auto-steering as standard equipment. Does that then leave HEM just fighting over the used tractors over the next five years? Tractors have a LONG lifespan. There are farmers out there still using 20-30 year old tractors. Can really old models be fitted with these systems?

    SubjectRE: questions
    Entry11/21/2008 01:49 PM
    Memberissambres839
    I think saturation will take a bit longer than 5 years. Note that GPS guidance is 20%, but autosteering is only 5-10% and I believe that this number will go to 75% to 80% in North America. Further, in the rest of the world penetration is only 1% or less. I think this market will grow for the next 10 years. Second, Hemisphere just doesn't sell in the aftermarket. They also sell through OEMs, such as Agco, Claas and Stara. Finally, you are thinking that technology advances won't cause people to upgrade to the latest and greatest technology, such as touch screens, interactive mapping and more. One more note, Hemisphere does have a cost advantage and it is causing the industry to be tugged down where they are, also the drive by wire technology they have now because Beeline is a competitive advantage.

    SubjectAny updates on this name?
    Entry04/11/2009 06:44 PM
    Membertyler939

    There were two target price cuts on thrursday (Canaccord and Fraser).  An update on what is going on with Hemisphere would be appreciated.


    SubjectRE: Any updates on this name?
    Entry04/13/2009 05:28 PM
    Memberissambres839

    It looks as if q1 is going to be somewhat disappointing with revenue falling from last year. What seems totally ridiculous is the valuation, especially compared to comparables. The market is pricing Hemisphere as if it is going bankrupt. A very difficult proposition considering it has $16 million in cash and no debt and is going to earn $0.10 a share this year.

    Why does this trade below book value, when RAVN trades for 3 times book? Why does this trade at a 5 p/e outside of cash and RAVN sells for 20?

    The key for Hemisphere is that they are coming out with a brand new product in late summer that should give it a tremendous competitive advantage and technological leap forward over competitors. Their new product will allow auto-steering to be pre-programmed with turns within sub-inch for $25K or so. This new product driven by drive by wire should allow HEM to announce much better than expected 2nd half numbers.

    If this valuation continues I expect the company to be either taken private or bought out.

    This is just such an absurd price for a profitable, technology company with very good long term prospects.


    SubjectRAVN
    Entry04/14/2009 07:39 PM
    Memberissambres839

    I think there is a compelling opportunity to buy HEM and short RAVN. HEM trades for less than book value, RAVN for three times book. HEM sells for 5 times this year's earnings, RAVN trades for almost 20 times.

    I think investors in RAVN are in for a rude awakening, when they wake up to the fact at how bad the rest of RAVN's businesses will be outside of precision ag. I thought of posting RAVN as a short idea here, but I'm too busy. And in a sneaky way look what RAVN just announced after the close:

    http://finance.yahoo.com/news/Raven-Industries-Cuts-prnews-14926494.html


    SubjectRE: RE: RAVN
    Entry04/15/2009 02:42 PM
    Memberissambres839

    Because, some of their business in that Applied Technology business is not precision ag, it is other products. I also think that scale has something to do with it as well.

    Normalized, Hemisphere should have aorund 20% operating margins. Its just things haven't been normal since their market fell off a cliff in December.

    It will be interesting to see when RAVN reports, how their margins will hold up.


    SubjectQuestions for VIC members
    Entry04/29/2009 12:19 AM
    Memberissambres839

    How does a company that has no debt go from having a $250 million market cap to a $15 million market cap excluding net working capital?

    While clearly $5 per share last May was too high in hindsight, is US$0.75 a little ridiculous?


    SubjectRE: Questions for VIC members
    Entry04/29/2009 08:58 AM
    Memberoogum858

    Hi Issambres. . .I don't know anything about this company, but to your question of:

    "How does a company that has no debt go from having a $250 million market cap to a $15 million market cap excluding net working capital?"

    Obviously one potential answer is "Because the company is worth $15mm"

    Given the desperate nature of your question I wanted to at least write down the most obvious response.  I do this not to be a jerk, but because you seem to be insanely frustrated and at the very least it's good to try to think clearly about such things.  Mr. Market revalues companies all the time and it can be really exasperating when you think he/it/whatever is totally wrong.  But you have to make allowances for the divergent opinion.  I'm sure you're thinking about this question all the time, so sorry if this seems condescending. . but i dunno... how else could an uninformed VIC member answer your question?

     

       


    SubjectRE: RE: Questions for VIC members
    Entry04/29/2009 09:18 AM
    Membertyler939

    Do you trust management?  How are they compensated / have they shown a propensity to act in the best interest of shareholders?  That has been the problem I have had with other Canadian small caps (management dishonesty/reckless compensation).


    SubjectRE: RE: RE: Questions for VIC members
    Entry04/29/2009 09:24 AM
    Memberjuice835

    may be irrationally discounted but even the bullish canadian analysts only seem to have them doing $5mm EBITDA this year. given that this is a company that relies on farmers to expend $$ in this crazy environment, doesnt seem hard to believe that could have a very low EV particularly if people aren't comfortable that mgmt wont do something dumb with the cash


    Subjectthanks
    Entry04/29/2009 09:54 AM
    Memberissambres839

    Thanks for your responses. I am frustrated to say the least. I believe management is honest and their compensation is not high or outrageous. I just wanted to point out how incredible the reversal of fortune has been for this company and see if I could get specific reasons why it has fallen so much.

