So far in 2011, the company has announced 5 awards worth 211 mln. This averages to a 42 mln. award every 24 days. At this rate, there would be 15 awards announced in 2011 with a value of 631 mln. (see below). As indicated in the April 15th article, we also believe a second follow on UK MoD order is all but a foregone conclusion. Since FRPT’s Ocelot (a light protected patrol vehicle (LPPV)) is scheduled to replace the UK military's Snatch Land Rover, and the snatch land rover fleet consists of some 991 built vehicles, we think it is reasonable to further estimate that the UK indeed is interested in more than 200 of the Ocelot’s that comprised the initial order. We further believe an award for an additional 200 vehicles will be announced during 2011 for the following reasons:.
|4.87 pts.||$ 2,056,114.00|
|Annualized Rev.||$ 631,569,672.13|
|4.87 pts.||$ 30,757,443.03|
|UK MoD 2nd order||$ 280,000,000.00|
|Tot. w/ An. Rev.||$ 911,569,672.13|
|4.87 pts.||$ 44,393,443.03|
a) The press release above from FRPT on May 2nd was part of an announcement of some 125 mln. in upgrade to the existing cougar fleet – an indication that the military is pleased with these vehicles (which have survived some 300 IED explosions through 2004 without the loss of a single life), an intends to keep them in service for some time.
b) The DoD report praises FRPT’s vehicle (particularly with the just ordered 106 mln. ISS upgrades) over one of the competitors MRAP ambulance offering, which they refer to as “not operationally effective” (we now know that OSK is also out)
c) Since OSK received a “stop work order” on the 250 vehicle, 161 mln. order around the same time the DoD was retesting the modified cougars (a vehicle already in operation and production); it seems likely that FRPT’s product may well be the replacement for this urgent operational need OSK referenced in their quarterly CC.
d) If the US continues to invest in the 4000 Cougars that have already been fielded as indicated by the multiple upgrades, and since the MRAP was also selected by the UK’s MoD as part of their Ridgback and Mastiff programs, then it is not a stretch to imagine that this vehicle, which has been extensively proven in theatre, and has two world class endorsements by the US and UK, is likely to be the vehicle of choice for the Canadian TAPV program.
Speculation aside, If the above contract award projections are even approximately accurate, and if FRPT does not win the Canadian and Australian contracts referenced in the original article, than FRPT is still a company with 44 mln. in operating income just from 2011 annualized order intake alone (4.87% x 911 mln).
If this figure is added to the 27.2 mln in operating income from the funded backlog as of Dec. 31st, 2010 (4.87% x 560 mln) – the investor is paying 150 mln. (as previously illustrated) for a company with 72 mln. in virtually guaranteed operating income – that is to say, 48% of the operative purchase price of the company at April 15th, is already being returned to the purchaser through operating income.
We think the above estimates are better than “approximately accurate”, since the company had previously advised, that few awards should be expected in the first half of the year, and yet over 200 mln. has already been announced. We think the estimates for 2011 order intake are conservative.
In other words, there is almost no risk left in the purchase of FRPT common stock, while the upside potential is nothing short of massive.
Although the operating margin is not very strong as a percentage, it does represent a remarkable return on capital given the small enterprise value (and even more remarkable given the offset from future operating income). Even if the company was not awarded a second UK MoD order, the company would still earn about 31 mln. from the conservative projection of 632 mln. in new orders for 2011, when combined with the operating income from the funded backlog, the investor is assured a 39% return of the effective purchase price.
We believe this information along with the company’s affirmation of the 2011 guidance provides a sufficient margin of safety to purchase the shares as an investment.