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DPW: New Ownership Charts a Growth Path for Digital Power

05/05/2017
By Lisa Thompson

NYSE:DPW

Digital Power (NYSE:DPW) is a 48-year-old California corporation that designs, manufactures, and markets flexible power supply solutions for the most demanding applications in the telecom, medical, industrial and military markets. It is headquartered in Fremont, CA with a manufacturing division in Salisbury, England. A new investor has taken a large position in the company and is revitalizing growth through investment in new businesses and acquisitions. Two significant events occurred in Q1 2017, which could put the company on a dramatic growth path. 

The first is a large order the company received from MITX to assemble proprietary equipment for the textile industry. This purchase order could result in as much as $50 million in revenue over three years. MTIX Ltd. is under contract by the company’s controlling shareholder and was introduced to the company by this new Chairman. 

The second is its plan to acquire control of over 50% of Microphase, a small provider of electronic components, devices, and subsystems for the defense, aerospace, and telecommunication sectors. This is expected to close in May and could add a consolidated $6.5 million to the company’s revenue run rate.

The company is also well positioned to take advantage of the new administration’s plans to hike military spending significantly. Sales to the military (primarily the US and Israel) are approximately 30% of total sales.

At its current fully-diluted market value (post acquisition) of $11.5 million, or 1.0 times estimated 2017 sales (taking out the half of sales from Microphase,) we believe that there is considerable upside versus its peers who trade at 1.5 times sales should the company begin to show sustainable growth and reach profitability. Based on these two new events, revenues could double in 2018. However, spending on new business and acquisitions is expected to produce losses for at least the next two years.

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