Editor's note: For the first part of this column, read The Internet Incubator You Haven't Heard of.
LAGUNA NIGUEL, Calif. -- As investors at the
Cruttenden Roth Growth Stock Conference
look for new deals, the presentation by nearby Anaheim, Calif.-based
may provide them with a whole slew of deals. The company, which some call undervalued with a market cap of $172 million, is about to spin off one division,
, in a $200 million initial public offering.
But the most exciting Odetics news may be in spinoffs yet to come. That's because the likely next candidate,
, is focused squarely on the Internet. And, um, that's good.
Mariner makes components for small and branch office network-access applications. They include ATM subsystems, ATM WAN-access concentrators -- stuff that helps midsize companies handle their data, voice and video traffic on the Internet. Its products pull together disparate systems at a lower price than competitors' offerings.
"Everyone in this business is focused on the convergence of traffic," says Laurie Gooding, a senior analyst with the research firm
. "ATM alone is going to be a huge business. In 1998, it was $2.8 billion, but by 2003 we're looking for $8.7 billion in ATM equipment sales. So this is the best time for Mariner to enter the market. If there was a window of opportunity from 1997 to 2003, it's now," she says. "I haven't looked at them closely yet, but Mariner is the kind of company that gets acquired in 18 months." Gooding compares it with
, which sells components to a similar market.
While Mariner hit a bump last year when
, its biggest customer, sold its networking business to
, the company has solidified relationships with
and some U.S. government defense contractors. Jeffrey Van Sinderen, an analyst with
B. Riley & Co.
, expects Mariner to have $15 million in revenue in 2001. His firm does not do any underwriting, and he has a buy rating on the stock.
So what is the value of a networking company with $15 million in revenue? Mitel is trading for twice its revenue this year.
is going for 35 times revenue. Cisco is trading for 30 times revenue.
times revenue. But for the sake of argument, assume that Mariner is valued at just 1.5 times 2001 revenue. That would give it a $22.5 million valuation.
Stacking It Up
Source: SEC filings, B. Riley & Co. research
Odetics is a quiet company (with all due respect to
Northwestern Mutual Life
). It doesn't curry the fickle affection of Wall Street analysts and as a result gets little coverage. While company officials are friendly, they doesn't curry to the press. "We've just adopted a policy of not talking about the company," says CEO and founder Joel Slutzky.
But Slutzky has plenty of Odetics news to talk about at this conference besides Iteris and Mariner. Odetics boasts plenty of old-fashioned, tangible assets as well -- the kind that are hard to come by in Internet land. Like real estate. Odetics sprawling corporate headquarters sits on 14 acres one block from
. Comparable real estate in Orange County goes for about $3 million an acre, a scale that puts the value of Odetics' little plot at $42 million.
The company also has sizable broadcast division, with two components. One component,
, has a burgeoning digital video security-system business. It promises to grow as fast as crime, perhaps even faster.
, the second component of the broadcast division, makes software that is being used by 12 television stations to automate operations. Odetics also says it is working with two unnamed Internet streaming video players that may decide to use Roswell. Or not. Either way, Roswell and Gyyr are expected to take in $55 million in 2001.
Add to that a settlement that Odetics is still collecting from a patent-infringement lawsuit against
-- $10 million a year for the next two years. And Van Sinderen says the company should also end up with about $4 million in cash after the Iteris IPO.
"Odetics is a good solid company," says Howard Love Jr., hedge fund manager of Calif.-based
Love Capital Management
, a longtime Odetics shareholder. Odetics now accounts for 3% of his fund. "Is Iteris a moonshot? Probably not. But if Odetics can bulk up the Mariner stuff, well, that's a networking IPO and those things are huge.
could be a moonshot."
Cory Johnson files weekly from TheStreet.com's San Francisco Bureau. In keeping with TSC's editorial policy, he neither owns nor shorts individual stocks, although he owns shares of TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Johnson welcomes your feedback at
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