Monday, February 26, 2007

Calls of Note Part 4

- Wachovia notes that generally speaking the electronic processing group looks to be very focused on M&A, with the number of companies being acquired appearing to accelerate as well as the size and scope of the transactions. What's driving the activity today? Firm would point to several factors including 1) slowing organic growth for many in the industry, 2) very healthy balance sheets, in their opinion, with lots of cash and very little debt, 3) increased interest by private investors could be forcing managements' hand to buy now or loose the opportunity later, and 4) scarcity value of assets to choose from. Firm continues to believe that '07 will prove to be one of the more pronounced M&A years in the group and could be the catalyst to drive higher earnings and thus share prices throughout the year.

Wachovia would continue to focus on companies with strong secular growth stories, require modest levels of incremental fixed capital to grow organically, strong balance sheets, and solid managements.

Micros Systems (NASDAQ:MCRS) fits the bill: MCRS is a play on the global IT spending in the hospitality industry for both hotels and restaurants, which is helping drive higher ROI's in these industries, has a significant upgrade cycle opportunity north of $600MM in the coming 5-7 years, low global penetrations rates in both markets (15% hotel, 10% restaurants), $7 bucks in cash today (buybacks or acquisitions both accretive), and a very client focused management (to the detriment of the Street).

Notablecalls: WACH also highlighted GPN as a Top Pick but I like MCRS' chart. May see some buy interest off of these comments.

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