A mind is like a bottle of beer no good unless its open. Open your mind for just 5 minutes. Investing is about finding the companies that can make superb profit, no matter what your past pre-conceptions of their products might be.

Amstrad and the e-mailer oh how I mocked, oh how I laughed. Who would want one of these things? I certainly wouldnt. How wrong I was. There are lots of people who do want them. In fact in the last set of results Amstrad had sold nearly 300K e-mailer and e-mailer plus pretty significant. We are not all PC users and techno geeks, theres a lot of people out there that want to send emails and view the web but dont want to spend 400-1K on a PC for the fun of it. An e-mailer works as an answerphone. You can also send faxes from it. You can play games on it via the Sinclair ZX Spectrum Game Centre. You can send electronic greeting cards. It also allows you to browse the web, send emails and make phone calls All for just 29.50!

Yes, but they have to subsidise the things to sell them, they sell them at a loss I hear you cry. Well, is that such a bad thing? Vodafone and Nokia sell mobile phones at a loss too but it doesnt stop them making big money and this is where Amstrad have just started to hit critical mass.

The e-mailer currently sells for 29.50. Amstrad subsidises the cost of this to get the public to buy them. It was 59 but better production techniques, cheaper manufacture and the falling have helped them cut the price. The even lower price means Alan Sugar thinks they will sell many more of these e-mailers.

http://www.comet.co.uk/comet/html/cache/440_773718.html

Why is this good? Well, if you buy a video recorder you pay for it once, job done. Same goes for a set top box, a camera, TV etc. But while Amstrad subsidise the cost of these e-mailers they get a constant flow of revenue from users when they browse the web, send emails, play games on send greetings cards. So while they take the initial hit through subsidising sales of the units, Amstrad are going to get loads of recurring revenues, year after year. Revenues from the e-mailer at the half year stage are running at 21K per day (7.6m per annum).

How exciting could that be? Well in H1, the Amserve business (which is basically the revenues collector from users of the e-mailer) made a profit of 1m compared to losses of 5.5m in H1 last year profit are absolutely soaring at the Amserve division. And each year the installed user base is going to produce recurring, strongly growing revenues and these will be increased by the new users they sign. For the whole business Amstrad posted 7m pre-tax in H1 compared to 3,000 last year.

Whats more, Amstrad are bringing out an improved e-mailer. This will have a DQ button that you just press to get Directory Enquiries (the 118 number of Amstrads choice and for which Amstrad will get a cut of every enquiry). There will be other features too the Observer today says:

Amstrad isn't the multinational that Sugar once dreamed about, but it still takes up a lot of his time. His most recent gizmo, a cut-price internet console dubbed the e-m@iler that allows punters cheap access to the web, is finally paying off. The operation recently reported a healthy profit. And now Sugar is excited by a new e-m@iler telephone to be launched later this year. 'It's going to be a real blockbuster,' he says.
So, big recurring growing revenues. And whats more there is nothing like the emailer competing with it. Okay you get a PC and a fax phone answer machine but youre looking at serious dosh compared to the 29.50 emailer.

Amstrad also makes other electrical gismos but are heavily into Set Top Boxes. They have just started shipping Sky+ set top boxes to BskyB since March, this will boost earnings further still. The set top box side of the business recently got the contract to supply Sky Italia and there are said to be more coming. This side of the business is also trading strongly according to broker and recently Amstrad put out a trading statement saying that trading remains strong and results would beat expectations (unless affected by unforeseen circumstances), that was 3 months before the year end. Business must be rattling on if they know they will beat expectations so far ahead of the year end.
AMT will post earnings growth of 200%+ They say they will beat estimates of 11.8p eps this year.

Thats a forecast PE of 14.5 for the year end to June 30, 2004 next month.
The forecast PE of this company which is growing earnings at 200%+ is 14.5. Come the year end results the forward PE will fall to 10.5 without any broker upgrade, 36% growth is forecast. I think there will be upgrades as Amstrad have said they will beat this year already, 3 months before the year end.
Alan Sugar has always had a cold relationship with city analysts for not putting a proper valuation on Amstrad. Once they see the revenues pouring in from Amserve they are going to have to get real or miss a stunning low value growth opportunity imo. Brokers are way behind the curve Last September they were forecasting 7.1p eps for this whole year Amstrad did 5.8p eps in H1, hitting the now revised 11.8p eps for the year is a doddle and theyve said they will beat.

Open your mind dont think that just because the e-mailer doesnt appeal to you that it doesnt appeal to everyone. It may seem a dull, boring sort of business but dull and boring doesnt have much hype or ramp in the price. Hornby trains seemed dull and boring to many just a few years ago yet it rose 700% in just over 2 years on it revitalisation. Amstrads revenues from the e-mailer will be near pure profit.

Boring is good, Sugar is sweet.

CR

Sugar soon to reveal new improved e.mailer, mention of this in yesterdays Independent.

capa