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This Spin Off May Prime The Pump

Inside Wall Street


When Elcom International (ELCO) announced on Oct. 12 that it was considering taking public one of its two units, the shares slid from 8 3/4 to 7 1/2, rather than climbing as CEO Robert Crowell had hoped they would. Said one New York money manager who happily bought when the stock dropped: "Little-known Elcom has become even more undervalued."

He thinks that with the spin-off to the public of 20% of its Elcom Systems division, the real worth of the unit will be unlocked, boosting the overall value of parent Elcom to between 14 to 18 a share. Here's how:

Elcom's other unit, Catalink Direct, which produced revenues last year of $123 million, resells computer equipment using its proprietary Personal Electronic Catalog & Ordering System (PECOS). This system is also at the heart of the unit that is to be spun off--Elcom Systems. The money pro estimates that Elcom Systems is worth $4 to $5 a share in Elcom International's stock.

Analyst Dawn Simon, who was high on Elcom even before the spin-off announcement, figures the Catalink unit is worth $10 to $13, based on comparable companies in the equipment-reseller market. "Elcom is a classic value play," says Simon, because the Catalink unit was "obscuring the true value of Elcom's proprietary technology." Given the growing popularity of electronic commerce, she adds, the market for "catalog and transaction-processing software is undeniable." Before any spin-off, she sees Elcom making 18 cents a share this year on estimated sales of $632 million, and 44 cents in 1997 on sales of $832 million. It lost money in 1995 on sales of $273 million.BY GENE G. MARCIAL

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