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Ed Schneider
Ed Schneider
Articles (2) 

Parrot: Accelerating Growth & Revaluation

October 30, 2012 | About:

Parrot (PARRO, Paris-listed, €26.65 or $34.38) is a leading producer of hands-free communication equipment for the automobile industry ranging from mobile telephony, voice recognition, connectivity and more recently navigation, internet/3G access and messaging. Parrot is Europe's closest clone of Apple — a hotbed of innovation in both hardware, software and system design for consumers, albeit in slightly smaller end markets.

Parrot's last 12 months' revenues were €261 million or $337 million. Net income was €31 million or $40 million, providing a net margin of 12%. Parrot has a €94 million or $122 million net cash position, which represents 29% of its market cap of €326 million or $421 million.

Parrot launched its AR Drone in September 2010 (with Android command capabilities in 2011), which already grew to €52 million ($67 million), or 21% of 2011 revenues, This year, Parrot made two technology investments in the commercial drone field including the leading 3D aerial mapping software. Management has expanded from hobbyist/toy drones to a full professional as well as consumer aerial drone offering. Although it will take a few years to fully exploit this burgeoning market, Parrot clearly has a head start.

Parrot's core automobile communications business is also expected to go through a major growth surge in the next few years. Parrot is preparing to launch an integrated car infotainment and communication system with full internet, navigation and other services, superior image processing and digital TV and radio capabilities that will exponentially increase Parrot's share of automobile OEMs' budgets. Not only will Parrot's solution add tremendous value to end-users, but most of the solution will be a low-cost system on a chip, leading to a win-win for both Parrot and its customers profitability. We expect a full launch of Parrot's new car infotainment system in 2H 2013, in line with launches of 4G networks.

In the meantime, Parrot is already a growing company generating positive cash flow in all market conditions, including the recession of 2008 to 2009 and the current downturn. Despite exposure to the depressed European consumer market, Parrot's first-half 2012 revenues and net income rose 11% and 18%, respectively. Anchored by steadily growing embedded integrated circuits for automobile OEMs, we have visibility for continued revenue and profit growth in 2012. Furthermore, this growth should accelerate in 2013 and beyond with the car infotainment launch and aerial drone development. Thinly followed consensus estimates for 2013 show revenue and EPS growth of 8% and 20%, respectively, which is too conservative.

Parrot's current valuation of EV/sales of 0.9x, EV/EBITDA of 6.0x and P/E of 11.5x using only last 12-month figures, does not at all incorporate the huge upside from its future product portfolio, while over-discounting the value of its current cash-generating products. One possible reason for the discounted valuation is the macro discount of a European consumer play. This would be an over-generalization and does not correlate to the company's positive cash flow results during current and past economic downturns.

In sum, Parrot should benefit from the double-whammy of accelerating growth and a revaluation of its shares. Parrot shares are attractive at current levels and could easily double over the next 12 months.

Rating: 2.3/5 (10 votes)


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