Heres why I like Oystertec OYS at 14.75p to buy.

Shares in issue 250.78m @14.75p, Market Cap= 37m

EARNINGS:

Historical losses which dont interest me unduly

At the half year 0.56p/share though it should be said that the P&L is a little messy with negative goodwill and exceptionals still being significant factors.

Current year forecast 1.2p/share and from the interims Finally, we are confident that the group's outlook for the current financial year is at least in line with market expectations

Next year 1.9p/share.

So this year forecast PE 12, next year 8

A 1p dividend is forecast for next year giving a yield of 6.7%

BALANCE SHEET:

Net assets of 37mill including net negative goodwill 3.8 mill. So company valued 10% below NTAV. Some asset protection then but worth noting that a lot of the assets are plant and machinery so nothing to get excited about as an asset play.

Net debt 13.5 mill at the interims so gearing of 36%. However

Increase in gearing as expected with interest cover of 5.5 times: second half to be cash generative ,

and

Gearing has increased as anticipated, through financing of rationalisation costs and the building up of stocks in advance of factory closures. We remain comfortably within our banking facilities and anticipate the second half year to be significantly cash-generative

Stock levels are currently 25 mill which is about 3 months turnover. Compare with WOS (2 months), VLX (1.5 months), DPLM (2.5 months) and this certainly seems to confirm that stock levels can be run down once factory closures are complete. If they just matched WOS that would generate around 8m cash. I have absolutely no idea how possible or likely that is.

So looking at the fundies you have a share that has some pyad qualities (it passes on P, Y, A (although P and Y only on next years estimates) and has strongly rising earnings forecast.

OTHER THINGS

Analyst research from Collins Stewart

http://www.oystertec.com/Oystertec11-2-03.pdf

Its worth noting that OYS have fallen well behind the estimates given in that note in terms of revenes and profits. However

Beyond progress to 4/5p there remains the enormous licensing potential of the designs that caused all that initial enthusiasm.

The brokers thought that 5p eps could be generated in 2005 on revenues only 16% higher than the current run rate once the rationalisations are complete and licensing revenues kick-in. The current price/sales ratio is just 0.35. and operating margins are just 3% on a gross margin of 25%. There is room for improvement here and they know it!

Strong director buying

http://www.uk-wire.com/cgi-bin/index?search_type=3&words=oys

RISKS

Well, like any business, if revenues continue to fall (they were somewhat disappointing at the interim stage) and the new Oyster technology never gets adopted in serious volume OYS looks like a potential loser. There was a big cash outflow in the first half though closer inspection shows that this was probably a one off.

But looking at things in a more positive light

For the IBP (plumbing) division

Since purchase Oystertec has carried out a wholesale restructuring
of the business. Factories in Glasgow, Birmingham and France
have been shut and those at Dundee, and Giessen (Germany)
greatly reduced. Production is being focused on Cordoba (Spain)
and Posnan (Poland). Cordoba is probably the most efficient
fittings manufacturing site in the world. Production had increased
from 100m in January 2002 to 230m by the end of the year as
these work transfers occurred. The plant is now so good that other
fittings manufacturers have begun subcontracting their production
to it. The plant also benefits from proximity to and 50% ownership
of Terbub, Spain's leading copper tube producer. This vertical
integration puts IBP at a considerable advantage in terms of
costing.

And

IBP has something like 25% of the European fittings market and
is the clear industry leader alongside the former IMI business
Yorkshire fittings. The competition apart from that tends to be
German based, which is unhelpful in cost terms.

So they have a strong market position and are clearly doing all the right things in terms in bringing costs down.

And for the Europower (hydraulics) division

The fittings industry is greater in value than that for plumbing.
Europower is the largest UK independent with sales of 30m and
a domestic market share of 20%. Overseas the business has under
exploited distribution assets in the USA, South Africa and France.
Its customers span 50 countries giving the new company scope to
widely exploit the Oystertec technology.


SUMMARY

Seems to me OYS has the possibility to be a rather dull company that goes nowhere for years. But the IBP and Europower divisions look to me like they are probably worth rather more than the current market cap once the rationalisation process is complete.

And on top of that (in for free IMVHO) is the automotive division

Dana is the largest manufacturer of automotive fluid systems in
the world and it has entered into a joint development project with
Oystertec. We would anticipate a licence being signed in 2003,
with the power steering application being the most likely.
Oystertec has also achieved success with Gates which is supplying
Volvo under licence with fittings for an engine application.
Automotive volumes world wide are around 60m units with
perhaps 50-100 potential components in each car. The
sophistication of the customer base means that Oystertec will not
have to purchase a component manufacturer although it is
incurring substantial marketing/development costs.
The ongoing model will be for an established automotive supplier
to produce the components to an Oystertec design under a licence
that will probably be 5% of sales. The market is clearly substantial
but initial sales are likely to be targeted at 'problem joints' that are
causing leaks and consequently warranty costs.

So a potential market of 6 BILLION car components. If each one costs say 2 quid and OYS take 5% thats a license income of 600 million p.a.!!!!!!!!!!

Of course that is highly unlikely to happen. But thats the upside with OYS. I see similar numbers thrown about for NTX, TRK, TRT and the like. But how many of those have existing dull businesses that look like they may be undervalued in their own right?

Worth a punt IMO.in my case a significant one!

Excellent post britishb2, however you forgot to mention that Std Life topped up to the tune of 2Million shares yesterday. Don't know if that's good or bad with Std Life's recent performance(my pension si with them!), but it does mean they are in there big style and you don't invest that sort of cah without doing due dilligence. Suspect the Std Life boys have been out and looked at all elements of the business and something is cooking.

Astonishing lack of interest in OYS here. This sums up the current situation nicely I think...

http://www.lemminginvestor.com/OYS.html?1068805374214%20/

I see 20p+ once the obvious current overhang clears and 100p+ if the automotive division delivers on its promise.