All of us have heard of GPS (Global positioning system); related companies that come to mind are Garmin (NASDAQ:GRMN) and Magellan (a division of the french conglomerate Thales) that sell GPS devices and car navigation systems. A name not so often heard is Sunnyvale, California based Trimble Navigation Limited (TRMB).
Trimble provides advanced positioning product solutions. The applications served include surveying, agriculture, machine guidance, asset and fleet management and telecom infrastructure. Trimble products often combine location with a wireless link to provide specific solutions to specific applications. The company also develops software algorithms and embedded firmware that can process the location information for further value added functionality. The company has five key segments it operates in:
Engineering & Construction - the company has a JV with Caterpillar (NYSE:CAT). Field Solutions - Mainly used in farm equipment and surveying and leveling operations, operates a JV with Nikon. Component Technologies - licensing technology to mobile carriers, telecom operators and in vehicle navigation systems. Mobile Solutions - mainly used in fleet management systems. Portfolio Technologies - this is a tiny segment that goes to service the military and defense segments.
Trimble seems richly valued with current ratios of :
P/E of 29 P/S of 3 EV/EBITDA of 16
What then makes Trimble Navigation a growth story? Two key factors that we believe make this a growth story are as follows:
Strong macroeconomic demand for construction and mining equipment worldwide partly due to the commodity boom and construction activity in China and other emerging markets bodes well for the company, Trimble has strategic alliances with two of the biggest players Caterpillar (CAT) and CNH Global (NYSE:CNH).
Trimble software makes GPS available on Sprint-Nextel (NYSE:S) phones today. The software business is a high margin segment and should do well as location based services start becoming a staple of mobile and web usage using Wi-Fi, Wi-Max, EVDO or GPRS / W-CDMA technologies.
While we don't think this is a super high growth story, the company should deliver growth and returns outperforming the market.
The company derives a lot of its revenues from construction and mining and this is a highly cyclical industry, but as said above the current long term trend is favorable. In the short term Q2 is traditionally a strong quarter. So we should expect to see good growth this quarter. The company has a strong balance sheet about $75M in cash, and it carries a small debt load of $0.65 M. A key indicator of business Cash flow from operations increased to $93M in 2005 from $74M in 2004 and $30M in 2003.
Overall we believe Trimble Navigation is moving in the right direction, although we would like to see the company get more agressive in the defense and military applications.