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BATM Advanced Communications Ltd: THE INVESTMENT CASE
INVESTMENT OVERVIEW

BATM seeing the rewards from investment and new product launches

BATM's Networks & Cyber division returned to growth in 2017
Cyber-security
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BATM Advanced Communications Limited (LON:BVC), a provider of real-time technology for networking and lab systems, is reaping the rewards of sustained investment and product launches.

Since the beginning of 2018, the shares have stormed up from 25p to around 41p as the group announced in March it had moved into profit.

READ BATM moves into profit after turnaround year

Revenue for real-time technologies group rose 18% to US$107.1mln in 2017 from US$90.4mln the year before.

Underlying earnings (EBITDA) rose to US$7.7mln from US$2.8mln the previous year, while excluding the benefit of profits on the disposal of property, plant and equipment, EBITDA was US$2.2mln in 2017 compared with a loss in 2016 of US$0.3mln.

The group ended the year with cash and financial assets of US$24mln, up from US$22.4mln at the half-year stage but down from US$27.6mln at the end of 2016.

Twin-engined machine

The group operates two divisions: bio-medical (which includes diagnostics and accounts for around 54% of total revenues) and the networking and cyber division, which accounts for 46%.

The bio-medical arm is split into three further sub-units: distribution operation, eco-med (waste treatment) and sterilisation and diagnostics. The networking and cyber division is just that and does what it says on the tin.

The latter had been lagging the bio-medical arm but returned to growth in 2017, with sales up 28.3% to US$49.4mln from US$38.5mln the previous year.

The turnaround came about due to growth in the group's existing information and communications technology services and solutions business as well as its success in implementing its strategy to leverage the telecom industry’s transition from hardware to network function virtualisation (NFV) and software-defined networking (SDN).

"This was a turnaround year for BATM as the Networking and Cyber division achieved increased year-on-year revenue for the first time since 2011 on the back of a decade of development, testing and POCs [proof of concept] with significant customers and establishing a healthy order book,” said Dr Zvi Marom, chief executive officer of BATM.

Revenue growth in the Bio-Medical division was driven by stronger sales in the distribution unit, mostly based on diagnostic and molecular biology products and services.

“The Bio-Medical division continued to demonstrate growth in product sales and we made a strong start in providing services while we continued to advance the development of disruptive patented technologies that will soon be introduced to the market,” Marom added.

Broker Shore Capital is confident that the upsurge in 2017 was just the beginning.

“With BATM’s intellectual property set configured to tackle real-world challenges in its specialist markets, we believe that the scope for further revenue and profit improvement is significant,” the broker said.

Recent news flow has been positive

June saw the company enter into a joint development agreement (JDA) with ARM, the multinational semiconductor and software design company that was once the pride of the UK technology industry before being acquired by Japan’s Softbank.

The JDA is to develop and market infrastructure solutions for network function virtualisation (NFV), with BATM’s partner investing US$3mln-US$3.5mln into the project, which is planned to be delivered in phases over the next 18 months.

The two parties will jointly develop universal customer premises equipment networking devices that will use BATM's NFVTime plug-and-play software solution that enables NFV.

The joint solution will be optimised for several new system-on-a-chip platforms and will run a suite of virtual network functions, including vRouter, vFirewall, and SD-WAN.

A week later, the company secured a follow-on cyber-security contract for a government defence department.

The contract was the fifth awarded by a national government to BATM and carried a value of around US$3mln over the following 18 months.

More recently (in August), BATM partnered with FatPipe Networks, a provider of software-defined wide-area networks (SD-WAN) and hybrid WANs.

FatPipe will work with BATM to provide a hardware/software-agnostic solution offering real-time SD-WAN virtual network function services.

The deal represented the first solution to be delivered under BATM’s previously-announced joint development agreement with the chip-designer ARM.

"Although non-exclusive, we see this agreement as one providing evidence of the building momentum in the development of BATM’s Networks & Cyber division, welcome news then,” said Shore Capital, BATM's house broker.  

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BATM Advanced Communications Ltd Timeline

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BATM's Networks & Cyber division returned to growth in 2017

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