S.A. Advisory, an advisory firm, acts as a consultant to CBLK. We were not paid when we recommended CBLK (3-1-96). Our contract commenced 3-1-97. We have received compensation for the production of this anecdotal research report. We may buy and/or sell shares in this issue at our own discretion.
HOTLINE 1-900-990-0909, EXT 192
|Cable television is a service that delivers multiple
channels of video entertainment to subscribers who pay a monthly fee for the
various entertainment services they receive. A cable system consists of three
principal segments. The first is the headend where the cable system operator
receives television signals via satellite and other sources. The headend
facility organizes, processes and retransmits those signals through the second
component, the distribution network, to the subscriber. The distribution network
consists of fiber optic and coaxial cables and associated optical and electronic
equipment which take the original signal from the headend and transmit it
throughout the cable system. The third component is the "drop" which
extends from the distribution network to the subscriber's home and connects
either directly to the subscriber's television set or to a converter box. The
converter box may be addressable (a converter which permits the delivery of
premium cable services, including pay-per-view programming, by enabling the
cable operator to control the subscriber services through the headend) or
non-addressable (where premium channels are activated or eliminated by traps
installed in the drop system outside the home).|
Cable Link, Inc. is one of a handful of companies that specializes in the repair and refurbishing of the complete cable TV (converters, linegear and headend equipment) package. The company also anticipates continued growth in the repair and refurbishing of satellite equipment, wireless cable TV equipment and also anticipate the repair and refurbishment of cable modems as they become more mainstream.
CBLK serves cable operators and the new emerging communication industry throughout the United States, Mexico, South America, and the Pacific Rim.
Recently the company was named by Scientific Atlanta as an Authorized Parts Distributor. The company also refurbishes and sells equipment to most of the large multisystem cable operators (MSOs), such as TimeWarner, Viacom, TCI and Cox, among others. The company has a wide range of capabilities, including the re-manufacture and sale of a variety of products designed to receive or transmit satellite channels.
CBLK specializes in the sales and repair of the Jerrold, Scientific Atlanta, Zenith, Panasonic, Hamlin and OAK lines of converters, amplifiers and headend equipment.
Linegear - Linegear encompasses all products which are actually placed on the cable line. This includes active electronics trunk stations and line extenders, which amplify and distribute the cable signal, and passive equipment such as taps, splitters and directional couplers, which simply pass the signal through for delivery to additional lines and the customer's home. The Company sells and repairs almost all manufacturers' current linegear products.
Headend The headend is perhaps the most important part of the cable system because this is where the signal is received, processed and transmitted to the customer's home. For that reason, this particular product requires the most technical expertise. This product line includes satellite receivers, modulators, processors, encoders and videociphers, all of which are used to provide cable delivered signals. If the cable operator's headend equipment is not calibrated and maintained properly, the customer will receive poor picture quality. Cable Link specializes in refurbishing and repairing various manufacturer's lines of headend products as well as modifying these for use in different video formats.
Addressable Systems The Company has developed its own software and control card for PC based addressable controller to operate with the Jerrold, Scientific Atlanta and Oak RTC 56 converters. An addressable converter is one that may be controlled or "addressed" from the cable operator's transmission site, eliminating the need to change a converter in order to upgrade, downgrade or change service levels. The Company has sold many of these systems in the United States and several in Mexico and South America. Cable Link is also well versed in the operation of the Jerrold addressable systems popular in the South American market.
Corporate HeadquartersCABLE LINK, INC.
280 COZZINS STREET
COLUMBUS, OHIO 43215
Contact: Contact: Brenda Thompson
Officers & Directors- - Director Harvey Kellman - - -
Fundamental Analysis I
|Upon review of Select Financial Data (Box A) investors have the opportunity to review estimated
revenue and earnings growth during 1997 and 1998.|
What investors do not see is why 1996, which was projected at $12.5 million in sales and net income of $875K, was severely off the mark. Actual numbers were $8.25 million in sales and only $17K in net income. The only reason for the shortfall stems from a mass exodus of muteness employees who intended to steal business connections, waste and misappropriate funds and cause severe business disruption. (At present CBLK has filed numerous lawsuits against all individuals who participated in this illegal activity). Before all of this happened, CBLK had earnings of $260K and had issued a 20% stock dividend to shareholders. During the third quarter of 1996, business almost came to a standstill - losses mounted with a huge $239K loss for the quarter. The fourth quarter has demonstrated a turnaround. New management in place, a reduction of employees and other cost-cutting measures has shaved and in reality has saved almost $1 million in annual costs. More income will be generated from, of course, revenue growth, but also payment to ex-employees will be complete during 1997, which will obviously add to higher levels of profitability. The numbers that we are using for estimates are very conservative in nature (management's numbers) and are actually anticipating upward revisions as the year progresses. Revenue growth is anticipated to during 1997 to be 23% over 1996 and 1998 is anticipated to come in at 20% over 1997. Net income/share for 1997 is anticipated to explode 1900% over 1996, while 1998 net income/share will power along at 18%.
During 1997 net income/share is anticipated at .40, while 1998 net income equals .47. These values take in account the additional shares outstanding that resulted from a 3 for 2 stock dividend and a capital infusion that was completed during the month of January, 1997. We anticipate that during the annual meeting slated for May, 1997, CBLK will authorize 3.2 million new shares bringing the total authorized to 5 million. Once this is in place, we anticipate another stock split. This will, of course, enhance liquidity as well as expand the shareholder base, and most importantly, allow for larger institutions to participate in share ownership. A very bullish scenario that we anticipate.
