FRPT The future
Investment Thesis for FRPT by Trustthetape on IV. A much better write up then I could do. Ken
As I've posted here before, we are in the early stages of a paradigm shift where US and other allies are finally realizing they MUST provide Mine Resistant Armor Protected (MRAP) vehicles for their fighting forces. Our adversaries have discovered that an inexpensive roadside bomb can cause troop fatalities and generate terror in communities - disrupting the lives of the people in these communities. For now, this terror is occurring in Afganistan and Iraq - in the future the location will change but the tactic will remain the same. We can be assured that if the DoD does not deal with this issue of IEDs, it will be a key tactic of any adversary in any future conflict.
As we've seen in Afganistan and Iraq, non-MRAP vehicles are vulnerable to IEDs - the primary cause of troop fatalities. Over the past three years, FRPT vehicles have demonstrated their ability to protect troops from IEDs - positioning FRPT as the unquestioned leader in this field. This leadership was recognized in a recent USA Today article where it was stated that the FRPT V-shaped hull is a key attribute of vehicle occupant survivabiity. Related to this, FRPT recently extended their technology agreement with their South African partner and continuously seeks ways to maintain their leadership position in this market.
What investors need to realize is this isn't just about the results of a particular quarter or a few hundred FRPT Buffalo or Cougar vehicles going to Iraq in a given timeframe. Recent government documents confirm that there is a need for literally thousands, if not tens of thousands of vehicles. Given production timeframes and ramp up constraints, this will not be an overnight process. However, FRPT has teamed with a number of companies (SPAR, BAE, GD, AH) to grow their production capability and capture this market opportunity and is actively delivering vehicles to US, Iraqi and British Forces. The recent announcement of the Joint Venture Agreement with General Dynamics further demonstrates FRPT commitment to meet the needs of the war fighters as quickly as possible.
The USA Today article referenced above indicates that we are in the early stages of a 10 year process to properly outfit our fighting forces and references FRPT and it's technology as the solution of choice: "It's just going to be the standard for any vehicle on the battlefield over the next 10 years," John Pike, a military analyst at GlobalSecurity.org in Alexandria, Va., said of the V-shaped hull.
As an investor, it's very important to understand your investment thesis and how the requirements for MRAP vehicles will continue to drive FRPT growth:
* from $6m in 2003
* to $10m in 2004
* to $50m in 2005
* to approximately $200m in 2006
* to $500m or more in 2007 (current backlog is approx $400m, analysts are starting to upgrade 2007 revenue estimates to approx $600m)
* to perhaps as much as ONE BILLION or more in 2008.
A recent article in DefenseNews discussed the General Dynamics Joint Venture and provides evidence that the govt is feeling a heightened sense of urgency to deploy FRPT vehicles. That sense of urgency will drive orders for the MRAP and the associated revenue. As this article discusses, monthly production of MRAP vehicles will eventually ramp to 300 vehicles per month. This will, in turn, drive FRPT annual revenue to $1b and beyond.
"The cost of acquiring a MRAP vehicle fleet will be significant. However, dedicated research indicates it is militarily and financially less expensive to acquire MRAP vehicles than to continue to suffer casualties in excess of Vietnam’s historical loss rates. In short, protecting people is cheaper than replacing them in our all-recruited service. According to research by the Math and Statistics branch of the Naval Safety Center, the financial costs associated to casualties should be adjusted upward no less than 250% from its current 1988 baseline to account for the real dollar costs of care and replacement. For example; adjusted enlisted casualties would average $500,000 dollars while officers, depending upon their military occupation range from one to two million dollars each. This means the average light tactical vehicle with one officer and three enlisted personnel is protecting 2 million dollars of the DOD’s budget. It is important to note that the 2 million dollars is “real” O&M dollars. Therefore, the argument that “we cannot afford armored vehicles” is specious. Just the opposite is true, at 2 million dollars of precious cargo each, we cannot afford UNarmored vehicles."
"If the Marine Corps does not obtain an equivalent mine resistant capability they run the risk of limiting a Joint or Coalition Force Commander’s options for employing our forces because of our critical vulnerability to mines and small arms. If the Corps is going to remain a relevant joint force option and execute STOM, we must begin to acquire a mine resistant ambush protected vehicle capability immediately."
In addition to the revenue from producing vehicles, realize that FRPT will grow a significant revenue stream by providing Integrated Logistics Support (ILS) for the vehicles already in use. A recent company press release indicates that revenue from ILS in 2006 will be similar to revenue from all company activities in 2005. As the number of vehicles in use grows, the ILS revenue stream will experience similar growth going forward.
I encourage everybody to do their homework and understand the big picture - not just the day-to-day trading in the stock. We are still in the early stages of this process - perhaps year 1 of 10 or almost like the first inning of a 9 inning baseball game. As the stock undergoes occasional pulls backs and consolidations, that is the opportunity to accumulate shares.
The above is provide IMHO and not as a substitute for your own due diligence. Best wishes to all regardless of your trading / investing approach.
