Welcome To The Active Control Technology HUB On AGORACOM
We make wireless work.
Message: New Research Capital report on ACT posted at Stockhouse
Posted by ajc1 at Stockhouse...
http://www.stockhouse.ca/bullboards/viewmessage.asp?no=17904888&t=0&all=0&TableID=0
29 JANUARY 2008
A C T I V E C O N T R O L T E C H N O L O G Y I N C .
ACT-TSX V: $0.40 — BUY
JON HYKAWY 416.860.8678
JON.HYKAWY@RESEARCHCAPITAL.COM
ARUN THOMAS (ASSOCIATE) 416.860.7666
Mine Safety Remains a Concern
Price: $0.40 Basic Sh. O/S (mm): 93.3
Target Price (1 yr.): $1.60 FD Shares (mm): 143.6
Projected Return: 300.0% Float (Shares mm): 74.6
52 Wk. High: $0.69 Market Cap (mm): $37
52 Wk. Low: $0.10
FY July 31 2006A 2007E 2008E 2009E
EPS -$0.02 -$0.02 $0.04 $0.27
P/E n/a n/a 10.0x 1.5x
Rev ($mm) $0.6 $0.6 $17.2 $59.9
Quarterly EPS before special items
Q1 -0.01 0.00 0.00E 0.01E
Q2 0.00 -0.01 0.00E 0.05E
Q3 0.00 0.00 0.03E 0.09E
Q4 -0.01 0.00E 0.01E 0.12E
Target Valuation Parameter
DCF analysis through 2009, 10x terminal multiple and 30% discoun
Per Share Data (C$)
Courtesy of BigCharts.com
Upcoming Events
Q1/08: Expect MSHA approval.
Profile
Active Control Technology (www.activecontrol.com) provides
wireless communication, tracking, and security solutions to its
customers. The major focus of the company is currently meeting
communications and tracking requirements in legislation such
as that passed by the West Virginia government for its coal
mines, as well as the S-MINER Act being debated by the U.S.
Congress.
Key Risk
We believe that adoption and implementation are the key risks
facing Active Control; as adoption risk falls, with the arrival of
purchase orders, implementation risk will increase. The
company has already received its first purchase order for
working systems from Magnum Coal, but has yet to prove itself
at being able to supply and install all the required hardware,
resulting in a working system. However, we have installed
Active Control hardware during a test installation, and believe
that if the hardware can be procured, then implementation risk
is largely negated.
INVESTMENT OPINION
In a recent news story, it was noted that language has been appended to a
spending bill passed in the U.S., enabling some key features of proposed mine
safety legislation to proceed sooner rather than later. While useful, these
safety features are best supported by the sort of ubiquitous communications
provided by an Active Control mesh. We maintain our BUY recommendation.
ANALYS I S
Legislation moves safety forward: Senator Robert Byrd of West Virginia was
reported, by The Courier-Journal of Louisville KY, to have appended language
to a U.S. spending bill signed into law last month that is intended to make mine
ventilation safer and to speed up the deployment of underground refuge
chambers within coal mines. The refuge chambers are designed to provide four
days of breathable air to miners, allowing them to survive major incidents until
rescuers can reach them. Such chambers might have allowed the miners killed
during the disaster at Sago WV to have survived long enough to be rescued,
and these chambers now form a part of most proposed legislation on mine
safety, both at the state and federal levels in the U.S.
Refuge is only good if you get to it: By the same token, while having refuge
chambers in place is objectively a good thing, the chambers will only help if
miners reach them in time. The best way to ensure this is to have a ubiquitous
underground communication and tracking system, allowing immediate notice of
a major accident to reach all miners. Such a communication system would also
allow the IT system at the mine to provide the optimal route, given the
circumstances, for a miner to reach a shelter. Having 96 hours of breathable
air in place will not help a miner that collapses due to bad air while trying to
reach the shelter.
ACT is progressing: To date, the company has announced the sale of 10
systems: two sold to an unnamed mining equipment OEM for undisclosed
purposes (we suspect this buyer may be Joy Global, which has long been
investigating remote mining), five sold to Magnum Coal, and three sold to
another unnamed mining company for use both above and below ground. We
believe that continued progress on sales and increasing emphasis on execution
are now critical to Active Control.
Value is compelling: With the progress being made on sales, it will not take
many more systems sold before cash-flow positive status is in sight (we believe
the breakeven point is somewhere around 20 total systems of the current
average size). Given the likelihood that Active Control will have more
experience in deploying wireless mesh networks underground than any other
firm, the large market that opens up due to the U.S. S-MINER Act in 2009, and
the fact that we believe Active Control is currently doing more to investigate
the Holy Grail market of remote mining than any other networking company, we
believe the value proposition within Active Control is compelling. We maintain
our BUY recommendation.
