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unicomp, inc. (ucmp)

DISCLAIMER: I've been getting worried that there are those who think that I hype or short this stock for substantial gain.  As this stock  has a small market capitalization compared to my other picks, I want to disclose that I own UCMP at an average price very near $6/share.

02/23/00
The latest pres release, which was just paraphrasing two previous press releases really impressed me.  The reason is that after the second press release, I sent the following message to investor relations:

> in your press release you said you are porting to win2000,
> does this mean that AS/400 applications can be ported to Unix
> as well as win2000 environments?
> 
> thank you

The problem was that the second press release talked about a port to W2k, but it didn't clarify if the software was available to W2k or if in fact it was more lucrative than that and actually allowed people to port their applications to port to W2k.   The latest press release made clear that the software did the later--the more important aspect.

They understand that if there was one confused investor, there might be several confused customers.  The latest press release answered my question.  I'm glad they spent the time and energy to rectify any potential misunderstandings.  This incident gives me renewed hope for the company.  In other indications of what I hope are a slew of announcemtns, Unibol has announced that Extol has selected their migration software product.

02/15/00
With the resolution of the preferred convertibles issue, some have wondered why the stock didn't go up more.  I suspect it has something to do with UCMP's minimal exposure and the immense short interest the resolution of those preferred convertibles created.  From Yahoo!, the short interest has almost reached 400,000 shares.  Most of this short interest is probably due to the holder of the preferred convertible.  This number represents about 8% of the float for UCMP.  This has been an enormous pressue on the upward movement of the stock.  When the person with this interest pulls up stake, there will no longer be this artificial downward pressure

The resolution of the preferred issue included a cash payment of about $2 million (I have NOT confirmed this number).  The number of shares given was probably over 300,000--most of the short interest (again, not confirmed).

On some very good news, UniComp has had a few contracts signed to get e-commerce done for several companies, including a start-up.  Also, there was an excellent article in WallStreet.com about UCMP.  Now someone tell me what the heck our beloved CEO is doing in Ireland?

If UCMP is fast enough, its Unibol product should fly off the virtual shelves in the coming months.  They have announced that they will port with Windows 2000.  That will be a huge market.

2/1/00
The convertible preferred shares issue has been resolved.  In a cash/stock mix, the holder of those shares is now satisfied. UCMP now has basically no debt.   Check out the press release.  This is great news.  Unfortunately, they don't tell us the terms of the deal.

1/19/00 Company Overview
Unicomp is a small diversified technology company that is growing revenues at 25-30% a year.   They have several areas of expertise, but their revenue stream can be divided into 3 segments, hardware sales, software sales and service.  Although the three are profitable, it is software sales that really drive the other two.

Alternatively, you can look at the company and say that it is split into two.  One side supports and develops software for the AS/400.  This side, which includes Unibol and Unicomp have as their exciting product a software solution that allows a company to migrate from the AS/400 to Unix based boxes, including Linux.  The other side, UniPay provides software and services that allow the companies to take money from their customers directly from  the PC via e-commerce.

This discussion will split the business focuses, rather than revenue streams in order to get a picture of where they will make money in the future and where potential pitfals may lie.

The AS/400 Business:
Unibol, part of UniComp,  produces software that allows customers to put their AS/400 programs on many other OS's.  This is an interesting business that keeps growing as companies with AS/400 solutions buy hardware and software that are incompatible with the AS/400.  UniComp's Unibol400 product is a solution that allows AS/400 applications to live beyond the AS/400 box.

What got me interested in UniComp though is the Linux play.  Unibol has come up with a solution to allow IBM AS/400 applications to be used on Linux programs.   Like their other solutions, this solution is targeted towards those application software providers that want to take their product beyond the AS/400 box.

Here's what to look for the in the coming weeks: UniComp is in discussions with a major US Linux vendor (I'm 99% sure it's Redhat) and will announce some sort of agreement with them soon.  This information is per their conference call last week.  Sorry, but I can't post the link to the conference call as it has been taken down from the site that I heard it from.

UniPay:
When you consider this business, think carefully about what you are buying into.   Although UniPay is making a major push into e-commerce, it is essentially a point-of-sale (POS) software/hardware business.  In other words, it makes servers and clients that allow cash registers to work on a network. 

Their push into e-commerce is like their Unibol solution to AS/400 legacy software.  UniPay makes a software product that allows companies with Point-of-Sales (POS) hardware and software to integrate that existing infrastructure into e-commerce.   They have a site, tranzparent.com which shows off those capabilities.  Although it's billed as a destination for consumers, the site is really all about marketing the capabilities of UniPay.

There is some discussion that UniComp may spin-off UniPay.   Management is looking at the possibility.  Although a spin-off sounds rather exciting, until revenues for the new e-commerce product start streaming in, I doubt UniPay will garner e-commerce prices. 

As a footnote, the conference call indicated that there were still problems integrating credit-card transactions into the new UniPay software.  They've come-up with work-arounds, but developers may be wary of integrating their POS software with UniPay software until those issues are resolved.

The coming quarter:
The coming quarter will probably show 25-30% top-line growth.  It will be hampered by Y2k concerns that have gone from December through the early part of January (both months are part of this coming quarter's results).  Microsoft's Windows 2000 is another worry.  When companies switch to Windows 2000, they will also buy into new solutions from UniComp.  However, Windows 2000 isn't expected until late February.  Thus, firm orders will be harder to come by this quarter.

Apparently, Y2k concerns are diminishing as management has said that customers are starting to inquire about UniComp solutions again.

Their Financial Picture:
Well, I'll flesh this out later, but essentially, there is an issue of warrants outstanding that clouds UniComp's picture.  Management believes it should get this issue resolved in the coming few weeks.  When we hear about the resolution of the warrants issue, I expect a little pop in the stock price.

Their stock buyback has not yet kicked in.  They've only bought 21,500 shares of the total 200,000 the Board said they could buyback.

Earnings for the previous quarter was $0.05/share (diluted).  This was a penny ahead of what management believed were the street's expectations.  But the street forgot to delete ICS (which UniComp sold) from the picture.  Thus they beat the street estimate without the benefit of ICS, which the street had figured into the earnings picture.

You should also be careful of extrapolating too much from their net income picture as $200,000 of their $565,000 in income last quarter was due to tax benefits.   That said, if we extrapolate out and assume that they will have income of about $2 million annual income in a year, their p/e at a current market capitalization of about $44 million (about $6/share, undiluted) is 22--well below the S&P average, and entirely too low for a growing company.

Conclusion
This is a company that is growing and making money.  It's Unibol business is an indirect Linux play.  That angle may give the stock a pop, but fundamentally, the business is sound.  Unibol is doing what Computer Associates does with legacy products.  It extends the useful life of those products while making money.

The other side of their business provides Point-of-Sales equipment and software to the food industry and others.  This business is not too exciting.   The only thing exciting is their indirect push into e-commerce.  Once again, that push is based on extending the useful life of a customer's existing infrastructure.

The fact that this company is growing, is resolving its financial clouds and is intent on enhancing shareholder value (witness their very open and helpful conference call), and this stock is a buy at these prices ($5.50).

Write me and I'll put your comments up.