RIMM and Trading Positions

Yesterday, via my twitter account I mentioned that I had taken 4 positions below, all for post market earnings trade.

Ticker	Security Name	Position	$
RIMM	Research In Motion	Long	30,000
SCS	Steelcase	Short	30,000
ANC	Accenture	Short	30,000
ORCL	Oracle	Long	30,000

RIMM is not a street favourite. In fact it nearly always gets hit at earnings. However a lot of businesses continue to use Blackberry and those that can't afford an iphone choose Blackberry as the second option, and has decent encryption.

RIMM' results were impressive. The current PE of 11.39 is far too low given the growth in sales and cash flow this company is generating. Q4 earnings per share projections are between $1.74 and $1.80. This brings EPS to $6.32 for the year. The share price is $59.24 giving a PE of 9.33. Thats even lower than Nokia's (NOK)

There is an expectation that its market share will erode much like Nokia's, but management are much more on proactive than Nokias management, who were complacent.

RIMMs valuation is around $31bn. In the last 6 months it has generated $2bn of cash from operating activities. Thats say $4bn a year. Giving a Market Cap / Cash Ratio of around 7.75

Compare that to say YHOO valuation of $21.5bn, annual cash flow of $1bn provides for a ratio around 21.

The street sometimes forgets that the 2bn people in the BRIC countries cant all afford iphones. 3G Networks outside of the US are in general poor. In UK the for example, outside of London 3G connection is slow or not available, similar to other third world and developing countries.

Both the Android and iphone require extensive bandwidth even for accessing email, where as the blackberry does not. There is no point having an iphone and an one line mail account if your access to 3g is limited.

It will be some years before the rest of the world will catch up with decent 3G connections which would make the iphone or android phones appealing to use.