Page 2
RELEVANT DISCLOSURES APPLICABLE TO: ACTIVE CONTROL TECHNOLOGY INC.
LIST OF DISCLOSURE TERMS:
1. Within the last 3 years, Research Capital Corporation has managed or co-managed an offering of securities by the
subject issuer.
2. Within the last 3 years, Research Capital Corporation has received compensation for investment banking and related
services from the subject issuer.
3. The research analyst or a member of the research analyst’s household owns shares and/or options to acquire shares
of the subject issuer.
4. As of November 26, 2007, Research Capital Corporation held options to acquire common shares of Active Control
Technology. The total number of shares held directly or under option were less than 2% of the total number of
common shares outstanding.
ANALYST CERTIFICATION
Each analyst of Research Capital Corporation whose name appears in this report hereby certifies that (i) the
recommendations and opinions expressed in this research report accurately reflect the analyst’s personal views and (ii)
no part of the research analyst’s compensation was or will be directly or indirectly related to the specific conclusions or
recommendations expressed in this research report.
Informat ion about Research Capit a l Corporation’s Rat ing System, the distr ibut ion of our research to cl ients and the percentage of recommendations which are in each
of our rat ing categories is avai lable on our web site at www.researchcapital.com.
The informat ion contained in this report has been drawn f rom sources believed to be rel iable but i ts accuracy or completeness is not guaranteed, nor in providing i t
does Research Cap i tal Corporat ion assume any responsibi l ity or l i a b i l ity. Research Capital Corporation, its di rectors, o f f icers and other employees may, f rom t ime to
t ime, have posit ions in the secur i t ies mentioned herein. Contents of th is report cannot be reproduced in whole or in part wi thout the expressed permission of Research
Capi tal Corporat ion. (U.S. Inst i tutional Clients — Research Capi tal U.S.A. Inc. (a whol l y owned subsidiary of Research Capital Corpora t ion) accepts respons ibil ity for
the contents of this repor t subject to the terms & limitations set out above. Fi rms or institutions receiving this report should effect t ransactions in securi t ies discussed
in the report through Research Capital U.S.A. Inc., a Broker-Dealer Registered with the United States Securities and Exchange Commission).
Toronto 416.860.7600 Montreal 514.399.1500 Vancouver 604.662.1800 Calgary 403.265.7400 Regina 306.566.7550
http://www.stockhouse.ca/bullboards/viewmessage.asp?no=17904888&t=0&all=0&TableID=0
29 JANUARY 2008
A C T I V E C O N T R O L T E C H N O L O G Y I N C .
ACT-TSX V: $0.40 — BUY
JON HYKAWY 416.860.8678
JON.HYKAWY@RESEARCHCAPITAL.COM
ARUN THOMAS (ASSOCIATE) 416.860.7666
Mine Safety Remains a Concern
Price: $0.40 Basic Sh. O/S (mm): 93.3
Target Price (1 yr.): $1.60 FD Shares (mm): 143.6
Projected Return: 300.0% Float (Shares mm): 74.6
52 Wk. High: $0.69 Market Cap (mm): $37
52 Wk. Low: $0.10
FY July 31 2006A 2007E 2008E 2009E
EPS -$0.02 -$0.02 $0.04 $0.27
P/E n/a n/a 10.0x 1.5x
Rev ($mm) $0.6 $0.6 $17.2 $59.9
Quarterly EPS before special items
Q1 -0.01 0.00 0.00E 0.01E
Q2 0.00 -0.01 0.00E 0.05E
Q3 0.00 0.00 0.03E 0.09E
Q4 -0.01 0.00E 0.01E 0.12E
Target Valuation Parameter
DCF analysis through 2009, 10x terminal multiple and 30% discoun
Per Share Data (C$)
Courtesy of BigCharts.com
Upcoming Events
Q1/08: Expect MSHA approval.
Profile
Active Control Technology (www.activecontrol.com) provides
wireless communication, tracking, and security solutions to its
customers. The major focus of the company is currently meeting
communications and tracking requirements in legislation such
as that passed by the West Virginia government for its coal
mines, as well as the S-MINER Act being debated by the U.S.
Congress.
Key Risk
We believe that adoption and implementation are the key risks
facing Active Control; as adoption risk falls, with the arrival of
purchase orders, implementation risk will increase. The
company has already received its first purchase order for
working systems from Magnum Coal, but has yet to prove itself
at being able to supply and install all the required hardware,
resulting in a working system. However, we have installed
Active Control hardware during a test installation, and believe
that if the hardware can be procured, then implementation risk
is largely negated.
