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Ron Clifton of International Datacasting Corp. (Photo by Mark Holleron for the OBJ)

IDC's star on the rise as cinemas begin to roll out digital projection systems, says analyst

The sound of construction going on at International Datacasting Corp.'s new Kanata digs may be somewhat of a distraction for CEO Ron Clifton, but it's a welcome one since it's a positive sign of expansion – despite the broader economic slowdown.

Like many other small-cap stocks, IDC has seen its share price trend downwards in the past six months. The satellite products maker's stock is currently sitting close to its lowest level since the tech bust, at around the 17-cent mark, a far cry from the $1.04 peak reached in October 2007.

But there appears to be a silver lining in IDC's cloud, if it can just ride out the storm; the company is in solid financial shape and is actually growing, with a slew of recent deals in three continents.

So what's IDC been up to, and what will it need to do to survive the current global economic meltdown?

The company's view: IDC's stock price belies the fact that the company has grown by an average of 20 to 30 per cent per year the past few years, and – unusually for a tech firm – the company has been chugging along almost purely on the strength of organic growth. In fact, the 25-year-old company closed its first-ever public financing round of $10 million in November 2007, a move calculated to fuel its investment in its new Internet protocol television (IPTV) offerings.

"Compared to other competitors who don't have cash, we can offer a lot of shareholder value," says Mr. Clifton, noting that IDC's coffers held roughly $7.5 million at the end of its second quarter. "No one knows what's going to happen over the next two years, but people are going to be looking at who's got cash (to stay)."

Nothing's for certain, of course, but the steady stream of digital radio contract wins in Australia and New Zealand seems to be a good omen for IDC's push into the challenging Asia-Pacific region.

More significant, however, is the company's alliance with New Jersey digital cinema company Access Integrated Technologies Inc. (AccessIT), which is using IDC's SuperFlex satellite technology to deliver movies and live events to theatres through a satellite Internet feed. Mr. Clifton estimates that AccessIT has 80 to 90 per cent of U.S. market share, providing its systems to roughly 3,800 of the 4,300 screens currently using digital projectors. With approximately 30,000 movie screens in the U.S. alone, and with the drastic reduction in the price of digital projectors from $250,000 a pop eight years ago, to just $40,000 to $50,000 today, that could mean big business for IDC over the next few years.

"The movies we're talking about are fairly large files, so if there's no satellite, they're delivering them by hard drive, which is more expensive because of (the cost of preventing) theft, etcetera. With our technology, the movies are sent encrypted directly to theatres, so there's no piracy, and we can deliver 3D live events as well, which you obviously cannot do with hard drives," adds Mr. Clifton.

IDC also recently signed a digital cinema deal with Italy's OpenSky to establish a similar network across Europe, and Mr. Clifton says he is particularly excited about the company's prospects in the IPTV market, which he says represents "the single largest opportunity (for IDC) over the next five years."

Add that to the fact that IDC has offices in the Netherlands and the United States and one about to open in Australia, in addition to the Ottawa headquarters, for a total of nearly 110 staff, and it looks like a positive picture. Mr. Clifton is also looking closely at the powerhouse Chinese market, and had been planning to make a four-day trip last week to the populous country.

"We're busy, but we're having fun," he says.

The analyst says: Eyal Ofir of Canaccord Adams agrees that there's a lot of upside to IDC's performance, and says he doesn't think the discount in its stock is warranted, especially considering the company is profitable and continues to win deals globally in a down market.

Mr. Ofir, who notes his company has an investment banking relationship with IDC, has a target price of 75 cents and a 'buy' rating on the stock.

"They're not burning through cash and they're making money, so it should be a bit more positive in the longer term," says Mr. Ofir. "With the AccessIT deal in the U.S. and OpenSky in Europe, it shows IDC can get a decent market share in the digital market space and it should be a relatively important opportunity for the company over the coming three years."

He adds a major catalyst for IDC's business in the digital cinema market will be the successful arrangement of funds for a group dubbed the Digital Cinema Implementation Partners (DCIP), a partnership between AMC Entertainment, Cinemark Holdings and Regal Entertainment Group, which together represent more than 14,000 screens in the U.S. and Canada.

"Once they get their financing, there will be rollouts scheduled, and it will push digital cinema forward in North America. IDC will benefit from that contract, since they will be a supplier of digital cinema equipment," he says.

At the same time, Mr. Ofir adds, IDC has received orders from the U.S. military, which will help to stabilize its overall business since defence contractors don't tend to be as cyclical as customers in other industries.

"They're playing in a number of niches, and it shows you they're executing. They have a lot of mind share from customers," he says.

Catalysts to watch: Continued profitability and global deals; the DCIP obtaining financing to push digital cinema rollout forward; more partnerships in digital cinema/digital radio/IPTV spaces.