(Editors' Note: This article covers micro-cap stocks. Please be aware of the risks associated with these stocks.)
Introduction
With Cimatron Ltd. (CIMT) at cheap levels, we feel the company could be the next takeover candidate, as three of its peers were acquired over the past few months. CIMT's revenues and net income have consistently grown for the past five years, and the company has a strong cash position with barely any debt. Additionally, CIMT is poised to benefit on the software side of 3-D printing manufacturers such as 3D Systems Corp. (DDD) and Stratasys Ltd. (SSYS). 3D Analytics has completed a thorough review of CIMT and determined the stock is grossly undervalued and should immediately be valued at more than 100 percent above current levels. Consequently, we hereby assign a BUY rating on the stock with a $22 price target.
"With a strong and evolving product portfolio, continued investment in R&D as well as in sales and marketing, and a strong balance sheet which will allow us to explore additional growth opportunities, we believe we have a lot to look forward to in 2014 and beyond." -- Danny Haran, CIMT's President and CEO, in the most recent conference call.
Highlights
- Our previous long picks within the 3-D printing sector rose 50 and 75 percent within a month
- Three direct competitors to CIMT were acquired in the past few months. With CIMT having a low market cap, cheap valuation, growth and a great balance sheet, the thought of an acquisition of CIMT by a larger software company may not be farfetched.
- CIMT could be an attractive acquisition target for 3D Systems, which has announced the acquisition of Village Plastics Co. Through that acquisition, 3D Systems plans to accelerate development of precision thermoplastics for 3-D printing. CIMT's new product is specifically designed to create higher-quality plastic 3-D molds/parts. CIMT will launch the product in mid-2014.
- CIMT also established a 3-D printing advisory board, of which legendary expert Mr. Terry Wohlers was named the first member.
- CIMT just announced a record quarter and fiscal year. CIMT's revenues and net income have consistently grown for the past five years.
- We believe CIMT should be valued at $22 per share, which would be a rise of more than 100 percent from current levels.
Our previous long picks within the 3-D printing sector
On Dec. 12, 2013, we published our first positive report on CIMT. After the article was published, CIMT went from around $6.75 to more than $10 per share, a gain of around 50 percent within a month. After that, the stock pulled back with the market, but since then, it has consolidated at around $9 per share and appears ready to make another move higher.
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On Dec. 27, 2013, we published a positive report on Perception, Inc. (PRCP). After that article was published, PRCP went from around $10.50 to $18 per share, a gain of around 75 percent in less than a month. The stock has since pulled back and currently resides at around $14 per share.
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Background
CIMT develops and distributes CAD/CAM software for the manufacturing industry. CAD/CAM software is essential for the designing and manufacturing of 3-D parts. CIMT is ranked among the top six CAD/CAM suppliers in every global region, according to its company profile. With more than 30 years of experience and more than 40,000 installations worldwide, Cimatron is a leading provider of integrated, CAD/CAM software solutions for mold, tool and die makers as well as for manufacturers of discrete parts.
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Autodesk to acquire Delcam
On Nov. 7, 2013, Autodesk, Inc. (ADSK) announced its intention to acquire Delcam plc (OTC:DLCAF) "for £20.75 per share or approximately £172.5 million in a transaction that will be structured as a cash offer for all the outstanding shares of Delcam." At the current exchange rate [1 British Pound Sterling = 1.63 US Dollar], this would value DLCAF at $33.82 per share or approximately $281 million.
Dassault Systemes to acquire Realtime Technology AG (RTT)
On Dec. 5, 2013, "Dassault Systèmes SA (OTCPK:DASTY) intends to launch in the coming days a tender offer in order to purchase up to 100% of Realtime Technology AG (R1T.DE) share capital for a price per share of EUR 40." At the current exchange rate [1 euro = 1.37 US Dollar], this would value R1T.DE at around $242 million. R1T.DE is currently trading around EUR 41.50 above the tender offer, as investors are betting that the tender offer will be raised in the future.
