Quick Insights on Two Telecom Stocks: MTI Wireless Edge Ltd & Ethernity Networks Ltd

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Quick Insights on Two Telecom Stocks: MTI Wireless Edge Ltd & Ethernity Networks Ltd

 Quick Insights on Two Telecom Stocks: MTI Wireless Edge Ltd & Ethernity Networks Ltd

The European Market opened in the green driven by positive sentiments over the development of the coronavirus vaccine. The FTSE-100 and Euro Stoxx 50 were up by 0.99 percent and 1.63 percent, respectively. FTSE-100 was trading at 6,219.91 whereas Euro Stoxx 50 was trading at 3,280.87 (as on 2 July 2020, before the market close at 12.02 PM GMT+1).

The other critical factors to watch out were:

  • The IMF guided the lawmakers in the British parliament that the government needs to roll back support measures gradually and must bring people back to work post-lockdown.
  • The World Food Price index reported by The Food and Agriculture Organization (FAO) increased in June for the first time in 2020. The price index averaged 93.2 points in June up by 2.4 percent compared to May.

Given the above market conditions, we will discuss two telecommunication stocks - MTI Wireless Edge Ltd (LON: MWE) and Ethernity Networks Ltd (LON: ENET). Both companies are incorporated in Israel and listed on the London Stock Exchange. Let’s walk through their operational and financial updates.

MTI Wireless Edge Ltd (LON: MWE) – Connectivity demand bodes well with antenna business

MTI Wireless Edge Ltd is an international Company focused on comprehensive communication and radio frequency solutions across multiple sectors and geographies. The Company operates through three distinct divisions, namely Antenna Division, Water Control & Management Division and Distribution & Professional Consulting Services Division. The Company is listed on FTSE AIM All-Share.

Q1 FY20 results (three months period ended 31 March 2020) as reported on 18 May 2020

The Company reported revenue of $9.56 million up by 5 percent year on year. The operating profit surged by 40 percent to $0.84 million from $0.60 million a year ago, whereas operating cash generated was $1.3 million. The earnings per share were 0.67 cents. MTI paid a dividend of $0.02 per share for 2019. The antenna business generated revenue of $2.8 million, whereas water solutions and distribution & consultation business generated revenue of $3.5 million and $2.8 million, respectively.

The pandemic has disrupted the supply chain, and clients have temporarily halted the network upgradation and installation work. However, the increased demand for wireless water management business is seen in countries where lock-down have eased. The distribution division also saw an upbeat market in Israel, and St Petersburg and the division started at a good note in 2020 with a contract of $1.5 million.

Significant Recent Updates

  • In May 2020, MTI had consolidated the position by acquiring the remaining portion of the JV that it formed in 2017. Mottech will now be a wholly owned subsidiary of MTI.
  • In April 2020, Mottech, a subsidiary of the Company, had won a new contract for a landscape project in East China. The contract value is $300,000, and together with other small deals, the total order book in China stood at $0.5 million.

Financial Results for Q1 FY20

(Source: Company Website)

Share Price Performance

1-Year Chart as at July-2-2020, before the market close (Source: Refinitiv, Thomson Reuters)

MTI Wireless Edge Ltd shares were up by 2.32 percent to trade at GBX 34.79 per share (as on 2 July 2020, before the market close at 9:30 AM GMT+1). Stock 52 week High and Low were GBX 43.00 and GBX 20.47, respectively. The Company had a market capitalization of GBP 29.71 million.

Business Outlook

The budget planning for 2020 is supported by current order book. The Company will focus on radio frequency products and will focus on both organic growth and inorganic growth. The Company believes the antenna business has an opportunity in 5G backhaul antenna solutions to support mobile companies in rolling-out their 5G services. Mobile service companies are facing huge demand for bandwidth as the corporate world moved to work from home.

Ethernity Networks Ltd (LON: ENET) – Product demand to be driven by 5G network

Ethernity Networks Ltd is a provider of networking and security solutions on programmable hardware. The solution is provided to enhance telecom or cloud network performance. The FPGA product of the Company offers data plan and control software with a wide range of features. The Company was founded in the year 2003. The Company is listed on FTSE AIM All-Share.

FY2019 Annual Results (period ended 31 December 2019) as reported on 26 June 2020

The Company reported revenue of $1.34 million, which was increased by 19.6 percent year on year. The gross profit was $1.15 million, up by 41.6 percent from $0.81 million reported a year ago; however, the EBITDA loss improved to $1.52 million from $2.35 million a year ago.

On 17 June 2020, Innovation Authority in Israel declined the grant applied by the Company. The Company’s negotiation for Military/Aerospace T1 vendor is on hold. The Company is reducing the R&D expenses and other non-discretionary expenses. The Company will seek to secure additional funding via debt finance or equity issue in the remaining of 2020. As on 16 June 2020, the Company had a cash balance of $540,000.

Operational Highlights

  • In June 2020, the Company received an order for ACE-NIC from a South Asian Company which is planning to self-manufactured UPF control and offload.
  • In April 2020, Ethernity sent ACE-NIC100 cards following an order from China for implementation of 5G UPF.
  • In March 2020, the Company initiated discussion with Tier 1 networking OEM vendor regarding UEP-20. The discussion is on hold due to the pandemic.
  • In February 2020, the Company entered an agreement with TietoEVRY to speed up the 5G packet processing at the network edge. Together they will create an open-source concept based on vector packet processor (VPP).

FPGA offering for 5G Network

The Company provides a complete solution for Field Programmable Gate Arrays (FPGA) along with silicon development, the programming tools and a set of reference software blocks. Ethernity provides complete network processing for implementation of router and security engine on FPGA. All these are important to cater to the needs of the telecommunication industry. The Company is focusing on the ACE-NIC FPGA SmartNIC product development while deferring the development of other products. The Company foresees strong demand for FPGA in the 5G network.

Financial Results for FY19

(Source: Company Website)

Share Price Performance

1-Year Chart as at July-2-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Ethernity Networks Ltd last closing price was GBX 19.17 per share (as on 2 July 2020, before the market close at 9:30 AM GMT+1). Stock 52 week High and Low were GBX 53.96 and GBX 17.00, respectively. The Company had a market capitalization of GBP 6.66 million.

Business Outlook

Given the current economic situation, the Board is uncertain of the timing of futures orders; however, the Company believes that it will generate revenue of close to $2 million from new and existing customers over the next twelve months. The Company is in the process to transform from IP licensing Company to a complete solution offerings Company, and it is confident about the Network Function Virtualization (NFV) business as 5G technology will need the support of NFV technology. The Company will provide virtualization concept, which is a critical element in the 5G network.

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