RESEARCHMARCH 1997 CORPORATE PROFILE
RESEARCH
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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
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CORPORATE BUSINESS DESCRIPTION | |||||||||
 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).Wireless Cable television uses well established technologies
in many ways similar to coaxial cable multichannel television transmission. The
key difference is that Wireless Cable does not have cable connecting the
headend/transmission site to each home but uses a microwave frequency band to
transmit programming to subscribers. A wireless system is composed of a
headend/transmission site, a transmission tower, and at each subscribers home, a
reception antenna, downconverter and a decoder or set-top converter.Satellite dishes are used for the reception of video, audio
and data transmitted from orbiting satellites." The satellite dish is a
parabolic reflector antenna. Microwaves are transmitted from orbiting satellites
toward the earth's surface. The dish reflects the microwaves back to a focal
point where a feedhorn collects the microwaves transferring the frequencies into
a amplifier/down converter. The microwave amplifier literally amplifies the
microwave signal millions of times for further processing. The down converter
changes the frequency into an intermediate frequency so that the receiver and
television can process the signal and create a picture.The Company sells new and refurbished cable TV equipment in
addition to repairing equipment for cable companies within the United States and
various international markets. The Company operates both its administrative and
manufacturing operations from a single, leased facility in Columbus, Ohio.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 1-614-221-3131 | |||||||||
Officers & Directors- - Director Harvey Kellman - - -
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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.
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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
Scientific-Atlanta (SFA).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.
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