Brokers have responded positively to this morning’s announcement by machine-to-machine communications company Telit Communications (LON:TCM) that it expects to report a 36 percent uplift in its first half revenues.
The firm, which reports its results for the six months to 30 June 2011 in September, said its board was confident that trading is in line with expectations for the year as a whole.
Telit expects H1 revenues to come in at US$81 million, a 36 percent improvement compared with US$59.6 million for H1 2010. Net cash for 30 June is expected to come in at US$2.4 million.
Telit is a specialist in the field of wireless machine-to-machine communications (M2M).
M2M communications is used in a variety of industrial and business fields to improve productivity. For example, in remote production environments they help to reduce the need for a human being to be on site all of the time, while vehicles with the capability can automatically notify service centres of maintenance issues. Another good example is of vending machines that can report to central warehouses when they are running low on stock.
A key factor in Telit’s boost in H1 revenues was March’s acquisition of Motorola’s M2M division. Through the operational integration that has occurred to date the business unit contributed around 20 percent of group revenues during the first half.
Investec Securities commented that today’s guidance from Telit was “in line with our expectations and is a solid result during the Motorola integration period”.
Investec, Telit’s house broker, is forecasting total revenues for the year of US$200 million (2010: US$131.7 million), with normalised pre-tax profits expected at US$15.3 million (2010: US$6.4 million). The bank is expecting earnings per share to come in at around 10.1 US cents (2010: 5.4 cents).
For next year, Investec expects revenues of US$237.4 million, with pre-tax profits of US$23.3 million and EPS of 13.9 cents.
"At 10.8 times our [financial year 2012] EPS we continue to see the underlying growth in the business as materially undervalued and reiterate our ‘buy’ recommendation and [price-to-earnings ratio] based target price of 120 pence," it added.
Independent broker Northland Capital Partners said that the update showed a good start to 2011, with trading plus January’s placing (of around 24 million shares to raise £19 million) enabling the business to move to a net cash position. “Stripping the Motorola contribution out implies an organic growth rate of 8.7 percent,” said Northland. “This would appear light against recent performance and market growth but [H1 2010] was a bounced period. We maintain our ‘buy’ rating and 125 pence price target.”
Telit is the only pure play M2M company listed in London and one of the market’s big three players.
Earlier this month a study by Beecham Research, a consultant specialising in the M2M market, said Telit's market share of the ‘modules’ market over 2010 rose from 12.4 percent in 2009 to 16.1 percent in 2010.
If Telit’s acquisition of Motorola’s M2M unit earlier this year is included in Beecham’s analysis, Telit’s share of the global industrial grade m2m modules market jumps to 22.2 percent on a pro forma basis.
Yesterday, the firm announced another acquisition. It has bought wireless connectivity specialist GlobalConect for US$2.9 million.
The deal will enable Telit to offer wireless connectivity, further strengthening its proposition to its customers.
Around US$700,000 of the acquisition costs will be met in cash, while 800,000 shares are being issued at 170 pence each.
Telit said it could issue more shares depending on the performance of GlobalConect, and the share price – particularly if it fails to hit 170 pence.
Telit chief executive Oozi Cats said: "Adding wireless connectivity to our offering is an important factor for Telit's continued growth and success. Our customers expect superior M2M solutions from one source and with the acquisition of GlobalConect we will now be in a position to address their needs more comprehensively."
Telit’s shares were trading down 4 pence at 90 pence each by midday today.