Transense: SAW sensor licences

Now that we are approaching the New Year the question arises what should we expect from Transense in 2005 and what implications should this have for the share price. These were my thoughts for what they are worth. Any corrections or better thoughts most welcome.

1. Royalties should emerge from Michelin and reach perhaps £0.75m in the P&L in 2005.

2. Either Michelin, or Entire if Michelin continues with this TRW joint venture, announces a TRT based TPM system for cars and at least one agreement with a car manufacturer.

3. If Smartire has any business nouse at all it will announce a TRT based TPM system and at least one contract with a vehicle manufacturer for its use.

4. Small royalties will emerge from TT Electornics TRT based steering system 2005.

5. Transense will announce two major application agreements in 2005 with a licence fee for the P&L of, say, £0.25m.

6. Honeywell will pay to TRT, say, £1m in staged licence fees in 2005.

7. Honeywell will sign three major agreements for products incorporating TRT techology but royalties will only emerge in 2006.

8. Small royalties will emerge from Stack in 2005.

9. No royalties will emerge from 3DM in 2005.

This leaves TRT with income of about £2.0m in 2005 against costs of about £1.5m - possibly even a profit! After having done this exercise, I noted that only one broker provides forecasts for TRT and that it forecasts a profit of £0.8m for 2005.

Overall I feel a somewhat disappointed with this possible outcome for royalties and the implications for the share price. I was hoping that 2005 would really see royalties in volume but now think that this was probably optimistic.

What are the implications for the share price? Well for the share price to be maintianed at 90p a PE of 60 is implied. 2006 income should be higher and comprise mainly royalties. So far TRT has not been valued on a PE but on its earnings potential somewhat further out. Given TRT's prospects perhaps the share might be 180p at the end of 2005, if other IP comapnies are anything to go by. Exmples are:
Transense £48m
Pursuit Dynamics £96m
Torotrak £77m
3DM £46m
BTG £124m
IMG £121m
NXT £42m
Superscape £70m

Happy New Year,
Kelly