The current share price of CBLK is $3.00. If we calculate a PE ratio based upon 1997 and 1998 estimated income/share, CBLK sports a 7.5x and 6.3x value, respectively. The estimated PSR (Price to Sales Ratio) for 1997 and 1998 are equally impressive, that is, .45 and .4, respectively.
The company has only 100K in long-term debt and from its recent cash infusion (in our opinion, shows excellent market confidence) has ample working capital.
Also, in Box A is a complete brake down of revenue and earnings estimates for 1997 by quarter can also be viewed. Quarter by quarter revenue and earnings estimates accelerate consistently.
Fundamental Analysis II
|Upon review of Chart B, we compared CBLK against
five other peer companies, namely, Antec (ANT), C-Cor Electronics (CCBL),
General Instruments (GIC), California Amplifier, Inc. (CAMP) and
Our only comparison within Chart B pertains to PE estimates during the next two years. During 1997 and 1998 it is estimated that CBLK will earn .40 and .47, respectively. Based upon CBLK's current share price of $3.00, CBLK sports a PE estimate of 7.5x and 6.3x, respectively.
When we examine our peer companies, namely, ANTC - PE est 12.9 and 10.4, respectively; CCBL - PE est. 59.6x and 33.1x; GIC - PE est. 16.8x and 13.8x; CAMP - PE est. 35.7x and 20.8x and SFA - PE est. 21.7 and 17.1, when averaged, yields a PE est. for the current year at 28.9x and 19x for the following year.
If CBLK were to trade at comparable estimated PE valuations of its peers then CBLK would trade at $11.56 and $8.93, respectively. If we were to assume that CBLK should trade at half its 1997 estimated peer group, which in our opinion would be more conservative, then our share valuations would be $5.80. If CBLK were to trade in line with its future growth rate during 1997 and 1998, then our share valuation would equal $9.20 and $9.40. Finally, if CBLK were to trade in line with the S & P, CBLK would sport a PE of around 17x, then our share price would be $6.84 based upon 1997 estimates.
Any way you slice it, carve it, or even splice it, CBLK deserves to trade at least 100% above its current valuation.
If we examine PSR, CBLK appears extremely cheap and undervalued. At present CBLK sports a PSR value of .45 based upon 1997 estimates and a PSR value of .40, based upon 1998 estimates. (Remember, a PSR of 1 is considered undervalued). If we were to assign a PSR of 1.5, then CBLK would trade at $10.00 based upon 1997 and $11.50, based upon 1998, again, a far cry from current price levels.
According to sources, 93% of the total homes in the US have cable access and at present 60% are subscribers. It is anticipated that future domestic revenues will come primarily from upgrading, rebuilding and maintaining existing cable systems and from new products. A significant capital expenditure by operators for the various system components, including headend equipment, fiber optic and coaxial cable, fiber optic transmission and receivers, radio frequency amplifiers, various items of distribution electronics and hardware and converters are anticipated. Cable Link stands to benefit from this industry-wide upgrade and refurbishment (See Graphs 1,2 and Box 1).
Upon review of Pie 1, it is quite obvious that a shift in Pay-TV is going to occur during the next few years. It is also evident that CBLK has the ability to move with the shifting trends. CBLK already has business relationships with the major players that are participating in most of the pay-TV market. It is evident to us that CBLK can adjust to rapid changes in the marketplace. From Pie #2 it is quite evident that the coming shift in just pure cable during the next few years is going to be dramatic. CBLK has the potential to not just gain greater market share in cable refurbishing and repair, but also to grab cable phone and cable modem repair and refurbishing.
From Graphs 3 and 4 it is evident that cable phone service and high-speed cable modems will grow rapidly during the next six years. This growth bodes well for CBLK to take advantage of repair and refurbishing of defected, worn or broken equipment.
Even if we compare the costs associated with the average cost/subscriber for either wireless cable versus hardwire cable, it really makes little difference to CBLK. It is of little concern which segment grows faster or even which manufacturer has the best product. The only concern that CBLK has is whether they can seize the opportunity regardless of the modes of transmission (See Box #2).
Investors should realize that DBS, wireless cable TV, cable modems and of course, telephone cable at present are not large revenue contributors to CBLK's revenues picture. To date the majority of revenue generation comes from hardwire cable. If and when these other industry segments grow as anticipated CBLK is ready and able to participate. If new product development and introduction fails to live up to expectation, CBLK will continue to grow by a minimum of 20%/year during the next few years. It is also conceivable that acquisitions may play a role in order to ramp up growth and market penetration.
Why Cable Link deserves serious investor consideration
Cable stocks are at the top of the "communications food chain", a savvy investor type should be diversified within this market sector.
CBLK's opportunity within the cable industry is extremely broad and promising due to numerous on and off ramps of the information super highway.
The telecommunications industry must develop technologies that can propel all types of information through the infrastructure. Existing distribution systems must be reconfigured into multipurpose networks. The information running through these networks will entertain, raise literacy, explore new domains and provide a window to our truly global culture.
Cable Link, Inc. in our opinion surely has a place in this new and developing frontier.
We initially recommended Cable Link on or about March 1, 1996 at $3.75. We informed our phone subscribers that we would be monitoring 5000 shares of CBLK in our $100K Master Portfolio for percentage gain performance.
We placed the same recommendation on our 900# (1-900-990-0909 Ext 192). We are also monitoring a position in our 900# portfolio for percentage gain performance.
Due to a 20% stock dividend during May of 1996 and an additional 3 for 2 stock dividend during January of 1997, our initial position of CBLK has grown to 9000 shares - our average cost/sh at present is $2.08, which yields a 44% gain during the last 52 weeks.
At present we view CBLK as a very attractive investment opportunity, which in our opinion has exceptional upside potential during the next few years. Near term we see little downside, while upside could easily approach 100% to 200% appreciation during the next 12 months.