    I understand that I was wrong and that business has been worse than expected, but I don't get half of book value and 0.2 times sales.

    Thanks for the replies.


    SubjectRE: RE: Questions for VIC members
    Entry04/29/2009 11:09 AM
    Memberdoggy835

    To reinforce Oogum's point, there were literally hundreds of debt-free tech companies which fell 90% (or even 99%) after Nasdaq crashed. Some are still down 95%+ from their highs nine years later, despite significant growth. I don't know if 250m was a dotcom-type valuation for HEM, but things did get a little bubbly in ag for a while.

    Also, "15m mrket cap excluding net working capital" is a little silly. Actual market cap is closer to 50m. At least the market awards HEM a premium to net working capital; that's not something you can count on these days. Finally, your frustration with HEM vs. TRMB is understandable but TRMB is 10x bigger. There's a reason investors prefer bigger companies. Even Ben Graham wrote of limiting yourself to companies with 50m in assets (more like 500m++ today). I have been late to accept this truth, but bigger companies have more staying power in downturns and thus deserve a premium valuation when times are tough.


    SubjectRE: RE: RE: Questions for VIC members
    Entry04/29/2009 11:24 AM
    Memberissambres839

    Thanks per the Benjamin Graham thoughts. Now if only I had realized that this company would become a $50 milion market cap company, life would have been a lot easier. Do note that they have about $0.27 in cash, so on an EV basis the company is worth $34 million.

    And the reason I chose net working capital is that we could literally liquidate a profitable company now in arguably a growing industry and sell the technology, distribution network, p,p&e for $15 million, which is a third of future sales.

    I'm basically waiting for a takeout offer now, which should come by year end.


    SubjectRE: Trimble
    Entry05/27/2009 09:33 PM
    Memberissambres839

    The key difference between TRMB and HEM, is the distributor network. TRMB routinely requires its distributors to carry inventory and routinely tries to smooth their numbers out with having distributors carry more inventory or to carry a lot of new product. So their sales benefit from dealer and distributor buying not end customer. HEM's is straight to the end user. So, when demand did not surface in March, it was surprise to HEM and immediately hurt sales, but not so for TRMB, who would have had distributors carry the inventory.

    Further, TRMB made two large acquisitions in the Field solutions division, which it includes as growth, but really isn't.

    HEM actually believes they are growing marekt share in the product areas in which it competes. I don't believe they are misleading us and I think q2 will be better than q1.

    Hope that helps.


    SubjectRE: how are you thinking
    Entry08/17/2009 01:00 PM
    Memberissambres839

    I was incredibly disappointed by the last earnings number, which was far below what I expected. I think the company is worth more sold or liquidated now than kept running. I am waiting for either an improvement in the results by year end or a sale of the company or an announcement of some kind of strategic initiative.

    I really blew it on this one and am sorry that anyone lost money on this. I think that the company could get $1.50 to $2 in a sale, and that is what I'm holding on for. If there is just the same old, same old by November, I'm out. My other stocks are just a lot more compelling and are doing much better.


    Subjectissambres839
    Entry08/31/2009 11:43 AM
    Membertyler939

    Given the financing that was done at 3.15, is there any reason to suspect that the company will make a strategic alliance or get acquired in the near future?  Is your last message just a prayer, or is there some reason to suspect something will happen in the near future?  Thanks.


    SubjectRE: issambres839
    Entry09/01/2009 03:30 AM
    Memberissambres839

    I just got back from meeting with the company and I think there may actually be some rays of sunshine on the horizon. I will post more later. As to your question, I believe the company has valuable technology and that someone would be willing to acquire it.


    SubjectRE: RE: issambres839
    Entry09/09/2009 10:59 AM
    Memberzzz007

    issambres,

    Any further detail on the rays of sunshine?

    zzz


    SubjectRE: RE: RE: issambres839
    Entry09/09/2009 07:35 PM
    Memberissambres839

    I went to their analyst day and they showed off their new Edrive X that autosteers tractors within 2 centimeters. They are going to price it 30-40% competitors and I think going to sell a ton of them, especially to their own customers who don't have that level of accuracy already. This new product will also allow them to address the planting market, as opposed to spraying.

    Management also addressed their problems and it looks like next year will be a lot better. I'm going to wait to see some tangible signs, but if my impression of management body language and new products are right, HEM will see sun early next year.


    SubjectStill Follow This?
    Entry05/11/2010 10:03 AM
    Membercam121
    any current thinking? still a potential takeover target?

    SubjectRE: Still Follow This?
    Entry05/11/2010 01:39 PM
    Memberissambres839
    What a disappointment this company has become. Their latest quarter is a mess. Inventory is still out of control and they have a big delay with their Edrive X. I think the company should be sold to a larger competitor. I would generally avoid unless you are playing for a takeover.

    SubjectAny thoughts on recent developments?
    Entry03/11/2011 12:49 AM
    Membertyler939
    eom
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