INVESTMENT OPINION
In a recent news story, it was noted that language has been appended to a
spending bill passed in the U.S., enabling some key features of proposed mine
safety legislation to proceed sooner rather than later. While useful, these
safety features are best supported by the sort of ubiquitous communications
provided by an Active Control mesh. We maintain our BUY recommendation.
ANALYS I S
Legislation moves safety forward: Senator Robert Byrd of West Virginia was
reported, by The Courier-Journal of Louisville KY, to have appended language
to a U.S. spending bill signed into law last month that is intended to make mine
ventilation safer and to speed up the deployment of underground refuge
chambers within coal mines. The refuge chambers are designed to provide four
days of breathable air to miners, allowing them to survive major incidents until
rescuers can reach them. Such chambers might have allowed the miners killed
during the disaster at Sago WV to have survived long enough to be rescued,
and these chambers now form a part of most proposed legislation on mine
safety, both at the state and federal levels in the U.S.
Refuge is only good if you get to it: By the same token, while having refuge
chambers in place is objectively a good thing, the chambers will only help if
miners reach them in time. The best way to ensure this is to have a ubiquitous
underground communication and tracking system, allowing immediate notice of
a major accident to reach all miners. Such a communication system would also
allow the IT system at the mine to provide the optimal route, given the
circumstances, for a miner to reach a shelter. Having 96 hours of breathable
air in place will not help a miner that collapses due to bad air while trying to
reach the shelter.
ACT is progressing: To date, the company has announced the sale of 10
systems: two sold to an unnamed mining equipment OEM for undisclosed
purposes (we suspect this buyer may be Joy Global, which has long been
investigating remote mining), five sold to Magnum Coal, and three sold to
another unnamed mining company for use both above and below ground. We
believe that continued progress on sales and increasing emphasis on execution
are now critical to Active Control.
Value is compelling: With the progress being made on sales, it will not take
many more systems sold before cash-flow positive status is in sight (we believe
the breakeven point is somewhere around 20 total systems of the current
average size). Given the likelihood that Active Control will have more
experience in deploying wireless mesh networks underground than any other
firm, the large market that opens up due to the U.S. S-MINER Act in 2009, and
the fact that we believe Active Control is currently doing more to investigate
the Holy Grail market of remote mining than any other networking company, we
believe the value proposition within Active Control is compelling. We maintain
our BUY recommendation.
Page 2
RELEVANT DISCLOSURES APPLICABLE TO: ACTIVE CONTROL TECHNOLOGY INC.
LIST OF DISCLOSURE TERMS:
1. Within the last 3 years, Research Capital Corporation has managed or co-managed an offering of securities by the
subject issuer.
2. Within the last 3 years, Research Capital Corporation has received compensation for investment banking and related
services from the subject issuer.
3. The research analyst or a member of the research analyst’s household owns shares and/or options to acquire shares
of the subject issuer.
4. As of November 26, 2007, Research Capital Corporation held options to acquire common shares of Active Control
Technology. The total number of shares held directly or under option were less than 2% of the total number of
common shares outstanding.
ANALYST CERTIFICATION
Each analyst of Research Capital Corporation whose name appears in this report hereby certifies that (i) the
recommendations and opinions expressed in this research report accurately reflect the analyst’s personal views and (ii)
no part of the research analyst’s compensation was or will be directly or indirectly related to the specific conclusions or
recommendations expressed in this research report.
Informat ion about Research Capit a l Corporation’s Rat ing System, the distr ibut ion of our research to cl ients and the percentage of recommendations which are in each
of our rat ing categories is avai lable on our web site at www.researchcapital.com.
The informat ion contained in this report has been drawn f rom sources believed to be rel iable but i ts accuracy or completeness is not guaranteed, nor in providing i t
does Research Cap i tal Corporat ion assume any responsibi l ity or l i a b i l ity. Research Capital Corporation, its di rectors, o f f icers and other employees may, f rom t ime to
t ime, have posit ions in the secur i t ies mentioned herein. Contents of th is report cannot be reproduced in whole or in part wi thout the expressed permission of Research
Capi tal Corporat ion. (U.S. Inst i tutional Clients — Research Capi tal U.S.A. Inc. (a whol l y owned subsidiary of Research Capital Corpora t ion) accepts respons ibil ity for
the contents of this repor t subject to the terms & limitations set out above. Fi rms or institutions receiving this report should effect t ransactions in securi t ies discussed
in the report through Research Capital U.S.A. Inc., a Broker-Dealer Registered with the United States Securities and Exchange Commission).
Toronto 416.860.7600 Montreal 514.399.1500 Vancouver 604.662.1800 Calgary 403.265.7400 Regina 306.566.7550
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