Small cap power: CIMT

[David Randolph]

Time to move up, price just above the 200MA now ... 

Also touched the medium term ascending trendline on my chart. Still managed to close above the $2.5 support level. Fundamentally it is outrageously cheap. I'll continue to be patient with it because I see the leverage in its business model: if revenue keeps growing as I think it will net profit margin will expand a lot, maybe from the current 6.2% to 20%-25%, since it is a software company.

I'll keep holding CIMT for the long term.

[David Randolph]

Also touched the medium term ascending trendline on my chart. Still managed to close above the $2.5 support level.

It bounced from support but volume remains low.

«Gross margin in the third quarter was 81% of revenues»

With gross margin of 81% it isn't all that hard to expand net profit margin to the 20-25% level. CIMT just needs some more revenue growth. I think it will happen.

For the 4th quarter, which is the seasonally strongest, I expect CIMT to earn 10 cents per share, and with this type of results I believe the stock will reach at least $6.

[Se7en]

David, this is shown on CIMT's chart (stockcharts), is this correct?

[David Randolph]

David, this is shown on CIMT's chart (stockcharts), is this correct?

Hi se7en, no, that's not correct. Over the past four quarters CIMT earned $0.2 per share, so the trailing P/E is $2.75/$0.2 = 13.75.

In the prior 12 month period CIMT lost ($0.23) per share, so the $0.20 positive EPS is a big improvement. I expect CIMT's profitability to keep growing over the long term and of course the stock price to rise accordingly.

CIMT is extremely attractive at this point. I'll keep holding the stock for the long term.

[David Randolph]

CIMT continues to be asleep, which isn't all that bad considering the general market and other stocks within the Main Portfolio. Investors aren't focusing on small caps, much less so on micro caps like CIMT which is just a $21 M market cap company.

But, because investors' focus keeps changing, I'll tend to ignore these issues and be more concerned with the company's intrinsic and unique fundamentals.

CIMT is a software company which turned profitable four quarters ago. It is trading at about 13 times trailing EPS. Management never diluted shareholders value, not even while the company was facing losses, so I don't expect any dilution in the future. Two core shareholders own 2/3 of CIMT. This management is committed to growth, either through organic expansion or acquisitions.

Like it happens with any software company, I expect CIMT to have fat profit margins in the near future, much higher than the current 6%, because, as sales grow costs won't grow in the same proportion, since CIMT is selling a product which was already developed and each new copy costs less than $1 to make.

The 4th quarter is seasonally the strongest and I expect $0.10 EPS for this quarter. If this expectation materializes I would expect CIMT to trade at least at $5.

Plenty of reasons to keep holding CIMT for the long term.

[David Randolph]

Nice 5.7% gain on good volume of 28,000 shares (volume needs to be seen in a relative way). Technically the stock will remain bullish for as long as it closes above the ascending trendline (blue on the chart below).

Fundamentally, CIMT earned 12 cents per share so far in 2007 and I expect 10 cents per share more in Q4, because of Microsystem's contribution and also because the 4th quarter is seasonally the strongest for CIMT (the company earned 7 cents per share in Q4 2006). So I see $0.22 EPS when 2007 finally closes.

This tells me CIMT is trading at 12.7 times earnings, while the Technical & System Software industry average valuation is 34.8 times earnings. If CIMT were to trade at its industry average valuation it would then be a $7.66 stock.

But, as I repeatedly wrote on this thread, the two factors that make me feel very confident about CIMT is that the company never diluted shareholders value (also insiders own 2/3 of the company) and since it is a software company, net profit margin can jump to something like 20-25% if there's strong revenue growth.

I've held CIMT for more than nine months now and it has been a long wait, but I remain confident that this stock will earn me a way above average return on my investment. I'll keep holding CIMT for the long term.

[la-onda]

CIMT Q3 Transcript, just FYI:

cheers
O.

[David Randolph]

CIMT Q3 Transcript, just FYI:

cheers
O.

Thanks for this la-onda

Management was exceptionally confident in this conference call. They even said they don't want to use the "China card" too often, because the country still represents a small part of the company's global operations (less than 10% of total revenue, whereas Europe accounts for 71%).

CIMT is a good example of what the "patience" word may mean when considering a micro-cap. Anyway, the stock has been showing relative strength, since it was up 28.3% in the 4th quarter, while the Russel 2000 Index was down 4.8%. So it wasn't all that difficult to keep on holding CIMT.

I expect to see $0.10 EPS when the company reports the 4th quarter results, probably in mid February. Then CIMT must finally move up and it may even gap up above $3.54, leaving an island pattern on the chart, and never look back.

This is my current expectation for CIMT and I'll continue holding it for the long term.

