Small Caps | Oct 27 2014
-Profits rising sharply
-Global agreements continue
By Eva Brocklehurst
Netcomm Wireless ((NTC)) offers an attractive opportunity, in Moelis view, despite the fact its share price has more than doubled over the past year. The company is enjoying positive momentum in the high growth global M2M industry – machine to machine communications. Netcomm has announced its latest distribution agreement is with Arrow Electronics, an enterprise computing solutions provider. Arrow will distribute Netcomm's M2M product in North America with markets including telecommunications, medical, transport and industrial sectors.
The company reported a profit of $1.0 million in FY14, double the prior year. Moelis believes this marks an important milestone, as the majority of revenue is now from high growth M2M business. M2M now accounts for 51% of revenue compared with 20% in FY13. The balance comes from Netcomm's legacy business of wireless telecommunications. Moelis expects Netcomm's profits will rise to $3.3m in FY15 and to $7.9m in FY16.
Management has established global supply agreements, or partnerships, with three of the top 20 M2M telecommunications networks – Vodafone, Verizon and Etisalat. The company's goal is to add another three tier one partners over FY15. Netcomm recently obtained a distribution agreement with Wyless, a tier two distributor with a strong presence in the US and Europe. Other vertical opportunities are being actively pursued in utilities, health, transport, business services and building automation.
The company will hold its AGM on November 26 and Moelis expects it to further highlight the potential of the M2M industry. Positive momentum has been already observed in FY15, supported by contracts which, while secured in FY14 made minimal contributions to that year's results. Moelis finds an FY16 price/earnings ratio of 10x undemanding in the context of a robust growth profile and retains a Buy rating and 85c target.
See also, Netcomm Achieves Scale, Enhancing Potential on August 28 2014.
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