Stock Analysts Impressed by Growth Prospects of ABI Businessphones

After Irvine-based ABI American Businessphones announced plans in December to be acquired by another company, Wall Street stopped paying attention.

Although ABI shares were among the top 10 price gainers on the American Stock Exchange last year, the acquisition agreement effectively fixed the price of the stock and eliminated any incentive for analysts to predict the firm’s profits or future potential.

But ABI’s merger pact with TIE/Communications, a Connecticut phone manufacturer, fell through last month. And some analysts are taking a fresh look at ABI.

“This is like a time warp. No one has been paying any attention to this company since December. But since the first of the year, other small growth companies that are similar to ABI have appreciated in value by about 20%,” said F. Van Kasper, a San Francisco securities analyst.

Founded in 1982, ABI sells, installs and repairs business telephone systems. The company has been growing at an impressive clip, and it is expected to report record earnings for its fiscal year that ends this month.

ABI stock closed Friday at $8.875 a share, about where it was a year ago before trading up to $13.50 last summer and falling back to $6.50 after the October market crash.

Kasper is projecting that ABI will post earnings of $1.05 a share for the current fiscal year, compared to 68 cents last year. Other analysts predict earnings growth, although not as dramatic.

“We are really quite impressed with American Businessphones’ growth prospects,” said Edward McSweeney, an analyst with Ladenburg, Thalmann & Co. in New York. McSweeney is projecting profits of 90 cents a share this year and $1.75 to $2 for the year ahead.

ABI, which has clients in California, Arizona and Nevada, has built its business by providing phone systems to smaller businesses and corporate branch offices. It limits its systems to 150 telephones per location.

Some of ABI’s larger clients in the area are Coldwell Banker, Columbia Savings and Loan Assn. and Home Savings of America.

ABI has served as an informal distribution arm of TIE/Communications, since it sells and installs only TIE phones. The two companies were set to merge in May, but the deal fell through at the last minute after a Los Angeles brokerage withdrew an earlier report endorsing the merger as fair to shareholders.

“That may have all been for the best,” said ABI founder and President Frank Feitz. “Our business has been doing extremely well on its own.”

The company, which Feitz said has never had an unprofitable quarter, posted net income of $503,000 on revenues of $8 million for the third quarter ended March 31, compared to earnings of $326,000 on revenues of $7 million for the same period a year earlier.

One reason that some analysts like ABI is management’s 48.5% stake in the company. Feitz controls about a third of the company’s shares. That big interest, analysts said, provides an incentive for ABI to perform.

The company survived a shakeout in the telephone business in the mid-1980s, when larger companies were slashing prices to gain market share. And with pre-tax profit margins now at 9%, ABI is firmly established as a healthy niche company, analysts said.

Feitz estimated that the company has sold and is now servicing about 165,000 telephones. He said that ABI’s average response time for emergency service was 50 minutes. Pacific Bell’s average response time last year, by way of comparison, was several hours.

With its base business in place, the company has been expanding into the distribution of telefax machines, high-end answering devices and “call accounting machines” which monitor workers’ telephone patterns, Feitz said.