[Se7en]

http://biz.yahoo.com/prnews/080102/ukw002.html?.v=3


Gibbs Merges Into Cimatron
Wednesday January 2, 5:00 am ET

GIVAT SHMUEL, Israel, and MOORPARK, California, January 2 /PRNewswire-FirstCall/ -- Following the Merger:

- Cimatron will strengthen its position as a leading international CAD/CAM Software Company with a broader product range and stronger global presence

- Combined company's annual revenues are expected to exceed $40M, moving Cimatron well into the top 10 CAM software vendors

Cimatron Limited (Nasdaq: CIMT - News), a leading provider of integrated CAD/CAM solutions for the tool making and manufacturing industries, and Gibbs System, Inc., also known as Gibbs & Associates, developer of GibbsCAM®, software for programming CNC machine tools, are pleased to announce the execution of a definitive agreement under which Gibbs will be merged with and into a newly established US subsidiary of Cimatron.

Bringing together the CimatronE integrated CAD/CAM suite for toolmaking and GibbsCAM leading CAD/CAM solution for production will allow the merged company to offer a powerful product portfolio for the entire manufacturing industry.

The combined product offering will strengthen Cimatron's market position, with the ability to deliver best-of-class products targeting all segments of the CAM market, from Mold and Die Making, through 2.5 axes and 5 axes production, to Mill-turn and Multi-Tasking Machining.

Moreover, the combined distribution networks of Cimatron and Gibbs complement each other and provide excellent coverage of all target markets worldwide, including a strong presence in North America, Europe and Asia Pacific. It is expected that synergies could be quickly realized by selling the combined product portfolio through the merged distribution channels.

Gibbs System's estimated non-GAAP revenues in 2007 were approximately $12M and estimated non-GAAP pre-tax profit was above 10% of revenues.

In consideration for the transaction, Cimatron will pay to Mr. William F. Gibbs, founder, Chairman and CEO of Gibbs System, and its sole shareholder, a cash consideration of $5 million, as well as 1,500,000 newly issued ordinary shares of Cimatron. Cimatron's outstanding share capital after the closing will be comprised of approximately 9,400,000 ordinary shares. The transaction is anticipated to be consummated within several days and is subject to customary approvals and closing conditions.

Following the closing, Mr. Gibbs will continue to manage the GibbsCAM product-line business as President and CEO of the new subsidiary, and will join the Cimatron senior management team. In addition, Mr. Gibbs will be nominated to serve as Vice Chairman of the Board of Directors of Cimatron.

Commenting on today's announcement, Danny Haran, President and CEO of Cimatron said: "we are excited about the merger and the potential synergy. Being able to offer a complete range of high-end products for the entire manufacturing industry will bring great value to our customers. We believe that the reinforced Cimatron will enjoy economies of scale, which would translate the high quality engineering, financial efficiency and stronger competitive position into revenue and profit growth."

Bill Gibbs, Founder, Chairman and CEO of Gibbs System said: "we are happy to be part of this merger, putting together two well-known names in the CAD/CAM industry. The merger opens exciting opportunities of selling GibbsCAM through the Cimatron distribution network in key industrial markets. I personally am excited to join the Cimatron management team and to participate in exploiting the future merger benefits to their full extent."

Commenting on today's announcement, Mr. Rimon Ben Shaoul, Chairman of Cimatron added: "As we have declared in the past, Cimatron is actively looking to create more shareholder value through mergers and acquisitions. Gibbs and Associates is the perfect match for Cimatron, with clear product synergy and complementary distribution network. We believe that the merged company will become a stronger force in our highly competitive market." concluded Mr. Ben Shaoul.

Collins Stewart acted as advisor to Cimatron on the transaction.

About Gibbs and GibbsCAM

For over 20 years, Gibbs System, Inc., more frequently known as Gibbs & Associates, has been a leader in providing cutting-edge CAD/CAM technology, while maintaining its signature ease-of-use and productivity increasing qualities. "Powerfully Simple. Simply Powerful." is the guiding philosophy at Gibbs. Gibbs believes in empowering the NC programmer, machinist, and manufacturing engineer, not eliminating them. Gibbs' goal is to introduce manufacturers to new technologies and new ways of working that makes their machining easier and their businesses more profitable. To achieve this goal, Gibbs creates tools that are naturally intuitive, graphically interactive, extremely visual, associative, and just plain enjoyable to use. Gibbs provides a total quality solution with the service and support successful customers require.

GibbsCAM is either offered or endorsed by a number of leading worldwide CNC controller and machine tool manufacturers. Gibbs provide solutions to Fortune 500 companies such as Boeing, Ford, General Dynamics, General Motors, Lockheed Martin and Raytheon and now reaches global markets. Gibbs & Associates distributes its products worldwide through a network of international Resellers.

For more information about Gibbs & Associates and its CAM software packages, please visit: http://www.gibbscam.com.

[David Randolph]

Thanks for bringing us this news release Se7en

• Gibbs Merges Into Cimatron
PR Newswire (Wed 5:00am)

They're calling it a merger, but in fact this is CIMT acquiring Gibbs.

This tells me two things:

1) CIMT's management is aggressively pursuing the creation of shareholders value, just like they said they would;
2) CIMT has a strong balance sheet, since it is paying $5 M in cash for this acquisition.

