NovAtel: Positioned for Global Growth

NovAtel reported fourth quarter and year-end 2006 results that were in-line with our expectations. Robust demand and solid execution in addressing market conditions continue to drive results. Reported EPS were CDN$0.58 (US$0.54) on CDN$19.2 million in sales (US$17.1 million).

On a U.S. GAAP basis, we estimate earnings were US$0.54 per share. We had forecast US. GAAP-adjusted EPS of $0.56 on US$17.1 million in sales. Fourth quarter performance brought total sales to CDN$77.6 million (US$68.3 million) providing CDN$21.5 million in net income or CDN$2.44 per share (US$18.9 million or US$2.24 per share). Sales in 2006 grew 22.7% over th! e prior year and net income grew by 31.7%, reflecting the operating leverage built into NovAtel’s business model. Despite a 49% increase in inventory that brought this asset category to CND$8.1 million at the end of December 2006, we still view the NovAtel balance sheet as very strong. NovAtel ended the year with CDN$49.4 million (US$42.2 million) in cash and equivalents and no debt. Long-term growth prospects and near-term performance continues to whet our appetite for NGPS.

We continue to view NovAtel as an exceptionally strong operation with a solid financial foundation and a well recognized brand name. Its market opportunity is still building as GPS and WAAS systems in Europe, Russia, China and India are still in the developmental stages. We continue to have a concern that the stock is fully valued even against our newly introduced 2008 estimates. Thus we reiterate our hold rating even on a higher price target of $48.00.

Disclosure: Neither the author of Crystal Equity Research, nor its affiliates, have a beneficial interest in the companies mentioned herein. Crystal Equity Research publishes research and has a hold rating on NGPS..

NGPS 1-yr chart