GENNUM CORP. $6.65 (Toronto symbol GND; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 35.6 million; Market cap: $236.7 million; SI Rating: Above average) makes equipment that lets broadcasters store, manipulate and transport video signals without losing picture quality. This business accounts for 80% of Gennum’s total sales. The remaining 20% comes from making chips that improve the speed and reliability of transmissions in computer networks.
The company continues to enjoy the benefits of its recent restructuring, which included selling its slow-growing hearing aid and headset businesses. In its third fiscal quarter ended August 31, 2008, it earned $0.18 a share (total $6.4 million) compared to a loss of $0.04 a share ($1.5 million) a year earlier (all amounts except share price and market cap in U.S. dollars). However, the year-earlier quarter included a $0.04 a share ($6.8 million) loss from discontinued operations.
Sales in the quarter rose 31.4%, to $33.5 million from $25.5 million, partly due to an acquisition. Gennum also continues to successfully launch new products. Research spending in the latest quarter rose to 28.1% of sales, up from 22.4% a year earlier.
Gennum’s stock has moved down from its recent peak of $12.50 in January, 2008 due to fears of a slowing economy. That could cut spending by advertisers, which would in turn prompt Gennum’s broadcasting customers to invest less in new video equipment. However, the planned switchover by U.S. broadcasters from analog to digital transmissions in February, 2009 should spur sales. As well, Gennum should benefit as broadcasters add more TV programs to their Internet sites.
Gennum should earn $0.63 U.S. a share in its current fiscal year, and the stock trades at 9.4 times that estimate. It also holds cash of $55.1 million U.S. ($1.55 U.S. a share), and has low debt. The $0.14 (Canadian) dividend yields 2.1%.
Gennum is a buy.
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