But, there will also be 1.5 million new shares issued (which is a first), which at Monday's close represents a value of $4.215 M. So the total acquisition price is $9.215 M, which looks attractive for a company with the following metrics:

«Gibbs System's estimated non-GAAP revenues in 2007 were approximately $12M and estimated non-GAAP pre-tax profit was above 10% of revenues.»

I believe this news will bring some attention to CIMT and the fact that it is trading at just 12.7 times earnings, while the Technical & System Software industry trades at 34 times earnings.

The stock should pop on this news, even though the press release lacks some important financial details.

Longer term, CIMT's management is committed to grow shareholders value and my expectation is that they will succeed.

I'll keep holding CIMT for the long term.

[tokyopua]

CIMT has had its last two good press releases happen at really bad times of the market, or I think it would be broken out of this range already to above $3.20.  Today the market was down huge, and the earnings release of Nov 14th was in the middle of the last correction.

Anyway, doesnt matter for those of us already holding long term, as David always says fundamentals have to win eventually.  But for those still thinking about getting in it worth considering that timing of press releases may have kept CIMT down a bit artificially.

[tokyopua]

Based on the triangle breakout CIMT should hit $3.70 from here, about a 20% gain from current price of $3.12.  A close above 3.23 should put this solidly in play. 

[pinoleropuro]

Hey David and Tokyo
thank you guys this is finally giving us the fruit of our labor. 
by the way I have been an evangelist on this my self with friends and co workers and some have bought into this before it got to three so I am sure my friends and co workers are just as happy I told them about this one. 

thanks Dave once again you're great!
hopefully this '08 will be even better!

[soxguy]

Press Release Source: Cimatron Ltd


Cimatron and Gibbs Complete Merger
Thursday January 3, 4:00 pm ET


GIVAT SHMUEL, Israel, and MOORPARK, California, January 3 /PRNewswire-FirstCall/ -- Cimatron Limited (Nasdaq: CIMT - News), a leading provider of integrated CAD/CAM solutions for the toolmaking and manufacturing industries, and Gibbs System, Inc., also known as Gibbs & Associates, developer of GibbsCAM®, software for programming CNC machine tools, today announced they have completed the merger of Gibbs into a newly established US subsidiary of Cimatron, as previously announced on January 2nd, 2008.



For more information about the merger, please see Cimatron's press release as of January 2nd 2008, which may also be found under the investors' section on Cimatron's website.

[David Randolph]

Hey David and Tokyo
thank you guys this is finally giving us the fruit of our labor. 
by the way I have been an evangelist on this my self with friends and co workers and some have bought into this before it got to three so I am sure my friends and co workers are just as happy I told them about this one. 

thanks Dave once again you're great!
hopefully this '08 will be even better!

Hi pinoleropuro, if CIMT pushes up to $6 in the 1st half of 2008 don't forget to tell your friends and co-workers to sign up to the 3 Stocks Premium service

I've been studying Gibbs & Associates and really love this acquisition. I see good synergies:

«Moreover, the combined distribution networks of Cimatron and Gibbs complement each other and provide excellent coverage of all target markets worldwide, including a strong presence in North America, Europe and Asia Pacific. It is expected that synergies could be quickly realized by selling the combined product portfolio through the merged distribution channels.»

The price, $9.125 M looks attractive:

«Gibbs System's estimated non-GAAP revenues in 2007 were approximately $12M and estimated non-GAAP pre-tax profit was above 10% of revenues.»

If pre-tax profit was, say, 11% of revenues, it was $1.32 M. If we apply a tax rate of 35%, we get $0.858 M in annual net income, so the p/e ratio of this transaction is about $9.125 M/$0.858 M = 10.6.

Not an incredible bargain, but cheap (it is better not to be an absolute bargain, because the cause of the discount could be "problems").

I agree with Tokyopua, the general market mood doesn't favor big rises in micro-caps which are somewhat tied to global economic growth, because most people are bearish on growth at this particular moment in time. This is why CIMT didn't fly 50% on the news - the mood isn't right. But the fundamental improvement and direction of fundamentals seems obvious: CIMT is on the the rise. So it is just a matter of time for the price to reflect the improving fundamentals, in my view.

Management has a growth plan and it is executing it:

«Commenting on today's announcement, Mr. Rimon Ben Shaoul, Chairman of Cimatron added: "As we have declared in the past, Cimatron is actively looking to create more shareholder value through mergers and acquisitions.»

CIMT just paid $5 M in cash for Gibbs, so management is very confident about the future of its industry. I hope this confidence is coming from the current profits ... I am more confident now that CIMT earned 10 cents per share (or more) in Q4 2007. We'll know the actual numbers in mid February.

CIMT is currently just a $24.4 M market cap company. I'm not asking for it to become a multi-billion dollar company, all I need is a $100 M - $150 M value to earn my deserved bags of profits. I believe this is coming and I'll continue holding CIMT for the long term.