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Monday, July 24, 2006

DAC Technologies (DAAT)

DAAT (sec) Gun cleaning and safety equipment business. Wal*Mart is a big customer.

Last time I had bad vibes. Are those vibes any better now?

10-Q for period ending March 31, 2006:
Still 6.3 million shares as expected.
AR is up, still have a "due from factor" asset, inventories are down.

Revenues are up somewhat. 35% gross margins. 7% net margins. Cash flow from ops is still negative: inventories and AR to blame. Yeah, I still don't like it.

Bruce, don't forget that DAAT's cash flow cycle looks worst in the first half of the year. Like a lot of retailers/distributors, they have to gear up for the Q3 and Q4 seasons which are their best.

DAAT had positive cash flow over the course of FY05 (+$102k v -$400k y/y). Nice improvement.

Debt is miniscule at 236k at year-end. (6% of SE).

The two biggest problems for DAAT to overcome right now: margin pressures and exposure to consumer/retail. The market seems to think that they will have a slowdown in earnings this year; the stock trades at 10x TTM earnings. The company has guided for 20% growth in sales and earnings this year. How did they do in that forecast so far? Q1 revs were up 22% y/y and net income was up 18%. EPS growth looked flat due to rounding. Actual: 0.032 v 0.027.

Q1 is the weakest quarter of the year, followed by Q2. Q4 is the strongest. Q2 results should be out by mid August.
Yeah, what you write makes a lot of sense.
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