SR Telecom Inc. (SRT) was seted in...

SR Telecom Inc. (SRT) was seted in 1981 and has been a public company since 1986 The company busys over 600 people--approximately 20% of whom are in Research and growth (R&D). SRT's headquarters, manufacturing facility and R&D office are located in St Laurent, Quebec; a next to the first factory is currently under construction in the Ottawa region. SRT has plot and regional sales and service offices in the United States, Europe China, Latin America and Asia/Pacific.

SRT designs, manufactures and markets point-to-multipoint microwave yields These products enable communications companies to provide urban-quality telephone service to alien areas and rural regions. Approximately 90% of SRT's incomes are generated outside North America and the company has installed its schemes in almost half of all the countries in the world.

While originally designed for the telephone market, the company's issues have also been used by means of government departments, in the offshore oil industry, in banking data networks and other private telecommunications applications. SRT's wholly-owned subsidiary--Apollo Microwaves Limited--designs, lay opens and manufactures specialized microwave ingredients for use in telecommunications, radar, medical and other industrial applications.

PICTURING HISTORICAL GROWTH

Revenues

As indicated in the accompanying Guide, the average annual mix rate of growth during the 1989-1994 studious mood period was about 32%. This bourgeoning in revenues is primarily attributable to increased sales of SRT's principal telecommunications product

EPS

Since 1989 EP have grown at an average annual amalgamate rate of approximately 80%. In part, the expansion in earnings is attributable to the germination in revenues. However, the operating margin, and thus operating efficiency, increased substantially athwart the period (see "Efficiency of Operations").

Note: To facilitate graphing the EP line onward the Guide, the data for 1989 do not appear. However, these data are incorporated into the calculation of the average annual mix rate.

JUDGING FUTURE GROWTH

R&D is the same of the key factors in determining the ability of a company as it is as SRT to grow. SRT generally spends approximately 9% of sales returns on R&D and has indicated a commitment to continue making so investments.

A second important factor that will affect the company's bourgeoning will be its ability to hold fast its prices competitive. SRT is a relatively small company in the telecommunications world. And while technological advantage can impel initial growth, it will be efficient operations that enable the company to withstand pricing hurrys as others in the industry begin to catch up

Finally, an insight into germination prospects in the immediate futurity may be obtained from the company's order backlog. At the expiration of 1993, SRT reported a backlog of $271 million; at the quarters ending June and September 1994 this backlog surpassed $90 million.

Efficiency of Operations

Part 2(1) of the Guide indicates that SRT's operating profit margin (OPM) (see pages 26-27 of the Stock Selection Manual) increased steadily through the study period from 33% in 1989 to an estimated 20% in 1994

The company managed to bring to prices in 1993. This indicates that the improvement in the OPM is most-likely the follow of increased operating efficiency and reduc by unit costs.

Debt Financing

Part 2(2) of the Guide lists fault ratios for the last six years (see pages 29-30 of the Stock Selection Manual). SRT's due consists primarily of non interest-bearing items like as accounts payable. Interest-bearing debit accounted for an estimated 24% of total fault in 1994 and interest costlinesss in that year accounted for an estimated 27% of earnings before interest and taxes.

In 1994 SRT issued public shares for total proceeds of $385 million. This of recent origin issue had the effect of lowering the due ratio for 1994 to an estimated 3S%

Effectiveness of Operations

Part 2(3) of the Guide thinks management's ability to earn an adequate rate of reply on shareholders' common equity (ROCE) (see pages 27-29 of the Stock Selection Manual). The increase in ROCE athwart the 1989-1993 period can be attributed to the improved OPM However, the equity issue discussed earlier caused ROCE in 1994 to decline to approximately 25%

STUDY POTENTIAL:

THE "BUY" & "SELL" ZONES

Two settles of illustrative judgements about SRT's extension prospects over the next five years--and the market's possible evaluation of them--are contemplateed in the accompanying Guide.

The A Judgements

The Guide's chart illustrates receiptss growing at the A judgement rate of 20% to $269 million by means of 1999. While this projected growing rate is below the average for the contemplation period, it is slightly greater than that experienced during 1994

EP through the whole extent of the period are projected to increase at an average annual rate of 25% to $128 on 1999. Although the "Guidelines for Judgements" state that it is unusual to extend future EPS faster than that will be revenues, SRT is still a relatively young company which has shown the ability to bring out EPS growth substantially higher than income growth. The Recent Price of $1300 together with a 1995 EP estimate of $060 bring into being a Current P/E of 217X and a Relative P/E of 098