Vero Software Acquires Sescoi International
On Jan. 7, 2014, Vero Software announced the acquisition of Sescoi International, which develops and distributes CAD/CAM software. The terms were not disclosed.
3D Systems acquires Village Plastics
On Dec. 13, 2013, DDD announced the acquisition of Village Plastics Co. DDD plans to use this acquisition to accelerate development of precision thermoplastics for 3-D printing. CIMT's new product is specifically designed to create higher-quality plastic 3-D molds/parts. Therefore, CIMT could be an attractive acquisition target for 3D Systems.
CIMT product launch in mid-2014 for 3-D printing
CIMT is talking to customers and creating solutions for the software side of 3-D printing. On Aug. 7, 2013, Cimatron and CoreTech System Co., Ltd. (Moldex3D) jointly announced an agreement to deliver an integrated cooling-simulation tool within CimatronE. This tool will address the growing design need for more efficient conformal cooling systems to create higher-quality molds and shorter cycle times using advanced 3-D printing (Additive Manufacturing) technologies. As stated in the Q4 conference call, the new product is expected to launch in mid-2014.
On Oct. 3, 2013, Jay Srivatsa, an analyst at Chardan Capital Markets, had the following to say about CIMT and 3-D printing:
"In our view, CIMT's planned foray in the 3-D Printing business could well turn out to be a game-changer for the company (if well executed), driving massive TAM expansion. Acceleration in demand for 3-D Printing is expected to be driven by lower cost of 3-D Printers, refinement in technology for its use in custom manufacturing and its increasing adoption by individuals. CIMT, by leveraging its deep expertise and experience in the CAD/CAM software, is well positioned to tap growth opportunities in the burgeoning 3D Printing market, in our view."
Terry Wohlers
On March 6, 2013, CIMT established a 3-D printing advisory board, of which legendary expert Terry Wohlers was named the first member. Mr. Wohlers has been the leading authority on 3-D printing technology for more than two decades. He said:
"Cimatron has long been a strong player in the CAD/CAM software market, and it is only natural for the company to leverage its knowledge of manufacturing-software solutions by exploring opportunities in 3D printing...By 2015, we believe the 3D printing industry will be worth $3.7 billion, and a successful deployment by Cimatron in this market will provide it strong potential for growth."
Record Q4 and fiscal 2013 earnings
On Feb. 27, 2014, CIMT announced earnings for the fourth quarter and full year of 2013. As highlighted in the press release, the company had "yet another record quarter, rounding out a record year that was also the fourth year in which we have shown continued growth in revenues and profits."
Highlights of Cimatron's results for the fourth quarter and full year of 2013 included the following:
- Record revenues of $44.2 million in 2013 and $12.7 million in Q4/'13
- Record non-GAAP operating profit of $6.3 million in 2013 and $2.4 million in Q4/'13 with operating margins of 14 and 18 percent, respectively
- Record non-GAAP net profit of $4.7 million in full year 2013
- $0.48 non-GAAP EPS in full year 2013
- $13 million end-of-year net-cash balance
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Consistently growing revenues and net income the past five years
As shown in the table below, CIMT has a strong track record over the past five years of consistently increasing revenues and net income.
When comparing CIMT to its peers, we find it to be severely undervalued and a superior, unrecognized value at current levels. CIMT is cheap in all valuation measures and is growing faster than either ADSK or DASTY.
By taking the ratios below and averaging them, we conclude CIMT should be valued at $22 per share, which is up more than 100 percent from current levels.
Conclusion
We believe CIMT is undiscovered, which creates a huge opportunity for investors to profit. CIMT should be an attractive acquisition target, as the company is cheap and shows strong financials and growth. CIMT has a positive outlook, especially given the expected growth of the 3-D printing industry, from which the company is poised to benefit. Consequently, we hereby assign a BUY rating on the stock with a $22 price target.
Disclosure: I am long CIMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)
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