ORCA "A Whale of a company"

I have caught the falling knife of Orca this week. Am I crazy? I don't think so when I'm buying a world-leading technology on 3x 2006 p/e.

The Sky buy of Easynet is just one of many validations of the reality that is IPTV. It doesn't matter how we get our TV programs, just so long as it's easy to use and flexible. IPTV is the mass market way of providing that, and is a real threat to Sky's business model that is tied to satelite dishes. See the success in France (Iliad), Italy (Fastweb) and Hong Kong to realise that triple play thanks to rapidly rising bandwidths is already happening.

There are many reasons to explain Orca's share-price fall:
- Sentiment on UK listed IPTV players is dreadful, not least following ANT's profit warning having set ridiculous estimates for themselves and daring to call themselves 'monopolists' for a piece of software that is only worth $1
- The stock market has been taking risk off the table, with in Orca's case, no buyers and sellers panicked by the trend
- Israeli business with Emblaze heritage with its own baggage
- Lumpy business which depends on making a large deal or two to make published estimates and with no visibility on success or failure
- The fact that most of the action in IPTV is not in the UK (until now)
- The supposed threat from Microsoft

But Orca is a compelling investment:
- IPTV is commencing as a key plank of triple play but once embedded in people's homes, is a key driver for telco companies to improve revenue. IPTV capability will be in people's homes, whether they specifically use it or not.
- IPTV is quite likely to be the primary way we watch programs in the future, as people fit what they want to watch around their lifestyle. The success of Sky (and Sky+) show the demand for this, but IPTV will lower prices so that everyone can benefit (hence why Sky is making a defensive move into this space)
- No question in my mind that Orca's is a very good product that importantly is telco class - i.e. very robust after years of testing
- Orca has seen all its rivals bought up or affiliated with equipment makers. This leaves Orca as the ONLY independent. This means a telco who wants flexibility with their equipment supplier is likely to choose Orca.
- Middleware is the key software behind the telco offering, so is a very valuable part - unlike ANT's.
- Orca is a virtual monopolist in non-Western World deployments, where IPTV is taking off more rapidly
- Orca licence deals pull forward demand from the next year - i.e. in 2006, we need to be thinking about potential demand in 2007 which is why current forecasts are so achievable
- Cash is half of market cap

To conclude, Orca is likely to be present at every single deal going in IPTV. With the leading technology, independent status allowing it to work with a wide range of equipment suppliers, strength in emerging markets where deals have been much more significant than the Western world, cash backing and demand pull-forward, Orca is extraordinarily attractive. BUY - a minimum five bagger over 12 months.