GENNUM CORP. $5.95 (Toronto symbol GND; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 35.5 million; Market cap: $211.2 million; Price-to-sales ratio: 1.5; Dividend yield: 2.4%; TSINetwork Rating: Average; www.gennum.com) designs chips and other electronic equipment that lets television broadcasters store, edit and transfer video signals.
The company is now expanding into chips that speed up the flow of data in computer networks. In April 2011, it paid $35.9 million for U.K.-based Nanotech Semiconductor Ltd., which designs chips for communications networks (all amounts except share price and market cap in U.S. dollars).
In its third quarter, which ended August 31, 2011, Gennum’s sales rose 6.6%, to $36.7 million from $34.4 million a year earlier. The gain mainly reflects the contribution from Nanotech.
Even so, the company’s earnings fell 37.7% in the quarter, to $3.3 million, or $0.10 a share. A year earlier, it earned $5.3 million, or $0.15 a share. That’s mainly due to the cost of integrating Nanotech. As well, Gennum is outsourcing its manufacturing operations as part of a new strategy to focus solely on chip design. During the quarter, it paid $1.5 million of severance and other costs related to this plan.
Gennum spent $11.1 million (or 30.2% of its revenue) on research in the latest quarter. That’s up 9.9% from $10.1 million (or 29.3% of revenue) a year earlier.
Gennum holds cash of $20.8 million, or $0.59 a share. It has no long-term debt. The stock trades at 11.4 times the $0.51 U.S. a share that Gennum probably earned in the fiscal year ended November 30, 2011. It also trades at just 9.7 times Gennum’s forecast fiscal 2012 earnings of $0.60 U.S. a share. The $0.14-a-share (Canadian) dividend yields 2.4%.
The outlook for Gennum’s products is bright, as more consumers use the Internet to view high-definition movies and videos.
In fact, video will probably account for over 50% of consumer Internet traffic by 2013. That’s prompting broadcasters, cable companies and Internet service providers to upgrade their networks. Gennum is well-positioned to profit from that trend.
Gennum is a buy.
