D-Box is a Speculative Buy, says Byron Capital’s Rob Goff

On March 31st of last year, D-Box, which makes motion systems for the entertainment industry, spent its last day on the TSX Venture Exchange, before beginning the new month on the TSX. The time since may have felt like an April Fool, as shares of the company have slid from more than $.60 cents to barely a quarter.

Byron Capital analyst Rob Goff, however, thinks things are improving at D-Box. Goff notes that since this past December the company has signed deals to equip more than forty new theatres, including ten with Cineplex here in Canada and six with CineWorld in the UK. Goff thinks D-Box is “strategically well positioned, offering partner cinemas and studios attractive economics at relatively little economic risk.” Yesterday, in a research report to clients, Goff initiated coverage of D-Box with a Speculative Buy rating and twelve-month target of $.65 cents.

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Longueuil, Quebec based D-Box was founded in 1992, and the two-decades since have seen the company perfect its seat technology. D-Box’s MFX systems use motion effects specifically programmed for a particular film, TV series or video game, which are then sent to a motion generating system integrated within either a platform or a seat. While, as late as 2009, the company struggled to build a consistent revenue stream, things improved when management decided to dedicate itself to the commercial theatre market. Although D-Box is still losing money, revenue is improving. The company’s topline for for the nine-month period ended December 31st was up 41% to $6.24-million from just $4.43-million for the same period in fiscal 2010.

While continued losses always put the possibility of a dilutive equity raise on the table, Goff says potential deals may head this possibility of at the pass. He says a large contract with a major U.S. exhibitor such as AMC, Cinemark, or Carmike, could deliver substantial up front payments. The Byron analyst believes D-Box could have already landed one or more of these deals if it had been willing to “erode its economics” by offering a sweetened deal, instead of proving itself with smaller, more strategic partners. Goff considers this a sign that management is taking a patient, long-term approach.

Shares of D-Box Technologies closed today down 8.6% to $.265 cents.

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