BTU International (Nasdaq:BTUI) Showing Promising Future, But Still Expensive We Think

Jun 13, 2008
Author: SCP Editor

June 13, 2008 - BTU International (Nasdaq:BTUI) was another of those who presented at Thomas Weisel yesterday. We listened in on the webcast and here are our thoughts. The stock is trading at about $12.17, 22% off its 52-week high of $15.80. BTU is a thermal processing equipment supplier to the alternative energy and electronics manufacturing markets. It is focusing much more of its attention on alternative energy, where its equipment is used in solar cell, fuel cell and nuclear fuel cell manufacturing, and management expects that this part of its business will double in 2008.

Consequently, it is investing in its alternative business unit, hiring key executives and a planned increase in headcount of about 10%, as well as in process application labs and new product development (second generation silicon products, thin films and thermal and wet chemistry).  Of the 4 segments of solar, BTU is not doing a-Si (amorphous silicon) which is where Applied Materials (Nasdaq:AMAT), but it is active in Si and Thin Film (CdTe and CIGS).

We looked at the stock to determine whether there is any timeliness to it, and came away with the following analysis.

We assumed a modest revenue growth track for the business in 2008 of 30% Y/Y, which enabled us to back into forecasted income of $1.65 million. The stock is currently trading at a P/E (ttm) multiple of 82x which seems pretty expensive, although the P/S (ttm) is more in line at 1.75x. Based on a forward 2008 projected income of $1.65 on forecasted top line revenue of $82.5 million, and discounting the P/S to a more reasonable 50x (still expensive) we came up with a target of $8.68 (assuming fully diluted numbers as well in light of the fact the company will be investing heavily to grow its alternative energy business). The story on the P/S side is much better. We assumed the current 1.75x 2008 revenue and came up with a target price of $15.19.

Something has got to give here, and the P/E – P/S multiples are going to need to close the gap, which is probably what is being done with $12 price the stock is currently trading at. And the stock is obviously getting a premium due to its picking up business in the solar sector, which is (at least for now) expected to bring higher margin. In any case, we would be avoiding the stock until either it gets about $5 cheaper or until the management comes out with a revenue forecast for 2008 closer to $150 million.

The Q&A Session was relatively short because the presentation ran a bit long, but two of the key points of discussion were:  

Competitive Landscape: The primary competition is from Germany where there is a good foundation in place. BTU intends to compete on a cost-basis and based on its overseas presence to support solar manufacturers. BTU is not wading into the a-Si space where Applied dominates.

Margin Outlook. As the business shifts from electronics to solar the margins are expected to improve. BTU’s electronics business has lower margins due to the competitive environment. As BTU transitions more of its business in solar to China as well, it is planning on strengthening margins.

Disclosure Note: SCPEditor has no position in BTUI.


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