Assessor lowers valuations of all ECI units

Independent assessor Yitzhak Swary has reduced his evaluation of ECI Telecom (Nasdaq:ECIL) divisions, compared with estimates made over a year ago.

His assessment, which is based on data from March 2002, was made at the behest of Koor Industries (NYSE:KOR), which received it on August 19. Koor holds 31% of ECI's shares.

According to Swary's latest report, ECI is worth between $644 million to $845 million. In his previous report he gave it a wider range of $570 million to $1.152 billion.

His latest evaluation prices its stock at $6 to $7.9 per share, compared with its current market value of $2.3.

When compiling his report, in March, Koor had $805 million cash, or $7.5 per share.

Swary has good news and bad for ECI. On the downside, he does not see the telecommunications crisis ending any time soon, which will hinder ECI's rebound.

On the flip side, now that the company is over its financing crunch thanks to a $50 million private placement in December 2001 with the Ofer and Dovrat business groups and pared its costs to the bone, it can survive the slump until the telecom rally arrives.

His evaluations of the ECI units are based on peer companies, and sales in the preceding year. All five dropped in his estimation since his previous report.

LightScape dropped from $300-$500 million in 2001 to $200-300 million in 2002, based on the acquisition value of its rival, Oni Systems, by Ciena, in a $522 million share swap at a sales multiple of 2.7. Swary also looked at other optic communications equipment providers such as Nortel and Ciena, which trade at sales multiples of 2.8 to 5.6. Those multiples indicate a valuation of $215-$437 million for LightScape, but they are big companies with much wider ranges of activities, hence the discount for the ECI unit.

Inovia drooped from $140-280 million in 2001 to $165-250 million this year. Although the access division shifted to the black in the second quarter of 2001, its profits are slim. Its gross margins are slim relative to the other divisions, but it can boast long-term contracts. Rivals in its narrow sphere, such as Siemens, Ericsson and Alcatel show multiples of 0.7 to 1.5, which extrapolates to a valuation of $232-495 for Inovia. But the unit has announced it expects its sales to sag in 2002, and given its small market share, so has Swary's assessment.

Enavis, ECI's transmission and cross-connect unit, saw its revenue plunge in the second half of 2001. Swary relied on low expectations for 2002 of $68 million, which would be 33% down from 2001. Enavis will apparently need an infusion from its parent company to sustain operations, Swary estimates. His latest valuation for it is $51-81 million, compared with $180-265 million last year.

Innowave, which engages in wireless broadband communications, is expected to see sales dropping to $80-90 million in 2002, from $123 million in 2001. That level of income places Innowave between the small companies such as Ceragon Networks (Nasdaq:CRNT) and Alvarion (Nasdaq:ALVR), which make revenues of a few tens of millions of dollars a year and the giants such as Pcom and DMC, which make hundreds of millions a year in revenues. But the telecoms crunch is hurting the unit's sales, Swary says. Based on a sales multiple of 0.4 to 0.5, which is appropriate for a medium-sized firm, his evaluation for Innowave is $32-40 million.

As for NGTS, the next-generation telephony division, Swary assesses that at $50 million, compared with his previous range of $50-100 million, based on a sales multiple of 0.6.

More from Technology

Elon Musk's Latest Twitter Tirade Is the Dumbest Thing on Wall Street

Elon Musk's Latest Twitter Tirade Is the Dumbest Thing on Wall Street

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Some Companies Are Already Feeling the Effect of GDPR

Some Companies Are Already Feeling the Effect of GDPR

Experts Break Down GDPR Risks for Investors

Experts Break Down GDPR Risks for Investors

Netflix Ready to Surpass Disney as America's Most Valuable Media Company

Netflix Ready to Surpass Disney as America's Most Valuable Media Company