Fair Value on Callidus Software

Callidus Software, Inc. (CALD) is expected to report Q1:FY2008 results on April 30, 2008. Earlier, the company reported revenues of $24.9 million in Q4 of 2007, below our estimated $29 million. The restructuring charge not included in pro-forma EPS was $1.5 million, representing an 8% workforce reduction that should result in $5 million in annual operating expense savings.

The company closed multiple license deals internationally including a large utility company in the U.K. We believe this should be viewed as a positive considering the international business as the reason for the license miss in Q3.

Going forward, management expects to report revenues between $25 million and $26.5 million, up 1% to 7% from the prior-year period. The company's guidance for Q108 and FY08 reflected strong growth from On-Demand subscriptions and lower-than-expected operating expenses. CALD added over 21,000 payees to its hosted On-Demand service during the quarter, up over 90% in Q4. The net new annual contract value (ACV) of On-Demand bookings increased 270% year-over-year to $2.6 million. This represents total annual contract revenue of approximately $8.3 million.

At the current rate, CALD appears ahead of target to reach profitability in its On-Demand business segment by late-FY2008. The company indicated that it has taken steps to improve margins in its professional service group. On balance, we maintain our Hold rating on the stock and have adjusted our target price to $6, which is derived by applying a price-to-sales (P/S) multiple of approximately 1.6x our 2008 sales estimate.

Hold Initiated on Shinhan Financial

We are initiating coverage on Shinhan Financial Group Co., Ltd. or SFG (SHG) with a Hold and a $115 target price. Shinhan reported 2007 fourth quarter and full-year results. For the year, Shinhan had net earnings of KRW 2,396 billion, up 31% from the KRW 1,833 billion earned in 2006. Net revenues advanced 56% to KRW 8,524 billion from KRW 5,454 billion in 2006, and the efficiency ratio by our calculation improved 560 basis points, falling to 46.5% from 52.1% in 2006.

In its fourth quarter report, SFG posted net earnings before non-recurring items of KRW 226 billion, down 10% from the KRW 251 billion earned in the comparable period in 2006. This performance reflected a 61% increase in net revenues that was more than offset by a 97% increase in loan loss provisions and a 44% rise in non-interest costs, all largely due to the 2007 acquisition of LG Card, the largest credit card company in Korea. We are estimating 2008 diluted EPADS at $11.52. We expect results to benefit from merger synergies with LG Card, though loss provisions should continue higher as well. We believe the dividend is safe.