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| Date: Friday 21st 2008f November 2008 04:20:51 AM |
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EPS Estimation for AH |
| This is the heart of our analysis. All we try to do is to predict the company's profit for the coming fiscal year. I spent most of the analysis predicting revenue because without it, there will be no profit! Therefore, predicting revenue is essential for other components of the income statement. |
| Revenue Estimation |
| Estimating revenue for Armor Holding is tricky. We cannot rely on growth trend from previous quarters. The reason is that Armor Holding depends on big contract from government for its revenue source. Furthermore, the company has been acquiring other companies for the past year. If the past is any indication, Armor Holding might acquire some more companies during 2005. To make things simpler, we assume the revenue for Armor Holding without any acquisition impact for 2005. |
| To accurately estimate Armor's revenue potential, the firm divide revenue into three segments; Aerospace & Defense, Products and Mobile Security. Revenue for Aerospace & Defense rose from $ 91.25 M in 2003 to $ 605 M in 2004, a 700% increase. This performance is unlikely to repeat as I believe 2004 revenue for this division was exaggerated by the spending in Iraq war. Future defense spending will still be relatively high but not as high as 2004 revenue. Furthermore, Armor Holding is still providing the US army with spare parts and new vehicle orders. Our estimate is for revenue to decline 10% to 544 M in 2005. |
| Revenue for Armor's Products division increase from $ 194 M in 2003 to $ 250 M in 2004, a 28% increase. This reflects a more aggressive approach by individuals to protect themselves from harm. Products division include items such as drug testing accessories, Holsters, Gloves, Helmets, Riot Shields, Pepper Spray and so forth. We believe this kind of products are in good demand as government strives to provide adequate tools for law enforcement. Furthermore, civilians are more protective towards their well-being, propping demand for these products. Revenue conservatively can increase by 20-25% to $ 312.5 M in 2005. |
| Revenue for Armor's Mobile Security division increase from $ 79.5 M to $ 124.5 M, a 56.6% increase. Mobile Security includes armored vehicle and cash-in transit vans. I believe this segment will have a slower growth of 10% from 2004. The reason is that while more people are concerned about their safety, there is only so many people that want an armored car. Commercial products such as cash-in transit vans however, might grow faster as most small business owners have not utilized this product. Revenue estimate for 2005 is therefore $ 137 M. |
| Revenue | 2004 | %total | 2005 (Estimate) | % change from 2004 |
| Aerospace & Defense | $ 605 M | 61.8% | $ 544 M | (10.0%) |
| Products | $ 250 M | 25.5% | $ 312 M | 25% |
| Mobile | $ 124 M | 12.7% | $ 137 M | 10% |
| Total | $ 979 M | 100.0% | $ 993 M | 1.43 % |
| Gross Profit Estimation |
| Gross profit margin plunged to 26.6% in 2004 from 30.5% and 30.9 % in 2003 and 2002 respectively. I believe this is due to the surge in revenue. When revenue surged so much like Armor Holding was, gross margin tend to decline due to the rush in the production line. As Armor's growth rate stabilize in 2005, gross margin is expected to revert back to normal. For conservative estimate, we predict Armor Holding to have a 28% gross profit margin. |
| SG&A Estimation |
| SG&A Cost rose to $100 M for fiscal year 2004. On the first quarter of fiscal year '05, the figure came to be $ 35M. While this figure is high, it includes the impact of acquisition for Armor. We believe that excluding acquisition impact, $110 M is a fair assumption for these costs. |
| Interest & Income tax expense |
| As of 31 Dec 04, long term Debt stood at $156 M for AH. Assuming a high interest rate of 10% per annum, interest expense is a meager $15 M. Cash in the bank totals $ 421 M. I believe the interest income will more than cover Armor's interest expense. Therefore, interest expense is $ 0. Armor Holding had a tax rate of 41% during 2004. We would use the same number to calculate the tax rate for Armor in the year 2005. |
| Shares Outstanding Estimation |
| AH has a 34.53 M shares outstanding. Our estimate is for this number to rise slightly to 35 M shares. |
| Pro Forma Income Statement for AH | Fiscal year 2005 |
| Revenue | $ 993 M |
| Cost of Goods Sold | $ 715 M |
| Gross Profit | $ 278 M |
| SG & A | $ 110 M |
| Interest Expense | $ 0 M |
| Profit Before Tax | $ 168 M |
| Income Tax Expense | $ 69 M |
| Net Income | $ 99 M |
| Shares Outstanding | 35 million shares |
| EPS Estimate | $ 2.83 |
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