Taking Stock: Mapics Competes In Changing ERP Market

Oracle's ailing bid for PeopleSoft and PeopleSoft's acquisition of J.D. Edwards have captured most of the headlines in the business-software industry. There's no doubt, in my opinion, that a merger between two large software companies would alter the competitive landscape. However, PeopleSoft's J.D. Edwards buyout and Microsoft's entrance into the enterprise-resource-planning market via Great Plains Software are changing the industry in more subtle ways for smaller companies.

Mapics is 25-year-old small company, specializing in ERP, with a market cap of about $273 million as of Nov. 18. It focuses on ERP software for manufacturers with annual revenue from $20 million to $1 billion. Its customers include makers of automotive products, computers, and machinery. A lot of Mapics' appeal is its narrow focus and the expertise that comes with it. SAP, Oracle, and J.D. Edwards offer software for these markets, but their products are more general.

In the past, Mapics' ERP offerings have run on a Progressive database and IBM hardware, but its recent acquisition of Frontstep will let its products run on Windows NT. This could help it sell to smaller companies not interested in moving off Windows. Future growth is expected to come from deeper penetration of the ERP manufacturing segment, as well as selling customer-relationship-management and supply-chain-management solutions to existing customers.

There's lots of competition in this part of the ERP market. Epicor, J.D. Edwards, and QAD have comprised the primary competition. Since J.D. Edwards' acquisition, Mapics encounters that company much less often. Great Plains appears to be targeting very small enterprises, so Mapics isn't directly competing with it.

Demand for Mapics' products tends to lag any increase in the manufacturing sector, which has just begun to pick up after a long decline. This is reflected in Mapics' financial results, which showed little growth other than the acquisition of Frontstep. Mapics recently reported revenue of $161.3 million for the year. For the fourth quarter, revenue was $45.1 million, 27% from licenses and 73% from services. Over time, this mix should move toward a 35%-65% split. For 2004, Mapics expects revenue to rise to $190 million to $200 million, and one sell-side analyst who faithfully follows Mapics projects '04 earnings per share of 50 cents.

Which brings us to valuation. These days, it's nearly impossible to uncover anything at reasonable levels. Mapics isn't an exception, trading at 24 times the '04 consensus earnings-per-share estimate and 6.7 times book value. For now, I'll simply keep track of the stock in the hopes I can pick it up at cheaper valuation.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the InformationWeek 100 Stock Index. Reach him at [email protected]. This article is provided for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. Bay Isle has no affiliation with, nor does it receive compensation from, any of the companies mentioned above. Bay Isle's current client portfolios may own publicly traded securities in one or more of these companies at any given time.

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